Warren Buffett says he wants to pay more tax (then structures a deal to ensure he does the exact opposite)


Warren Buffett Testifies At Financial Crisis Inquiry Commission Hearing

I assume we’re all familiar with Warren Buffett’s call for rich guys like him to be taxed more? It’s a call that, I admit, has always puzzled me.

If Buffett himself wishes to pay more in tax he can do so very easily simply by sending a check to the “Gifts to the United States” account. That sounds like a joke, but each year several people do exactly that, with the US government collecting three or four millions annually in this way.

But imagine my surprise when I find that Buffett has specifically structured a deal so as to make sure that the tax bill is not just minimised but entirely eradicated! This just doesn’t seem to match very well with the loud public proclamations, does it?

The details are over here at FT Alphaville.

Note that Mr Buffett’s stake in Berkshire, worth $ 63bn, is about a fifth of the company’s $ 305bn market capitalisation. The value of that perfectly legal piece of tax avoidance to him personally is $ 80m.

Yet it has passed largely without comment that the very rich man who says he would like higher taxes on the rich has pulled off a deal designed entirely to avoid a large tax bill. America’s favourite billionaire indeed.

For those who don’t actually want to read snatches of company reports to work out what’s going on here is the simple explanation. Berkshire Hathaway owns a nice piece of the Graham Holdings company (essentially, the Washington Post after the Post itself was sold to Jeff Bezos). This was bought back in the 1970s at a pittance compared to its present value and there’s thus a significant tax bill to pay if the holding is sold. As it happens Graham Holdings also owns a chunk of Berkshire Hathaway, something that would also incur a significant tax bill if sold. However, if the two stakes are just swapped over (with a TV station thrown in to make it all balance) then no tax will be due:

The Exchange is intended to qualify for non-recognition of gain and loss to Graham and to BH under Sections 355(a), 355(c), 361(a) and 361(c) of the Code (the “Intended Tax Treatment”). The “Code” shall mean the United States Internal Revenue Code of 1986, as amended.

Now, I myself applaud this in its entirety. I’m all in favour of reducing the amount of tax paid by anyone, ever, anywhere, on the grounds the the little bastards in government will only piss it away however much they get. I’m also aware that this marks me out as something of an extremist.

But it is an interesting example of a certain difference between public rhetoric from Buffett and his actual business actions, isn’t it?

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