Buffett's Money Walks Different from the Way He Talks
by Hughey Newsome (bio)
There is a certain idiom in American culture that starts with the phrase "Money talks."
While providing the phrase's conclusion — which references something walking — is inappropriate for this page, it seems fitting when considering the actions of Warren Buffett over the years.
Recently, Buffett's firm, Berkshire Hathaway, put up $3 billion to finance Burger King's purchase of Tim Hortons coffee shops. Through the deal, a Burger King-Tim Hortons holding company would reside in Canada while Burger King's operations would still run out of Miami, Florida.
This is a corporate inversion. A company avoids high American corporate taxes through purchasing a company in another country with a lower corporate tax rate and shifts its headquarters there.
The Obama Administration isn't screaming about the Burger King-Tim Hortons deal despite Washington's recent focus on inversions.
It has caught the attention of advocacy groups. Senator Sherrod Brown (D-OH) also urged people to boycott Burger King since the company made a decision to "abandon the United States."
It's ironic that Buffett, who has been a vocal advocate of "fair" taxation — even lending his name to the "Buffett Rule" plan to force millionaires to always pay income taxes above middle-income families — doesn't seem to mind putting his money behind deals that gain at least some value through more favorable tax rates.
According to the Los Angeles Times, Tim Hortons had an effective tax rate of 26.8 percent in 2013 while Burger King's was 27.5 percent. That 0.7 percent difference may seem small, but, considering Burger King and Tim Hortons had combined sales of $4.3 billion last year, that seven-tenths of a percent difference on corresponding profits is considerable.
This is not the first time Warren Buffett's mouth said one thing while his money did something completely different.
In 2011, Buffett made a $5 billion investment in Bank of America. Per the Wall Street Journal, the structure of the investment allowed Buffett to take advantage of another tax loophole — the dividends-reduced deduction. It was estimated the loophole would give Buffett's company an effective tax rate of a measly 10.5 percent. That's well below the infamous 17.4 percent personal rate he famously spoke of while making his passionate plea for the government to increase taxes on the wealthy, and his company later reported it would seek a higher dividend tax rate after the deal became news.
For those who have not been paying attention since 2011, that was when Buffett complained he paid a lower tax rate than his secretary. By oversimplifying the issue, Buffett gave the Obama Administration plenty of ammunition to raise tax rates.
Interestingly enough, in a Forbes op-ed by Tim Worstall of the Adam Smith Institute, entitled "Warren Buffett's Very Strange Tax Argument," it was reported that a lot of Buffett's income is doubly taxed because it comes from dividends. In other words, for all the corporations from which Buffett received dividends, the corporations pay taxes on their profits and Buffett then pays taxes on his share of that profit — his dividend — which is basically a payout of a portion of the profits.
Ironically, while many politicians waxed poetic on Buffett's vocal arguments when he discussed his secretary's taxes, they failed to assess how his money was at work in places such as Bank of America and, now, Burger King.
Clearly, there is a pattern among liberals. There's Secretary of State John Kerry, who advocates for higher taxes while he dodged Massachusetts taxes by docking his yacht in Rhode Island. There's Tim Geithner, the former Treasury Secretary who failed to submit payroll taxes on some of his income. On Capitol Hill, there's Representative Charlie Rangel (D-NY), who supports tax increases but "forgot" to pay his own mortgage taxes.
There are many people on the left who love to say something is good for everyone — except, it seems, themselves.
That is the danger of liberalism. It's easy for someone to say they believe in something when someone else's money pays for it. Things are usually different, however, when their own money has to do the walking.
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Hughey Newsome, a business consultant in the D.C. area, is a member of the national advisory council of the black leadership network Project 21. Comments may be sent to [email protected].
Published by the National Center for Public Policy Research. Reprints
permitted provided source is credited. New Visions Commentaries reflect the views of their author, and not necessarily those of Project 21, other Project 21 members, or the National Center for Public Policy Research, its board or staff.
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