Now the Senate says that dividends should be tax-free to recipients. Suppose this measure goes through and the directors of Berkshire Hathaway (which does not now pay a dividend) therefore decide to pay $1 billion in dividends next year. Owning 31 percent of Berkshire, I would receive $310 million in additional income, owe not another dime in federal tax, and see my tax rate plunge to 3 percent.
And our receptionist? She'd still be paying about 30 percent, which means she would be contributing about 10 times the proportion of her income that I would to such government pursuits as fighting terrorism, waging wars and supporting the elderly. Let me repeat the point: Her overall federal tax rate would be 10 times what my rate would be.
One must remember that Warren Buffet is a liberal, through and through.
However, Mr. Buffet has really made a bit of a mistake here, economically at least. You see, he made the $310M when Berkshire Hathaway MADE the money. In economic terms, he realized a gain of $310M, because when the company earns the money, the price of the stock rises. Perhaps not precisely by $310M (perhaps more, perhaps less). Now the issue is when does he recognize the gain for tax purposes. It isn't about whether Mr. Buffet is taxed or not; in fact, it is about whether he is taxed now or later.
That's not all. Before one gets the idea that Mr. Berkshire Hathaway is wanting to give money to the government, let's think about it. Suppose, for example, he receives that dividend tax free; the proceeds of which add to his estate (after all, he says he won't spend it). At his death, his estate will pay a death tax of 55% of that dividend. Suppose, on the other hand, the dividend is retained by Berkshire Hathaway, and is never paid to him. The Bershire stock appreciates in value by an equivalent amount, he dies, the stock passes through his estate, is taxed at 55%. The death tax is the same. The income tax is the same.
Mr. Buffet isn't quite as innocent as he looks, now is he? His tax situation changes NOT ONE IOTA from this legislation. What he wants is legislation that will benefit Mr. Warren Buffet. Of course, there is the issue, also, that he DOES NOT WANT the pressure that will come from Berkshire stockholders to pay dividends. He wants to keep control of that money. This man is no dummy. But he isn't quite being honest, either.
Unfortunately, there are a lot of people out there who are more suspicious of the George Bushs of the world than they are the Warren Buffets. |
