You’re right, it’s not that simple. But my point is that corporate tax is a burden of the consumer. The Cayman Islands have a 0% corporate tax rate. That doesn’t mean having a company in the Caymans is more profitable. It just means that the market rushed in to restore balance.
Berkshire Hathaway paid an effective rate of about 31% last fiscal year. Since a large percentage of his wealth is tied up in Berkshire stock, he indirectly paid that rate (whether any gains were realized or not).
^ Buffett earns a salary of $100k, though maybe his secretary is doing well?
No, he did not indirectly pay for anything. Berkshire is a separate entity from Buffett, and Berkshire’s assets are not the same as Buffet’s own. However, Buffett did pay taxes on the 100k he earned.
It’s more a burden of the investor. Tax is a cost to businesses. If taxes rise, they can try to pass on those increased costs to consumers, but only certain businesses with very inelastic products/services can successfully do so.
In most cases, higher prices will result in lower sales, which is bad news for companies with higher operating leverage.
Consumers are harmed because fewer businesses can succeed in a higher-tax environment. Output is reduced, prices rise, and consumers lose wealth. It’s not as much a function of “passing on” he costs of taxes. Those costs are passed on primarily to equity investors, since their share of a company’s net income is seized from them by the gubmint.
Companies are limited in what tax they can pass on in a world with free trade. Countries elsewhere with better tax regimes will eat your lunch. Which is precisely what you’re seeing here.
I don’t know, but since you told us that he pays significantly more than his secretary, you should tell us how much they make.
^ No need. Like I said I don’t see any real difference between an investor paying tax before or after it leaves the company. Berkshire pays tax, lots of it. If Berkshire paid less tax, Buffett would be richer. Therefore, Buffett pays lots of tax. Whether the tax comes out of your bank account or investment account shouldn’t matter
I like this mental gymnastics. You had no basis for stating that WEB paid significantly more in taxes than his secretary, and now you are confusing a corporation he holds stock in with his own personal taxes. It did not come out of his invesment account.
BTW…even if Berkshire paid more in taxes, Buffett’s investment income would still be 0. It has nothing to do with the valuation of your stock if you don’t sell it.
So if we’re counting cost of business as part of Warren Buffet’s tax burden, why don’t we also include raw materials in purchased by Berkshire in his tax burden? Costs of business help investors decide whether or not they will receive a high enough return to invest in that business. That’s a discussion that should be separate from personal income taxes, because they aren’t comparable.
Buffett’s stock is a claim on the company’s net assets, of which retained earnings is a significant component. Those retained earnings were reduced by the taxes that Berkshire paid and thus Buffett’s claim on those assets was reduced by approximately the same percentage.
Although Buffett didn’t directly see a cash outflow to pay those taxes, he indirectly paid for them even with an unrealized gain because the value of his assets were reduced by the taxes Berkshire paid.
If Berkshire was able to weasle out of paying tax, then yes Buffet would be richer. But if taxes were simply lowered, then he would only be richer in the short term until increased competition from incoming firms pushed earnings back down to the place where the market believes it should be.
Why would we count raw materials as part of his tax burden? You want to charge a cost onto a cost? Raw material costs certainly reduce Buffett’s income as well.
Even if your premise held, why would he only be richer in the short term? If your premise held, then he would enjoy higher income in the near term and the same income in the future, which would make him richer overall (more money now + same money later = more money overall).
Plus, if your premise held, more firms would have to be providing services at lower costs to the consumer (Buffett) thereby enhancing his wealth even further.
That is not true, ownership is not a claim on net assets. Ownership is a stake in the firm, which is a separate legal entity from the assets that entity owns, and that ownership is not transitive to the assets the firm holds.
Furthermore, this discussion of net worth is totally irrelevant to taxes. Increases in net worth are not taxable income, it absolutely does not matter what his net worth would be.
That’s my point. Income tax is a cost of business that is considered by investors, just like raw materials or anything else. If corporate taxes were lower, Buffet would only benefit temporarily, and if they were higher, we only suffer temporarily. Same as if the price of lumber goes down. Furniture factories will benefit in the short term, but not in the long term because more furniture factories will open up because the rate of return will be high enough to attract investment.
Buffet can’t claim raw materials, payroll, selling costs, or income taxes as part of his personal tax burden (even though they all result in increased revenue for gov’t) because they are costs of business.
Well yes you’re right lowering taxes would make him some more money. But in the long run, it would not effect his income. That means that if you lowered taxes to 0%, in the long run he would still be paying the same amount of income that he is today. And obviously that corporate tax cannot be considered part of his personal tax burden if raising or lowering it has no long run effect on how much tax he pays.
Stake. Claim. Same thing. Only ownership is a *net stake* (i.e. residual claim) in a firm beyond any claim that debtholders have. It’s true that a minority shareholder doesn’t have an implied right to withdraw cash from the company.
If a company with net assets decides to cease operating and sell its assets and distribute the cash, each common stockholder would have a legitimate claim on the net assets (i.e. those beyond the claim held by debtholders).
The value of Berkshire’s net assets is directly reduced by taxes and consequently, so is Buffett’s claim (or stake, or whatever you prefer to call it). Since his wealth is reduced by the same amount, he indirectly pays the tax. It’s silly to frame it any other way.
I suppose you think that, if the government decides to seize a house on which you have no mortgage, then you’re not paying a “tax” because there was no cash outflow?
Actually, in some ways higher taxes might well help Berkshire competitively given that many of his competitors will be hurt immediately whereas his firm will be lowering their effective taxes thanks to depreciation on very long lived assets.
That’s an incorrect premise, but I just want to point out how you tried to change “richer” (wealth) to its first derivative (“income”).