| | | Incredibly well written article with examples of how Warren Buffett avoids taxes. I wish I could have laid it out so clearly....
- http://www.barrons.com/articles/warren-buffetts-nifty-tax-loophole-1428726092
Warren Buffett’s Nifty Tax Loophole
Warren Buffett has backed higher individual tax rates–while ensuring that his vast wealth in Berkshire Hathaway is almost immune.
So, how does he do it? Buffett’s principal holding is an economic interest of about 20% of Berkshire Hathaway, the huge conglomerate he has been building since the 1960s. It has a market value of about $350 billion. Berkshire hasn’t paid any cash dividends since 1967. Rather, the company accumulates its prodigious after-tax income ($19.9 billion in 2014) and cash flow ($32 billion in 2014) to get bigger by buying companies, lots of companies. Among its large recent acquisitions were Lubrizol, Burlington Northern Santa Fe, and a shared acquisition of H.J. Heinz. The Berkshire Model is to buy companies rich in cash flow with histories of paying dividends, then cancel those dividends and retain the cash flow going forward for future acquisitions. If Berkshire followed the average of the S&P 500, it would have paid out about $6 billion in dividends in 2014, and Buffett’s share would have been about $1.2 billion.
At a 23.8% tax rate, that would have given Buffett a tax bill of $280 million, or about 40 times the taxes he said he actually paid in 2010.
This "hoarding cash" is one of the biggest issues with my "zero corporate tax" proposal that I haven't come up with a solution for other than perhaps a tax on hoarded cash of some sorts in exchange for a zero corporate tax rate. That is encourage corporations to either grow by investing or pay earnings out as dividends so the money gets back into the economy. Maybe we have them pay the individual tax rate on earnings retained as cash above what is considered a safe reserve and let them recover that cash via deductions if they go out and expand with equipment purchase. I still need to think about it.
In 2012, the year before it was acquired for $28 billion by Berkshire (and a Brazilian partner), H.J. Heinz paid more than $600 million in dividends. Those dividends were taxed and provided revenue to the U.S. Treasury. After the acquisition, the dividends stopped. Tax revenue from those dividends stopped.
In 2010, the year before it was acquired by Berkshire for $9 billion, Lubrizol paid $90 million in dividends. After the acquisition, the dividends stopped, as did tax revenue on the dividends.
In 2009, the year before it was acquired by Berkshire for $44 billion, Burlington Northern Santa Fe paid $546 million in dividends. After the acquisition, the dividends stopped, as did tax revenue on the dividends.
and why he should continue to back whomever is in charge of the IRS
Can the IRS see that by looking the other way it has unreasonably feathered Buffett’s nest, allowing him to avoid paying reasonable taxes? Of course it can. It chooses not to see anything.
The relationship between the Wizard of Wall Street and our president is symbiotic. The two scratch each other’s back at the expense of the commonweal. How nice for our president, who is so eager to spread the wealth around, to have one of our richest citizens militating for higher taxes on the rich. How nice for Buffett to play to an adoring crowd of wealth-spreaders. How strange that it’s not his wealth that they are spreading around. |
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