Warren Buffett is criticized for avoiding taxes. Give it a break.


Warren Buffett.

NOTICE

  • Warren Buffett gets roasted for avoiding taxes after the explosive report from ProPublica.
  • The billionaire investor gives almost all of his money to good causes.
  • Buffett lives modestly, supports higher taxes for the rich, and does not use popular tax loopholes.
  • See more articles on the Insider business page.

Warren Buffett is touted as the face of billionaire greed after ProPublica reported this week he pays very little federal income taxes compared to his vast wealth.

However, the investor’s minimum tax bill seems much less outrageous when viewed in the context of their modest lifestyle, philanthropic efforts, the nature of their business and shareholders, their calls to increase. taxes of the rich and his refusal to use popular tax loopholes. .

The case against Buffett

ProPublica analyzed leaked copies of Buffett’s tax returns between 2014 and 2018 and found that the CEO of Berkshire Hathaway paid just $ 24 million in federal taxes out of $ 125 million in reported income. The nonprofit publication highlighted the little tax he paid by pointing out that his net worth increased by about $ 24 billion during that five-year period.

“No one of the richest 25 has avoided as much tax as Buffett, the hundred-billion-dollar grandfather,” ProPublica said.

Read more: Warren Buffett accumulates $ 80 billion in cash, cleans up his stock portfolio, and refuses to bash bitcoin. Seasoned investor Thomas Russo explains why this strategy will eventually pay off.

Politicians, including Senator Chris Murphy, Senator Bernie Sanders, Senator Elizabeth Warren, and Representative Pramila Jayapal rushed to condemn Buffett and his fellow billionaires, calling for higher taxes on the super rich and closing loopholes in tax laws.

ProPublica highlighted Buffett’s two main strategies for minimizing his income, and therefore his taxes. The investor keeps more than 99% of his fortune in Berkshire shares – which are not taxed until they are sold – and his company does not pay a dividend, on which shareholders would have to pay tax.

Not a typical billionaire

ProPublica reported that billionaires such as Amazon CEO Jeff Bezos and Tesla CEO Elon Musk paid no federal income tax in some years, in part by taking out loans and deducting interest paid on them. of their income. There is no indication that Buffett uses the same tricks; the investor said in 2016 that he has paid taxes every year since 1944.

Bezos would be build such a big yacht that it comes with a support yacht, while Musk previously boasted of a real estate portfolio valued north of $ 100 million – although he seems to have sold most to finance his dream of colonizing Mars.

Buffett, 90 lives much less extravagantly. He resides in the same house in Omaha, Nebraska that he bought for less than $ 32,000 in 1958 ($ 290,000 in today’s dollars). He eats breakfast at McDonald’s on his daily commute to the Berkshire headquarters, drinks Coke and nibbles on See’s candy. He takes an occasional trip to Dairy Queen and entertains himself by playing bridge online.

Investor do not use a company car, belong to all the clubs where Berkshire pays dues, or requisition company-owned planes for personal use – even though Berkshire owns NetJets, which sells fractional ownership of private jets.

Buffett also buys damaged cars and gets them fixed to save money, and drove the same Cadillac for eight years until his daughter told him it was embarrassing and tricked him into switching to a model. most recent in 2014.

Notably, the Berkshire chief has earned an annual salary of $ 100,000 for the past 40 years – a fraction of the average $ 15 million salary of S&P 500 CEOs in 2019 – and receives no bonuses or stock options. While some details can be spruced up, it is clear that he leads a modest life compared to other billionaires.

To give everything

Buffett defended his small tax bill in a detailed statement to ProPublica, explaining that he is committed to giving more than 99% of his fortune to good causes. He has donated around half of his Berkshire shares – worth around $ 100 billion at the current share price – to five foundations since 2006.

The Berkshire chief told ProPublica he would rather hand his money over to charities such as the Bill and Melinda Gates Foundation rather than the government.

“I think the money will be more useful to society if it is donated in a philanthropic way than if it is used to slightly reduce ever-growing US debt,” he said.

Read more: Warren Buffett’s Berkshire Hathaway has $ 140 billion in cash, but he has withdrawn billions from Apple, Costco and Chevron. Seasoned investor Chris Bloomstran explains why cash is not excessive and sales make sense.

Buffett, aware that skeptics would likely dismiss his charity as a tax deduction, added that he has only reaped 50 cents in tax benefits for every $ 1,000 he has given over the past 15 years.

The investor made a similar point in 2016, after Donald Trump accused him of taking a massive tax deduction. Buffett shared details of his 2015 tax return, pointing out that he paid $ 1.8 million in federal income tax on $ 11.6 million in gross income and only deducted 3, $ 5 million for charitable contributions despite donating nearly $ 2.9 billion to charities that year.

Additionally, Buffett noted that only $ 36,000 of his $ 5.5 million in total deductions that year were unrelated to charity or state income taxes. He added that he had never used a “carry forward”, which allows taxpayers to deduct losses or tax credits from previous years. He fixed his unused carry-over north of $ 7 billion in 2010.

Buffett clearly sees charitable giving as a reasonable way to pay less taxes and has championed them in the past.

“If you want to give all your money, that’s a great tax dodge,” he said. joked in response to a question from an investor at Berkshire’s annual meeting of shareholders in 2010. “I welcome the author of the question or anyone else who follows my example of tax evasion and gives his silver. This will save them a lot of taxes, and the money will probably do a lot of good. “

Buffett is also happy to keep his fortune in Berkshire stocks. This tells investors that he is confident in his business and focused on generating long-term value, and means he has more skin in the game than anyone else. In addition, he does not feel guilty because the success of his business will ultimately benefit the company.

“Many shareholders, including me, appreciate long-term value creation knowing that it is for philanthropy, not consumerism or dynastic aspirations,” he told ProPublica.

Buffett also explained that Berkshire does not pay a dividend because its shareholders voted overwhelmingly against one in 2014. They prefer Buffett to spread Berkshire’s profits across the conglomerate and use them to buy quality stocks and companies, instead. to give them money. Buffett also views buyouts as superior to dividends for several reasons, not just tax efficiency.

Buffett wants higher taxes

While some billionaires complain about excessive taxes on the rich, Buffett called for increased taxes on the richest 1% of Americans, as well as tax code changes to prevent tax evasion.

The investor pointed out over a decade ago how ridiculous it was that his secretary paid a higher tax rate than him. The revelation prompted President Barack Obama to continue cutting tax breaks for the rich and to appoint his Bill ultimately unsuccessful after Buffett. “If all the diseases are taken, I’ll take a tax,” the investor joked at the time.

Buffett also called for policies to reduce income inequality, such as expanding the labor income tax credit to help workers move up. He once told Congress that inheritance taxes should be higher and better enforced, he told ProPublica, but his “powers of persuasion have been shown to be limited.”

Overall, it’s no surprise that under current tax rules a 90-year-old man who keeps his wealth in his company’s shares and finances a simple lifestyle with a modest income doesn’t pay much. taxes.

It seems tough to go after Buffett as he gives away virtually all of his money, calls for a tax hike on the rich, refuses to use multiple loopholes to pay less taxes, and runs a company where he owns his shares. long term and does not pay off. a dividend makes perfect sense.




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