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Warren Buffett’s Taxes Probably Won’t Increase Under The “Buffett Rule”

The Wall Street Journal’s James Freeman explains why:

Billionaire Berkshire Hathaway CEO Warren Buffett is once again thrilling the political class by volunteering other people to pay higher taxes. Long-time observers recall his opposition to former President George W. Bush’s efforts to reduce the tax rate on dividends. Since Berkshire pays no dividends, Mr. Buffett had little at stake but enjoyed the opportunity to pose as if he were a rich guy eager to cough up more dough to Washington.

In the current debate, President Obama is pushing the “Buffett Rule” to ensure that high-income earners pay higher tax rates. But even if it’s enacted, don’t expect the Buffett Rule to have much impact on Mr. Buffett. By an amazing coincidence, the sage of Omaha is already positioned to shield most of his rising wealth from such a tax.

(…)

This brings us to the Buffett Rule, which at its heart is a way to raise taxes on dividends and capital gains. Berkshire still doesn’t pay a dividend, and as for capital gains taxes, well, Mr. Buffett has already made clear that he’ll largely avoid them by transferring his fortune to the Gates Foundation and to charitable trusts controlled by his family. In fact, at the 2010 Berkshire annual shareholders meeting, according to Dow Jones Newswires, Mr. Buffett urged attendees to “follow my tax dodging example” and give away their wealth. Democrats in Washington may enjoy using Mr. Buffett as cover to raise taxes, just as long as they understand that he won’t necessarily be paying them.

Of course, giving away one’s wealth to a charitable foundation isn’t necessarily a bad thing. Frankly, it’s likely a better use of those resources than putting them in them in the hands of the government. Nonetheless, it’s worth noting that Buffett isn’t necessarily inclined to practice what he preaches here. Not that I blame him, only an idiot would want to pay more taxes.

H/T: TaxProf Blog

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Gold Star for Robot Boy says:

    Of course, giving away one’s wealth to a charitable foundation isn’t necessarily a bad thing. Frankly, it’s likely a better use of those resources than putting them in them in the hands of the government.

    I’ll agree once the United Way starts building roads and putting out fires.

    Like or Dislike: Thumb up 5 Thumb down 0

  2. Matt says:

    @Gold Star for Robot Boy: Right because no one would build roads or put out fires if the government didn’t force people to pay for such things at gun point.

    Like or Dislike: Thumb up 0 Thumb down 5

  3. WR says:

    This may be the dumbest thing ever published in Murdoch’s WSJ, and that’s saying something — Buffet won’t pay taxes on his money BECAUSE IT WON’T BE HIS MONEY ANYMORE.

    There is simply no way a human being can construct a sentence in English and still be stupid enough to believe that not paying taxes on money you have and not paying taxes on money you don’t have are the same thing. Thus, he is deliberately obscuring the truth — or as we simple people like to say, “lying.”

    Like or Dislike: Thumb up 5 Thumb down 2

  4. Brummagem Joe says:

    . “Nonetheless, it’s worth noting that Buffett isn’t necessarily inclined to practice what he preaches here.”

    Boy Doug you have a weird value system. Buffett is not practising what he preaches because he’s given his money to charity (ie. it’s no longer his and therefore he’s not liable for tax upon it). This is a perfect example of the cognitive dissonance that has become terminal amongst conservatives. It’s literally textbook. The basic facts don’t support the worldview therefore it becomes necessary to choose between changing the view or finding some alternative set of “facts”that can be used to bolster or rationalise the original worldview. Hence we head off into the whole universe of casuistry, non sequitur-dom, and just made up stuff that has now become the commonplace of the conservative dialectic.

    “Not that I blame him, only an idiot would want to pay more taxes.”

    Well I must be one of the idiots because I’m quite prepared to see a modest hike in my tax rate if it contributes to reducing our deficits.

    Like or Dislike: Thumb up 2 Thumb down 2

  5. Gold Star for Robot Boy says:

    @Matt: That you equate taxes for infrastructure and public safety with armed robbery tells the world all it needs to know about you.

    Like or Dislike: Thumb up 3 Thumb down 0

  6. “Of course, giving away one’s wealth to a charitable foundation isn’t necessarily a bad thing. Frankly, it’s likely a better use of those resources than putting them in them in the hands of the government.”

    Google the Gates Foundation, what it does, and why social conservatives don’t consider it a charity. My point will have been made.

    Like or Dislike: Thumb up 0 Thumb down 0

  7. Septimius says:

    @Brummagem Joe: I’ll explain it to you. Warren Buffett has called on the rich to pay higher taxes as a way of increasing federal revenues. If Buffett gives his money to charity instead of paying taxes on it, he does nothing to increase federal revenues. That’s what Doug means about Buffett not “practicing what he preaches.” Does that make sense in your rational worldview?

    Like or Dislike: Thumb up 1 Thumb down 0

  8. David M says:

    This is the first I’ve ever seen of Buffet avoiding the capital gains tax by a donation. Wouldn’t this be avoiding the estate tax?

    Like or Dislike: Thumb up 0 Thumb down 0

  9. Matt says:

    @Gold Star for Robot Boy: Are you saying that people who choose not to pay taxes won’t get abducted by men with guns? Doesn’t matter if the robber uses your money to care for widows and orphans that doesn’t mean you weren’t robbed. It doesn’t even matter if he uses it for things you would have spent it on anyway, it won’t change the fact that you were threatened for your money.

    It’s a small mind with a very low opinion of humanity that thinks people wouldn’t build roads or have fire departments if they weren’t threatened into doing so.

    Like or Dislike: Thumb up 0 Thumb down 2

  10. Brummagem Joe says:

    @Septimius:

    I’ll explain it to you.

    No explanations required. Even if Buffett made such donations his income is still so vast he’d still have an immense tax liability and since you don’t seem to appreciate the distinction between estate taxes (which is what Buffett would primarily be avoiding by not taking divs since he’s 80 or thereabouts ) and income taxes pardon me if I think you are uniquely unqualified to explain Anything whatsoever about tax issues.

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  11. Septimius says:

    @Brummagem Joe: You clearly have no idea what you’re talking about. Buffett has pledged to donate 99% of his wealth to charity. Do you honestly think he is going to cash in all his stock, pay capital gains tax, and then write a check to the Bill and Melinda Gates Foundation? No. He’s going to donate his Berkshire Hathaway shares. He will pay no capital gains tax. The charity will pay no tax when the shares are converted to cash. Then, he’ll write off the donation against any income tax that he does owe. Upon his death, the remainder of his Berkshire Hathaway shares will be donated to charity. No capital gains or estate taxes will be paid on his vast wealth.

    Can you comprehend this? Or, does your casuistry inspire too much cognitive dissonance.

    Like or Dislike: Thumb up 0 Thumb down 1

  12. David M says:

    @Septimius: I’m pretty sure you’re not correct here. There’s no evidence that Buffet hasn’t been paying capital gains tax these past years, and it’s likely he will continue to pay capital gains tax on his earnings. The estate tax is a completely separate discussion, although I understand why the WSJ wanted to use it to confuse readers.

    Like or Dislike: Thumb up 0 Thumb down 0

  13. Brummagem Joe says:

    @Septimius: .

    Do you honestly think he is going to cash in all his stock, pay capital gains tax, and then write a check to the Bill and Melinda Gates Foundation?

    Another strawman. When did I remotely suggest this? It’s estate tax he’s avoiding by donating his holdings to charity. The fact this is being made a vehicle by the right to suggest Buffett is using some tax dodge to avoid the Buffett rule by making a charitable donation is where the cognitive dissonance comes in although this appears to be something else you don’t quite get since apparently you suffer from the same problem.

    Like or Dislike: Thumb up 0 Thumb down 0

  14. Septimius says:

    @David M:

    Yes. He does pay capital gains. Last year, he earned around $69 million. About $39 million was taxable because he deducts his charitable contributions. His total tax bill was just under $7 million. I am not trying to claim that Buffett pays no taxes. But, the guy is worth $40 billion. The vast majority of his wealth will go, untaxed, to charity. That’s fine by me. It’s his money and he should do whatever he wants with it. But, it’s totally hypocritical of him to bemoan the fact that the rich don’t pay enough in taxes while he does everything he can to shield his wealth from the government.

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  15. Gold Star for Robot Boy says:

    @Matt:

    It’s a small mind with a very low opinion of humanity that thinks people wouldn’t build roads or have fire departments if they weren’t threatened into doing so.

    Our ancestors built roads and put out fires. And you know what they decided?
    1. It’s more efficient to have one organization doing these jobs.
    2. Public safety and infrastructure create enough commonweal as to justify having all citizens pay for them.
    3. Many duties of the government create no profit; therefore, no private entity will do them. (Is there money to be made from maintaining the swing set at a public park?)

    Honestly, I have no idea the point you’re trying to make. That all tax is theft? That everything governments do should be done by the private sector?

    Like or Dislike: Thumb up 1 Thumb down 0

  16. Brummagem Joe says:

    @Septimius:

    I’ll explain it to you. Warren Buffett has called on the rich to pay higher taxes as a way of increasing federal revenues. If Buffett gives his money to charity instead of paying taxes on it, he does nothing to increase federal revenues.

    And these btw are not contradictory positions where charity is involved. The fact that those suffering from the affliction of cognitive dissonance are reduced to peddling this kind of bs is a measure of how serious is the nature of their condition.

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  17. Brummagem Joe says:

    @Septimius:

    But, it’s totally hypocritical of him to bemoan the fact that the rich don’t pay enough in taxes while he does everything he can to shield his wealth from the government.

    By giving it to charity. Cognitive dissonance writ large.

    Like or Dislike: Thumb up 0 Thumb down 0

  18. Septimius says:

    @Brummagem Joe: No. He avoids paying capital gains by donating his shares to charity. He will avoid the estate tax by donating the remainder of his stock upon his death. How do you not understand this?

    Like or Dislike: Thumb up 0 Thumb down 0

  19. David M says:

    The following are not contradictory positions:

    1. Following current tax law
    2. Arguing current tax law should change so you pay more taxes

    Gifts to charity are unrelated to the discussion of whether the capital gains tax should be raised for people with a taxable income over $1 million (Buffett Rule).

    Like or Dislike: Thumb up 0 Thumb down 0

  20. Brummagem Joe says:

    @Septimius:

    I understand the process entirely. However only someone suffering severe cognitive dissonance as you obviously are could possibly claim the donation of billions of dollars to charity constitutes behavior that is:

    totally hypocritical of him to bemoan the fact that the rich don’t pay enough in taxes while he does everything he can to shield his wealth from the government.

    Like or Dislike: Thumb up 0 Thumb down 0

  21. Brummagem Joe says:

    I’m bound to say whoever dreamt this up deserves a special CD creativity award.

    Like or Dislike: Thumb up 0 Thumb down 0

  22. An Interested Party says:

    Are you saying that people who choose not to pay taxes won’t get abducted by men with guns?

    Are you saying that paying taxes should be voluntary? Exactly how would that work? I realize that telling people to move to Somalia has become a cliché, but really, how would any country not be a total basket case with only voluntary taxes…

    Like or Dislike: Thumb up 1 Thumb down 0

  23. There is no point in the Buffet Rule.

    Estimates from the Tax Policy Center show that those who make more than $1 million do pay a 29% tax rate, so many high-income earners are already paying a higher percentage of their income in taxes than their secretaries. http://bit.ly/yyLJDp Rather the problem with high-income earners lies with those who make most of their money from investments.

    That is not to say that the current personal and corporate tax codes don’t help pick winners and losers with special-interest tax breaks. But, the solution to this problem is not to add more taxes on top of the existing system.

    The only way to improve tax fairness and increase corporate competitiveness is to rebuild the tax code from scratch. Using the Bowles-Simpson deficit-plan as a guideline Congress can simplify the tax code, improve fairness, and spur economic growth. http://bit.ly/noTDPF

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  24. Brummagem Joe says:

    @David @ Engage America:

    “Rather the problem with high-income earners lies with those who make most of their money from investments.”

    It arises from the differential rates applied not only to investments but also to other loopholes like carried interest, and the ability of the very rich to exploit tax avoidance strategies not available to most people. I don’t disagree that the Buffett rule is more of a symbol than the optimum way to deal with this problem but this hardly means that Buffett is doing anything remotely reprehensible in shielding his charitable donations from taxes. The bottom line in all this is that the total tax take has to return to around 20% of GDP and the only way this happens is by a combination of the economy returning to optimum capacity and a general increase in taxation levels which is going to fall disproportionately on those amongst the wealthy who as the Romney case illustrates are not carrying a proper share of the tax burden. Bully for those that are but clearly many aren’t.

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