When President Joe Biden unveiled plans to raise the corporate income tax (from 21% to 28%) last month, the usual chorus of business leaders and lawmakers spoke out against the proposal, saying it would put U.S. businesses at a competitive disadvantage.
At Berkshire Hathaway’s annual shareholder meeting on May 1, CEO Warren Buffett dismissed the overreactions and slammed those issuing dire warnings over the proposed changes.
“When people talk about how it all gets passed through to the customer and everything…it doesn’t in most of our businesses,” Buffett said. According to Buffett, only in the utility business is this the case, and it’s a special case.
“I mean, it’s just — it’s a corporate fiction when they put out statements about the fact that this will be terrible for all of you people if we pay more taxes,” Buffett said.
Buffett’s statement is in line with analysts like BMO’s Brian Belski, who wrote recently that “tax increases have been far from detrimental to U.S. stock market performance.”
On the other hand, he added, it would hurt Berkshire shareholders if rates are higher, but that is a different situation than customers — ”and that may be quite appropriate,” he said. “But to say otherwise is just, it doesn’t make any sense,” said Buffett.
This week Sen. Susan Collins (R., Me.) told CNN she won’t support Biden’s proposed rate of 28%. “I won’t support American businesses paying the highest corporate tax rate among developed countries in the world once again, and, unfortunately, that’s what 28% would be…And that means that jobs would once again go overseas. Rep. Kevin Brady (R., Tex.) also objected to the tax hike, saying “we shouldn’t be funding infrastructure on the backs of American workers.”
Passed in 2017, President Trump’s Tax Cuts and Jobs Act lowered the corporate tax rate to 21% from 35%, which was then one of the highest rates among developed economies.
California vs Texas and Florida and other tax changes
Buffett has long held measured views on taxation and has long pointed out that he pays far less in taxes than people in his office, and wrote an op-ed in the New York Times in 2011 called “Stop Coddling the Rich” about it.
At the Berkshire Hathaway (BRK-A, BRK-B) annual meeting, Buffett and his long-time business partner Charlie Munger talked about some of the latest tax issues, including the increase in people moving out of high-tax states like California and New York to lower-tax areas like Florida and Texas.
Munger, considering certain Silicon Valley people leaving California, mused that, “I frequently said I wouldn’t move across the street to save my children $500 billion in taxes,” poking fun at the many wealthy people who mark their calendars noting how many days they spend in various places dictated by their unwillingness to pay more in taxes.
“But I do think it is stupid for states to drive out their wealthiest citizens — the old people that don’t commit any crimes, they donate to the local charity,” Munger said. “Who in the hell in their right mind would drive out the rich people? I mean, Florida and places like that are very shrewd, and places like California are being very stupid. It’s contrary to the interest of the state.”
Another shareholder asked Buffett what happens to his Berkshire stake upon his death, as stipulated in company materials. In the Berkshire owner’s manual, Buffett explains that none of his stock should have to be sold upon his death to cover capital gains or estate taxes, which could potentially move the stock.
Buffett essentially shrugged in his answer, pointing out that philanthropic causes and the government will get 99.7% of his money, and that the government really gets to decide how much they get, since they make the rules.
“Yeah, well, the tax law can be changed tomorrow,” he said. Buffett said he’d prefer that money to go to charity, but the condition of no stock sales “won’t prevail.”
Still, Buffett remains circumspect. “If they took it all, you know it would not bother me,” he said.