Warren Buffet: A Study in Hypocrisy

In a New York Times op-ed piece last month, Billionaire Investor Warren Buffet voiced the complaint that rich people like him pay a smaller share of their income in federal taxes than middle-class taxpayers. According to Buffet, he and his rich friends “have been coddled long enough by a billionaire-friendly Congress.”

This, as you now know, inspired President Barack Hussein Obama to outline his latest “Soak-the-Rich-to-Improve-the-Economy” scheme which he unveiled yesterday as “The Buffet Plan.” The nomenclature is entirely apropos, since both the plan and its namesake reek of hypocrisy.

So how does Buffett get away with not paying a whole lot of taxes?  As Peter J. O’Reilly explains it,  the answer is very simple:

…Berkshire Hathaway does not in fact pay dividends. Mr. Buffett’s secret which you can find blasted all over the Internet is one of his famous quotations:

Our favorite holding period is forever.

You only pay income taxes at any rate on realized appreciation. An investment with a holding period of forever incurs a capital gains tax of 0%, while all along the holder can be getting wealthy from appreciation. That’s the real reason Mr. Buffett does not pay a lot of income taxes.

You see, he protects his wealth by reinvesting it.  His money in the bank (taxable income) represents only a small percentage of his real income.  Therefore, he will be able to handle a tax increase with ease.

Thus the Wall Street Journal on September 13:

Warren Buffett is likely to make at least $1.2 billion from an investment in General Electric struck during the heart of the financial crisis in October 2008.

GE confirmed today it plans to repay Buffett’s $3 billion investment, which helped prop up confidence in the conglomerate as the financial world was being torn apart. Under the terms of the deal, GE owes Buffett a 10% repayment premium, or $300 million, on top of his $3 billion returned investment.

In addition, GE agreed to pay Buffett a 10% annual dividend, or $300 million a year, to rent his seal of approval. That means Buffett will have accumulated $900 million in cumulative dividends, assuming GE repays the preferred-stock investment in October. The $900 million would buy nearly 42 million 20-ounce T-bones at Buffett hangout Piccolo’s in Omaha.

And, more importantly, he cheats.

According to Berkshire Hathaway’s own annual report — see Note 15 on pp. 54-56 — the company has been in a years-long dispute over its federal tax bills.

According to the report, “We anticipate that we will resolve all adjustments proposed by the U.S. Internal Revenue Service (‘IRS’) for the 2002 through 2004 tax years at the IRS Appeals Division within the next 12 months. The IRS has completed its examination of our consolidated U.S. federal income tax returns for the 2005 and 2006 tax years and the proposed adjustments are currently being reviewed by the IRS Appeals Division process. The IRS is currently auditing our consolidated U.S. federal income tax returns for the 2007 through 2009 tax years.”

Americans for Limited Government researcher Richard McCarty, who was alerted to the controversy by a federal government lawyer, said, “The company has been short-changing the tax collection agency for much of the past decade. Mr. Buffett’s company has not fully settled its tax bills from 2002-2009. Yet he says he’d happily pay more. Except the IRS has apparently been asking him to pay more going on nine years.”

Apparently, not paying taxes in full is an annual occurrence under Buffett’s watch. Considering the size of the company, the amount of unsettled taxes could total in the tens of millions.

A great deal was made in the MSM about Buffet’s pledge to give away 85% of his considerable fortune in Berkshire Hathaway stock to the Bill and Melanie Gates Foundation.  In July of this year alone, he gave a gift of $1.5 billion to the charity, of which he is a Trustee.

However, Shira Ovide explained the rest of the story:

At the beginning of July each year, Buffett hands over chunks of Berkshire Hathaway stock to the Bill and Melinda Gates Foundation. It is all part of plans Buffett kicked off in 2006 to give away the bulk of his vast fortune to charity.

The Gates’ foundation, helmed in part by the former Microsoft CEO and longtime Buffett buddy, has the enviable task of spending Buffett’s gift. In 2006, the donation had a value of $30 billion, making it the biggest philanthropic largess in history.

Under the system Buffett put in place when he announced his massive donation, the number of shares he hands over declines by 5% a year. Still, Buffett predicted that the value of the donations would “trend higher” along with the price of Berkshire stock. This year, that didn’t happen.

The latest donation of 19.3 million Class B Berkshire stock is valued at more than $1.5 billion, based on today’s closing share price. The value is less than last year’s stock handover of 20.4 million shares, because of a slight dip in the value of Berkshire stock since last July.

And this is the man whom the president is holding up as a shining example?

Obama has named a bill after a guy who does everything that this punitive proposal is supposed to “fix”.

Hypocrisy,  thy name is…well…take your pick.

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2 Responses to Warren Buffet: A Study in Hypocrisy

  1. owleyepundit says:

    I’d say that Mr. Buffet is a few billion arguments for the FairTax or something very like it.

  2. Kenny says:

    Ah, Mr Buffet is not only a hypocrite, but a smart one at that. He loves to tell people that he lives in a very modest home in Omaha Nebraska. Perhaps, he lives there for a few months out of the year – but, but, but – what about that huge Mansion in Malibu?

    And – oh yes. Let’s talk about paying more to the government. When have you ever heard someone tell the Government – “TAX ME MORE!”. Well, instead of calling all of that attention to yourself – in the hopes of raising my taxes and every other tax paying citizen – why not instead – just donate more money to the Federal Government? Hmmmm. Mr. Buffet can donate to charity – or so it seems – why not donate to the Government??? Perhaps, he wouldn’t be able to devise such a scheme to enrich himself and perhaps – he wouldn’t be able to write it off. LOL What??? Donate to the Government and then want to write it off too???

    Speaking of write offs – Mr Buffet the ultimate in hypocrites – takes every advantage that he can when filling out his tax returns. He even cheats to pay less. He even schemes to pay less. He searches for every single loop hole he can find, for every deduction and for every credit which is owed to him. And yet – he wants to raise our taxes… Why does he not – simply file the EZ form when filling out his taxes.

    When he does that first – then, and only then – will I listen to him about how he wants to raise our taxes.