Mr. Buffett, His Secretary & Their Tax Rates

Inequality's pair most iconic,
Mr. Buffett and Mrs. Bosanek,
Have talked up the facts
Of the rates of his tax,
Which are lower than hers – most ironic.

"But investors like Buffett," says Mankiw,
"Have firms that pay tax as well, thank you;
We must add the taxation
Of each corporation
To see in which bracket we rank you."

So taxation's not simple as "one-two",
You can argue the point if you want to,
But unequal or not,
Ms. Bosanek ain't got
Someone else she can pass the tax onto.

Harvard's famed Professor Greg Mankiw, who chaired President George W. Bush's Council of Economic Advisers (and may someday do the same for Mitt Romney, if things should take such a turn), has made his voice prominent in rebutting the claim of Warren Buffett that he pays a lower income tax rate than his secretary. Debbie Bosanek pays roughly 33% of her income in taxes, while her billionaire boss pays 19%. The difference is due to the 15% rate of taxation on capital gains, which liberals argue is unfair. Professor Mankiw has argued that one must consider the shareholder's stake in the corporate income tax paid by the companies he owns.

Along comes a new and intriguingly anonymous blogger to put meat on the bones of Mankiw's argument. "PrometheeFeu" points out that, if Buffett pays 15% tax on his dividends and the company paying the dividend has already paid 25% income tax, then this is the same as a 35% income tax between Buffett and the original source of the income. Furthermore, one must distinguish between the person who pays the tax and the people on whom the burden of the tax ultimately falls. In other words, corporate tax burdens can be passed along to customers, vendors and employees as well as shareholders. However, this second point undermines the first, since it suggests that the companies owned by Berkshire Hathaway may spread the burden of their taxes, while Mrs. Bosanek would be hard-pressed to do so.

It's Buffett's Move

Berkshire Hathaway drove the price higher
When its IBM deal hit the wire,
So the charge could be made
Of an insider trade,
Since Buffett knew he was the buyer.

In a case of self-fulfilling prophecy, Berkshire Hathaway's purchase of 5.4% of IBM for $10.7 billion prompted a 12% surge in the technology services company's share price once it became public. Although large purchases of public shares must normally be disclosed in 13F filings, the SEC grants about 60 confidentiality waivers every quarter, allowing investors to accumulate shares without driving their prices up. For his part, Mr. Buffett has overcome his fear of tech companies by recognizing in IBM an entrenched service provider with a protective "moat" against would-be competitors. Notwithstanding new highs in the share price, Mr. Buffett believes that, for IBM, the best is yet to come.
Hat tip to... somebody on Twitter for the insider trading joke, and apologies for forgetting who it was.

The Ideal Rate

"The taxation of capital gains,"
Said a student of John Maynard Keynes,
"Would ideally fall
Between 'nothing at all'
And the rate at which Buffett complains."

Writing in the Wall Street Journal on the "Three Policies That Gave Us the [Steve] Jobs Economy," Amity Shlaes cites the slashing of the capital gains rate from a confiscatory 49% to 25% in 1978. Building on this evidence, she reaches the silly conclusion that "taxes on capital should always be lowered, and dramatically." One might just as easily conclude that, because a diet improved one's physique, that mealtime portions should always be dramatically lowered, too. But what is the correct capital gains rate? Undoubtedly, it lies between encouragement of wild speculation and discouragement of capital formation.

From Obama to Omaha

The President's Medal of Freedom  
Goes to Buffett, whose riches precede 'im;
He's the one of his kind
Who does not seem to mind
Being taxed ("I've got bucks and don't need 'em.")   
US President Barack Obama has awarded this year's Presidential Medal of Freedom to fifteen honorees including longtime supporter Warren Buffett, who backs his bid to let the Bush tax cuts expire for the highest income Americans.  Other recipients include George H.W. Bush, the father of that eponymous tax cutter; and German Chancellor Angela Merkel.

Rating Agency Hearing

"Triple-A," admits Warren Buffett,
"Is a term one may rightfully scoff at,
But as owner of Moody's,
I'll tell you the beauty's
Their business plan still turns a profit."

Letter to Berkshire Hathaway Shareholders

Says Warren Buffett, the Omaha Oracle,
"I've found bargains that may prove historical.
'Mid the market's great pains,
I bought some toy trains,
If I may be a tad allegorical."