Buffett's Tax Hypocrisies

Reader comment on: Buffett and Taxes

Submitted by Dave in Fairfax (United States), Jul 28, 2011 13:12

Mr. Buffett's various tax hypocrisies ought to be well-known. He advocates for higher taxes, portraying it all as noble self-sacrifice and an argument against interest from a wealthy individual, while conveniently ignoring the many ways he (legitimately) structures his affairs to avoid those higher taxes. He also seems to avoid acknowledging the benefit to his companies of some of these tax policies. Thus, for example, on the estate tax, he structures his and his family's affairs to minimize the impact of estate taxes on them. At the same time, his insurance subsidiaries benefit by offering the same sort of tax planning to other wealhy individuals. And Berkshire Hathaway reportedly has acquired a number of private companies over the years when sales were forced on the owners by an estate tax bill when a previous owner died. On income taxes, it is Mr. Buffett's own choice to not be compensated for his corporate services in a way that would result in the realization of ordinary income. For him to decry how little he pays in income taxes while structuring his affairs so that his increases in wealth are not realized as income is, well, hypocritical. Mr. Moore does mention the effects of capital gains and dividend taxes and the effective tax rates when combined with corporate taxes. However, there is one other aspect to this he does not mention. Berkshire Hathaway does not pay a dividend. Many of the public companies in which Berkshire Hathaway owns stakes do pay dividends. For Berkshire Hathaway's peers among large-cap US-based insurance companies, the average dividend rate is about 2% (if you include higher-payout foreign insurance companies like Sun Life, Prudential plc, Allianz, AXA, and Swiss RE, the percentage is even higher). A 2% payout on that $38 billion that Mr. Moore cites would amount to about $760 million, which, at 15% for qualified dividends would add $114 million to the Treasury. Or, since Mr. Buffett opposed extending the Bush-era tax cuts because the rich should pay their fair share, maybe he should write the Treasury a check for $300 million (pre-tax cut 39.6% ordinary income rate on qualifying dividends) too cover his "fair share". Again, Mr. Buffett is free to structure his affairs as he sees fit. He just needs to stop lecturing the rest of us about our need to make sacrifices he doesn't make.

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