Warren Buffett released his annual shareholder letter for Berkshire Hathaway this weekend. It's shorter and less ambitious than it has been in past years, perhaps because Buffett, at age 92, is slowing down a bit. It's worth a look nonetheless for at least two policy-relevant pieces.
The first is a discussion of stock buybacks, which the New York Times Company has an editorial position in favor of making illegal even as the Times Company is engaged in buying back its own stock. In his State of the Union address, President Biden proposed to quadruple the tax on stock buybacks, a tax that didn't even exist until Biden and Democrats in Congress imposed it.
Here is how Buffett puts it:
The math isn't complicated: When the share count goes down, your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices. Just as surely, when a company overpays for repurchases, the continuing shareholders lose. At such times, gains flow only to the selling shareholders and to the friendly, but expensive, investment banker who recommended the foolish purchases.
Gains from value-accretive repurchases, it should be emphasized, benefit all owners – in every respect. Imagine, if you will, three fully-informed shareholders of a local auto dealership, one of whom manages the business. Imagine, further, that one of the passive owners wishes to sell his interest back to the company at a price attractive to the two continuing shareholders. When completed, has this transaction harmed anyone? Is the manager somehow favored over the continuing passive owners? Has the public been hurt?
When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).
Makes sense to me.
Buffett also had a comment about the federal government's deficit spending. "During the decade ending in 2021, the United States Treasury received about $32.3 trillion in taxes while it spent $43.9 trillion," Buffett wrote, calling it a "huge imbalance," and warning, "Huge and entrenched fiscal deficits have consequences."