While there has been plenty of warranted conservative criticism of “Uncle Warren” himself, Warren Buffett the CEO does not deserve to be branded with the same brush.
As many of you know, Warren Buffett became synonymous with the so-called “Buffett Rule,” which President Obama proposed while running for President in 2012. In sum, the Buffett Rule would set a minimum tax bracket to ensure that “millionaires” pay their “fair share” and not less (on a percentage basis) than Warren Buffett’s secretary purportedly did. It should be noted, though, that if Warren Buffett’s secretary is paying over 35% of her income in federal income taxes, she’s in one of the highest tax brackets we have.
At the same time, Warren Buffett — the CEO — strives to make sure that Berkshire Hathaway pays the minimum amount in taxes that it is legally obligated to pay.
Warren Buffett says he will pay only what the law requires for personal taxes or for corporate taxes at his Berkshire Hathaway empire, but that does not mean he thinks the U.S. tax structure is perfect.
In a conversation with Fortune, he also addressed the tide of criticism stemming from Coke’s lavish new option package for its executives, and offered a small hint about his successor at Berkshire Hathaway.
Buffett said he is not above looking for tax breaks just because he is rich.
“Actually, [Berkshire’s] tax rate is pretty high if you look at it. But if it could be lower, I would have it lower. I will do anything that is basically covered by the law to reduce Berkshire’s tax rate.[“]
Buffett also said the following, which was interesting:
“I will not pay a dime more of individual taxes than I owe, and I won’t pay a dime more of corporate taxes than we owe. And that’s very simple. In my own case, I offered one time to match a voluntary payment that any Senators pay, and I offered to triple any voluntary payment that [Senate Minority Leader] Mitch McConnell, R-Ky., made, but they never took me up on it.”
Breaking news: people don’t want to pay more taxes.
Is Buffett a hypocrite for wanting folks like him to pay more in taxes by government fiat while seeking to minimize Berkshire Hathaway’s tax rate?
No.
In fact, Warren Buffett, as CEO of Berkshire Hathaway, has a duty to the corporation to help minimize its taxable income in every legal way possible. Buffett and other officers of Berkshire Hathaway have a duty of care that they owe to the corporation. This means that they are acting as fiduciaries and are to act solely in the corporation’s best interests. This includes reasonably minimizing the cost of operating the business, which includes taxes.
In other words, Buffett will not — and really should not — go on TV and say that he wants Berkshire Hathaway to pay more than they are legally obligated to do without being compelled to do so by a change in the law. Doing so would violate his duty of care to the corporation itself because the corporation should not pay more taxes than it legally owes to the federal government.
I give Warren Buffett credit for admitting that he won’t pay more for his personal taxes and that he most definitely won’t let Berkshire Hathaway pay more tax than it legally owes. I also give Buffett credit for putting his money where his mouth is and challenging Senators to pay more in taxes voluntarily.
However, I do think Buffett is misguided when he says he wants people like himself to pay higher tax rates as the tax code stands right now — though he really is talking about changing the tax rules on “carried interest,” which taxes hedge fund owners at the capital gains rate of 20% (rather than up to 39.6% for “ordinary income”).
What actually should be done is a reformation of the tax code to flatten (and lower) rates and remove a lot of the deductions that make it a “personalized” tax code, as we discussed on last week’s Pocket Cast of Liberty. Raising taxes in the name of fairness is unfair and will most certainly do more harm than good. With half trillion dollar deficits, any hike in taxes (assuming it generates any revenue for the federal government) will be a drop in the proverbial bucket in terms of offsetting our spending.
I’m also of the school that thinks capital gains and dividend taxes should be eliminated to facilitate more investment in companies and encourage more folks to save and invest for the long term. Other folks who are much smarter than me have also argued for this. With a fragile recovery, we should not be raising taxes. We should be cutting them to promote economic activity, such as hiring, which will in turn generate taxable revenue for all levels of government.
The great Judge Learned Hand said:
Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.
Judge Hand was right. The market finds a way to legally avoid paying more taxes, as it should.
Conservatives should embrace Warren Buffett — the CEO — and encourage folks to pay as little tax as they actually owe. Taxes should not be about “getting even” against corporations that make money. These are our job creators and innovators, not robber barons.
Moreover, the GOP should run on a platform that makes it clear that tax policy shouldn’t be punitive. Anytime government picks winners and losers under the tax code, our tax policy is punitive. They also should go a step further and work on reforming the tax code to something closer to what Jon Huntsman proposed during his unsuccessful presidential run: lower rates, remove deductions, and eliminate capital gains and dividend taxes.
As always, free markets are better markets.