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Friday, August 26, 2011

Warren Buffett’s Tax Hypocrisy

Buffett Netright Daily, Warren Buffett’s Taxing Hypocrisy:

[Warren Buffett] wrote of the so-called “super-rich,” which he apparently defines as households earning $1 million or more a year: “Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.” Isn’t that nice of Mr. Buffett?

But if he were truly sincere, perhaps he might simply try paying the taxes the IRS says his company owes? 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 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.”

Update: Do As Warren Buffett Says, Not As He Does

http://taxprof.typepad.com/taxprof_blog/2011/08/warren-buffetts.html

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Comments

Just like John Kerry, who talks of the need for higher taxes while docking his yacht in Rhode Island to avoid the Massachusetts tax on it. Or Charles Rangel who keeps saying we need higher taxes while somehow "forgetting" to pay all of his. Or Tim Geithner or Tom Daschle or.... is there a pattern here?

Posted by: Buck O'Fama | Aug 26, 2011 10:25:36 AM

Dear Mr Buffet...
Pay to the order: US Treasury in the amount of Five Billion Dollars.

Put your money where your mouth is.

hat tip...Pat Buchanan

Posted by: Penny | Aug 26, 2011 10:34:48 AM

I believe Buffett has a fiduciary duty to shareholders to pay the minimum legal taxes. He could get sued otherwise. His personal income tax situation is different from the corporate income tax situation. It would be different if he were the only owner of Berkshire Hathaway, but he is not.

Posted by: Dave | Aug 26, 2011 10:54:04 AM

As an investor in this company, I am happy that the company is challenging IRS positions with which it disagrees. This is not just Mr. Buffett's money, it is mine as well, so I see no inconsistency with what Berkshire is doing.

As an American citizen, I am concerned that a government lawyer is communicating about this dispute to the Americans for Limited Government. This sounds like the government lawyers are taking political sides here, and punishing Berkshire for Mr. Buffett's connection to Obama.

Posted by: Kenny | Aug 26, 2011 10:59:36 AM

Says one thing and does another?!

Shocking.

Posted by: LTC John | Aug 26, 2011 11:15:26 AM

What is the company's effective tax rate? Anybody know.

Posted by: Anonymous | Aug 26, 2011 11:31:59 AM

Nothing wrong with government lawyers have political opinions on publicly available material, just like anyone else.

If the IRS says you owe it, you have no fiduciary duty to fight them to the bitter end because you think you have an argument that may or may not prevail. That is a calculated risk - you may end up owing not only the taxes, but interest and penalties. There is zero risk of getting (successfully) sued for paying a bill that the IRS says you owe after an audit. Since paying taxes helps fellow citizens who are truly suffering, it would apparently be good corporate marketing, like giving grants to charities.

That is, if you thought for a moment that Buffet was sincere, instead of trying to boost his insurance business ...

Posted by: Nobody | Aug 26, 2011 11:48:35 AM

Warren Buffett is a sly fox.

He invests $5 billion in 6% preference shares of BA. The dividends to Berkshire have a 70 to 80% DRD so that the final tax cost is at a maximum 10.5% rate. The capital raised increases BA's desperately needed regulatory capital. Buffett is ahead in priority to ordinary BA shareholders, but junior to BA creditors.

What is his greatest investment risk? Political risk. If BA goes under it will no longer be "too big to fail."

But wait! Is there any doubt that Buffett has earned huge PR points with the current administration? Berkshire, like the unions at GM, will be given "special priority."

Supporting a Democrat tax increase on "rich" individuals and making big political contributions to Democrats keeps his investments secure from political risk. However, there is no chance of a tax increase as long as there is a Republican house. Therefore, Berkshire and Buffett face little risk that Democrats will raise their tax bills.

I believe that is called "having your cake and eating it too."

Posted by: DLN | Aug 26, 2011 11:56:49 AM

"I am concerned that a government lawyer is communicating about this dispute to the Americans for Limited Government."
Why? It sounds like he was provided the information that the company also provides in its annual report.

"As an investor in this company, I am happy that the company is challenging IRS positions with which it disagrees."
Well, of course not. Since it is your money. What's your position if its someone else's money?

Posted by: buzz | Aug 26, 2011 12:30:16 PM

He avoided personal taxes when he discovered Bill Gates & charities.

Posted by: Sandy P. | Aug 26, 2011 1:06:15 PM

Berkshire must contest the IRS as the company is owned by lots of other $1m plus earners that are NOT interested in paying more taxes.

As for Mr. Buffett, the Treasury has always taken contributions. Start a trend by putting your money where your mouth is - donate the amount you feel ought to be paid.

Posted by: Curmudgeon | Aug 26, 2011 1:23:36 PM

"This sounds like the government lawyers are taking political sides here, and punishing Berkshire for Mr. Buffett's connection to Obama."
Posted by: Kenny | Aug 26, 2011 10:59:36 AM

Uh, in case you hadn't noticed, the government lawyers work for Obama...


Posted by: John the Revelator | Aug 26, 2011 1:37:50 PM

" as an investor in this company, I am happy that the company is challenging IRS positions with which it disagrees. This is not just Mr. Buffett's money, it is mine as well, so I see no inconsistency with what Berkshire is doing."

WRONG! As an investor with Mr. Buffett you are investing in a man who in pushing that the federal government should be getting more and more of Americans money to use as the Democrats see fit because as HE STATED you are not paying your share.

But this little nuggets SHOWS that what he really meant was that other people should be forced to give more of their money but not the people and company which has made him incredibly wealthy. If he was true to his word, Berkshire Hathaway would be set up as a strict corporation which refused to engage in any tax structuring at all. It would simply hand over to the government what Mr. Buffett thought was the appropriate tax % of its profit, then the chips could fall as they may.

And here you are condoning that that Berkshire should take advantage of every loophole and shelter to "cheat" the federal government of its taxes while at the same time railing that all those other rich people should be villified and attacked for not being as righteous as Mr. Buffett.

Posted by: LogicalUS | Aug 26, 2011 1:48:16 PM

Kenny, the DOJ employees donated 2-1 to Obama in 2008. Look it up.

Given that government employees are unionized, Treasury probably has similar rates.

Posted by: SDN | Aug 26, 2011 1:56:10 PM

Really Paul, you're now posting tax articles from right-wing blogs? There's clearly nothing hypocritical about Berkshire Hathaway's being in a tax dispute, and Buffett arguing tax rates should be raised for the wealthy. (A) Buffett and Berkshire are not the same person. (B) Buffett argued that tax rates should be raised, he never said that anyone should pay more than what is actually owed under the Code; Berkshire's dispute is about what's actually owed. You are better than posting ridiculous drivel like this netrightdaily blog post, and your blog should be as well. How about exercising some editorial judgment?

Posted by: John | Aug 26, 2011 2:03:02 PM

I had no idea that political discourse was this easy!

Support the military? Then join the Marines. Otherwise you are a hypocrite.

Want roads in good repair? Then get a bag of asphalt and fix the pothole yourself. Otherwise you are a hypocrite.

Support food stamps for poor people? Then work at a soup kitchen. Otherwise you are a hypocrite.

Support scientific research? Then get your Ph.D. and contribute something to scientific knowledge. otherwise you are a hypocrite.

These aren't arguments. They are a point of view. The point of view is: You have no right to an opinion other than mine.

Posted by: Jim Harper | Aug 26, 2011 2:05:20 PM

Do we know the IRS valuation of the avoided taxes?

Posted by: Curmudgeon Geographer | Aug 26, 2011 3:00:38 PM

Regarding the assertion a government lawyer did this or that:

The information that an ongoing IRS dispute exists comes from the company's annual report... or so it says in the article.

An annual report is pretty much a wholly public document that is required by law to be presented to shareholders, annually.

Often you can get a freebee by contacting a corporate 'shareholder relations' department and expressing an interest in the company as a potential investor.

These documents are never a secret of any sort if a company is publicly traded in one of the stock markets. They can sometimes even be found in libraries, especially at a college with a business orientation.

Posted by: Caroline | Aug 26, 2011 4:28:26 PM

What a snarky little misleading post this is. Shame on you, Prof. Caron, you ought to know better.

First off, corporate taxes are **incredibly** complicated. This isn't some short-form business, as you well know. At a minimum, it would be worthwhile to know how common it is for companies like Berkshire to be involved in such disputes with the IRS.

Second, the idea that Berkshire's money is somehow Warren Buffets money is absurd. Berkshire's money is actually my money - mine, and the other millions of Berkshire shareholders. We don't really mind Berkshire's accountants taking a tough attitude with the IRS.

Finally, Warren Buffet it talking about tax policy on individuals, not on corporations. My understanding is that Buffet would prefer the corporate tax code to have lower rates and less loopholes (thus helping to prevent issues like this). Similarly, I think he'd prefer to remove loop holes from the individual tax code, and raise rates only on income over 1 million.

At any rate, thanks a lot (not) for using your cushy academic job as a podium for spreading disinformation and confusion. Well done, sir!

Posted by: Pete Cacioppi | Aug 26, 2011 5:55:42 PM

"Do we know the IRS valuation of the avoided taxes?"

They need abou' T'ree F'iddy....

Posted by: Muckracker | Aug 26, 2011 6:28:20 PM

Hypocrisy is the state of pretending to have beliefs, opinions, virtues, ideals, thoughts, feelings, qualities, or standards that one does not actually have. Hypocrisy involves the deception of others and is thus a kind of lie.
--Wikipedia

-------

I had no idea that political discourse was this easy!

Support the military? Then join the Marines. Otherwise you are a hypocrite.

Want roads in good repair? Then get a bag of asphalt and fix the pothole yourself. Otherwise you are a hypocrite.

Support food stamps for poor people? Then work at a soup kitchen. Otherwise you are a hypocrite.

Support scientific research? Then get your Ph.D. and contribute something to scientific knowledge. otherwise you are a hypocrite.

These aren't arguments. They are a point of view. The point of view is: You have no right to an opinion other than mine.

Jim Harper

---------

Based on the Wikipedia definition, you need to make the following corrections, Jim:

Support the military? But spit on personnel returning from the war zone, then yes, you are a hypocrite

Want roads in good repair? But then run a fleet of long distance trucks that routinely violate weight restrictions, then yes, you are a hypocrite.

Support food stamps for poor people? But then advocate laws that drive up the price of food (e.g. corn to ethanol); maybe you're not a hypocrite,just incredibly stupid, but you are driving up the cost of government spending in a never ending spiral.

Support scientific research? But then chop down a grove of genetically modified papayas that have been proven to be safe, then yes, you are a hypocrite.

Write an article in the Wall Street Journal claiming that the super rich are not paying enough taxes. But then have your company take every tax loophole in the books, so much so the IRS is disputing your claims, then yes, you are a hypocrite.

Oh, and let me add one more: Decry your predecessor's "unpatriotic" deficits, and then incur deficits that are significantly higher. Yes, you are most definitely a hypocrite.

"You are entitled to your own opinion but you are not entitled toyour own facts"
--attributed to Daniel Patrick Moynihan

Posted by: Ed Joyce | Aug 26, 2011 11:23:33 PM