Monday, November 26, 2012

Harvard Prof Smacks Out Against Warren Buffett

Harvard's Greg Mankiw has just ripped to pieces Warren "Let's Raise Taxes" Buffett:
 A Master of Tax Avoidance

Warren Buffett has an op-ed in today's NY Times on one of his most popular themes: The rich should pay more in taxes.  At first blush, his position seems noble: A rich guy says that people like him should pay more to support the commonweal.  But on closer examination, one realizes that Mr Buffett never mentions doing anything to eliminate the tax-avoidance strategies that he uses most aggressively.  In particular:

1. His company Berkshire Hathaway never pays a dividend but instead retains all earnings.  So the return on this investment is entirely in the form of capital gains.  By not paying dividends, he saves his investors (including himself) from having to immediately pay income tax on this income.

2. Mr Buffett is a long-term investor, so he rarely sells and realizes a capital gain.  His unrealized capital gains are untaxed.

3. He is giving away much of his wealth to charity.  He gets a deduction at the full market value of the stock he donates, most of which is unrealized (and therefore untaxed) capital gains.

4. When he dies, his heirs will get a stepped-up basis.  The income tax will never collect any revenue from the substantial unrealized capital gains he has been accumulating.

I suspect this is only part of the tax avoidance methods Buffett uses. Some of the trades he has made that have been publicly disclosed appear to be a very aggressive tax avoidance trades, e.g. in some cases buying certain stocks for his personal portfolio that would be of no benefit unless he was aggressively trying to avoid taxes, e.g. stocks that are going to have a huge dividend pay out because of some kind of restructuring.


  1. The government is broke in part from bailing out Buffet's bad debts. He's like a bad shoe salesman who somehow got a hotline to the white house. He knows bad times are coming, so he wants flush friends in Washington. Better to just make more thoughtful investment, Warren.


  2. I think tax avoidance within the law is smart, as is being law-abiding in general. The system we have is designed for this game-playing. You want a fair tax system? Such a thing cannot discriminate against rich or poor, and could only be undertaken by a flat (for example) 7% tax with no write-offs and no games. The trouble with America's brand of capitalism, besides the obscenely corrupt medical system, is that it lends itself to game-playing by design. People who cry out, "Unfair advantage!", think it unfair because they are not the ones getting the legal advantage. If you want to keep the game going, get over it. Otherwise, speak out and make efforts toward changing the system.


    Then there was the time Buffett made $1.4 bn in warrants off Constellation when they got margin called in 2008.

    "In both cases, Buffett got rich dividends -- 10% annually -- and warrants to buy common shares at what at the time looked like depressed prices."

    While at the same time, Wells Fargo, the largest holding of Berkshire, was getting a $25bn bailout.

  4. Honestly we knew that this was the case. We knew it when the Occupy fools were running around calling themselves the 99% and ignoring Warren Buffett because he was "saying" that everyone should pay their "fair share". That just inferred that he was diverting attention from himself rather than being honest about his holding's and how his taxes are structured.

    Honestly I could care less about this, I don't agree with taxation in it's current form in the least. I find it immoral and repugnant that I am told I have to fund killing innocence children in Pakistan because some suit in DC is scared of mud farmers. I know that's not the real reason, but hey it's in the name of fighting terrorism that they kill innocents and fleece the sheep.

  5. Mankiw is not criticizing Buffet for lawful tax avoidance; he is rightly criticizing him for posturing as an unselfish rich guy while publicly advocating increased tax rates that would leave him and his heirs largely untouched.

  6. We are all created equal, under god, but we don't want to pay equal taxes. Some wants to pay more, some doesn't want pay at all. Why can't we pay a consumption tax, and totally abolish all other taxes? Buffet is trying to deal with the issue, the Harvard prof. Is dealing with Buffet.

    1. p, Buffett is playing the game, sucking up to his buddies in congress. If he proposed scrapping the income tax code, and instituting a flat 10% income tax and a one time wealth tax of 1% (applicable to everyone) he would be a pariah in DC. These parasites are in it for themselves, the American people be damned.

      Fuck them all. And fuck Buffett more than the rest for ruining his father's good name and good deeds. Asking his mother to have an abortion would have been the best thing his dad could have done.