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The Stooge of Omaha

We wrote here about Charles Koch’s elegant rejoinder to Warren Buffett’s very silly op-ed, in which Buffett requested that the federal government raise his taxes. The flaws in Buffett’s reasoning, and his epic hypocrisy, have been widely noted. Some of the main points can be summarized as follows:

1) Nothing prevents Buffett from contributing more money to the federal treasury, but, like every liberal I know of, he has chosen not to do so.

2) Buffett’s tax rate is lower than his secretary’s because his income consists entirely of capital gains, while hers is ordinary income. (This would be the case, by the way, only if Buffett’s secretary is exceptionally well-paid, as she probably is.) Capital gains are taxed at a lower rate than some ordinary income because a) they constitute a one-time profit, generally accrued over a period of years and consisting partly, if not entirely, of inflation, and b) the company in which the capital investment was made has already paid taxes at a steep rate on its income. Politicians debate what the capital gains rate should be, but I am not aware of any politician or economist who argues that the capital gains tax rate should be as high as, or higher than, the ordinary income rate.

It turns out that there is more. While liberals raced to denounce Charles Koch’s observation that he spends and invests his money more wisely than the government could, Warren Buffett is on record as believing–no doubt correctly–the same thing. That is why his vast fortune, which consists of unrealized capital gains, won’t be going to the Treasury. In a 2007 CNBC interview, Buffett explained why he intended to donate his fortune to the Gates Foundation and other charities:

I think that on balance the Gates Foundation, my daughter’s foundation, my two sons’ foundations will do a better job with lower administrative costs and better selection of beneficiaries than the government.

That is the same point that Koch made, and it refutes Buffett’s notorious op-ed: the nation would be better served if it cut government spending rather than increasing Buffett’s taxes. Buffett, being a liberal, understands that he can make decisions better than the government; he just doesn’t think you can. Thus, he wants taxes generally raised, while he donates his money elsewhere. We, as conservatives, believe that both you and Warren Buffett can dispose of your money better than the government will. Why? Because it’s yours, and you care.

But there is another layer of Buffett hypocrisy yet to be plumbed. It turns out that, contrary to his protestations that he would dearly love to pay more taxes, Buffett has in fact been battling the federal government for years to keep his company’s taxes to a minimum. Note 15 to Berkshire Hathaway’s 2010 Annual Report relates to income taxes:

With few exceptions, we have settled tax return liabilities with U.S. federal, state, local and foreign tax authorities for years before 2002. We anticipate that we will resolve all adjustments proposed by the U.S. Internal Revenue Service (“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. It is reasonably possible that certain of our income tax examinations will be settled within the next twelve months.

So Buffett’s company is still battling with the IRS to minimize its taxes as far back as 2002. The amounts in dispute are substantial:

At December 31, 2010 and 2009, net unrecognized tax benefits were $1,005 million and $926 million, respectively. Included in the balance at December 31, 2010, are $774 million of tax positions that, if recognized, would impact the effective tax rate. The remaining balance in net unrecognized tax benefits principally relates to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

To be fair, Democrats can argue that Berkshire Hathaway’s corporate income taxes are a different issue from Buffett’s personal income taxes: the vast majority of Berkshire Hathaway stock is held by people who are not billionaires, like Buffett. But that distinction is revealing in itself. Liberals constantly want to increase taxes on corporations, as though ignorant of the fact that those taxes are paid mostly by consumers, not shareholders, and that a large majority of shareholders aren’t rich. If liberals now want to acknowledge that it is better for Berkshire Hathaway and its shareholders to keep the company’s profits than to pay them to the federal government, the implications are far-reaching.

In sum, if the world contains a worse hypocrite than Warren Buffett, he would not be easy to find.

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