Why Warren Buffet is a Hypocrite

In my previous post, I accused Warren Buffet of hypocrisy.  Now I’ll state my case.

In the 2003 article, Buffett claims that if the then proposed dividend tax reductions were passed, his tax rate would drop to 3%.  Making this claim ignores the taxes Berkshire Hathaway paid on Buffett’s behalf as an owner of the corporation.   Further, I can assure you that Buffett does not ignore taxes paid by a company when evaluating how much he is willing to spend to buy a company.

Not convinced?

Buffett explains it well in his own letter to shareholders in Berkshire Hathaway’s annual reports (which I highly recommend reading for anyone remotely interested in business and investment management).

For those that don’t know, Berkshire Hathaway is Buffett’s business.  B-H is a holding company that owns many other businesses, such as Dairy Queen and GEICO  insurance, outright.  It also owns substantial positions in other publicly traded companies like Coca-Cola.   For example, B-H owns 8.6% of Coca-Cola’s outstanding shares amounting to $11.4 billion in value as of last December.

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Clever Buffett

I read in this Wall Street Journal article that Warren Buffett and Bill Gates are starting a campaign to persuade wealthy people to donate half their wealth to charity (charity bubble anyone?).

It reminded me of a long-standing disagreement I have with Warren Buffett.  Buffett’s business and investment acumen are undeniable.  But his political, economic and tax policy viewpoints are naive.  One of Buffett’s key investment tenets is to stick with what you know.  He should adhere to this tenet in matters of the economy and taxes.

Several years ago, Buffett came out in favor of the estate tax and said the tax system isn’t fair (or just) because he pays a higher rate than some of his employees.  From an ABC article in 2007:

Buffett says he pays 18 percent of his salary to the IRS while the rest of his staff pays nearly twice that — 33 percent, a lopsided equation that put Buffett in a Robin Hood frame of mind.

“Frankly, an economy where my receptionist pays a lot higher tax rate than, than I do does not strike me as a just economy,” he told lawmakers.

Strangely, in 2003 Buffett published a column in his newspaper, the Washington Post, making a similar case (see copy of his Washington Post article by clicking on more at the end of this entry) regarding cuts in dividend tax rates.  In the 2003 article, he wrote that his tax rate was the same as his receptionist’s, about 30%.

First, I’d be interested to know what changed between 2003 and 2007 to lower his tax rate from 30% to 18%.   Did the tax code change, did his income change and put him in another tax bracket or did the type of income or tax he used to calculate his tax rate change between his two analyses?

Second, in my next post, I’ll show that Buffett used hypocrisy in 2003 to arrive at the conclusion that he would pay a much lower tax rate than his receptionist if Berkshire Hathaway paid a dividend to its shareholders and the tax law that he was criticizing passed.  His hypocrisy is that he uses inconsistent approaches to view his wealth and tax rates.  I think the way he views his wealth is valid.  The way he views his tax is not valid, nor is it consistent with the way he views his wealth.

Click to read Buffett’s 2003 Washington Post article:

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