More Hypocrisy from Warren Buffett as He Structures Deal to Avoid $400 Million in Taxes

Warren Buffett epitomizes everything that is wrong with the global economy, and the U.S. economy specifically. He is the consummate crony capitalist, a brilliant yet conniving oligarch who intentionally plays on the gullibility of the masses to portray himself as one thing, when in reality he is something else entirely.

He publicly talks about how rich people need to pay more in taxes, then turns around and pioneers new ways for his company Berkshire Hathaway to avoid hundreds of millions in taxes. He thinks that by going on television stuffing ice cream cones and hamburgers in his mouth and acting all grandfatherly that no one will notice who he is really is and the incredible hypocrisy of his actions.

I’ve pointed out “Uncle” Warren’s hypocrisy previously on these pages, most recently in my post from last March titled: Crony Capitalist “Uncle” Warren Buffett Drives Company Profits Using Derivatives.

While that was pretty blatant hypocrisy, Buffett’s latest elaborate scheme to avoid $400 million in capital gains taxes from the disposition of a large chunk of Berkshire Hataway’s Washington Post stake (which was acquired in the 1970s for $11 million) absolutely takes the cake.

The Street published an excellent article on the topic. Their conclusion at the end of the piece says it all:

Bottom Line: Warren Buffett is pioneering new ways to avoid capital gains tax, even as he is President Obama’s richest spokesperson for progressive income tax policy. 

More from The Street:

NEW YORK (TheStreet) – Berkshire Hathaway may have avoided about $400 million in taxes by exiting its long-time stake in Graham Holdings – formerly known as The Washington Post Company – through an asset swap with the company that will add Miami-based TV station WPLG and hundreds of millions in cash to Berkshire’s coffers. Wednesday’s transaction also may also break new ground in how large investors structure deals to avoid taxes on their investment gains.

Berkshire’s deal with Graham Holdings is structured in a way that may allow the Warren Buffett-run conglomerate to exit a multi-decade investment in Graham Holdings without paying any capital gains tax, Robert Willens, an independent tax expert, said in a Friday telephone interview.

The cost-basis for Berkshire’s 1,727,765 million shares was $11 million, Warren Buffett said in Berkshire’s 2000 annual letter to shareholders. Now, Berkshire is seeking to exit Graham Holdings at a value in excess of $1.1 billion.

Applying a 38 percent tax rate (federal plus state and local taxes) would bring Berkshire to about $400 million in tax liability, Willens said. The swap orchestrated between Berkshire and Graham Holdings, however, is likely to reduce Berkshire’s tax liability to $0.

The mechanics of Berkshire’s maneuvering are arcane, especially since both Berkshire and Graham Holdings hold large investment gains on each other company’s shares. Berkshire holds 1,727,765 Graham Holdings shares, while Graham Holdings owns 2,214 shares in Berkshire’s Class A stock.

To unwind each other’s investment, Berkshire and Graham Holdings devised what amounts to a stock swap, although not a direct swap that would have locked in capital gains on both companies’ respective investments.

Normally, both corporations and investors must recognize taxable gains on appreciated assets, even if they transfer shares for assets such as cash or business lines.

But Berkshire isn’t directly taking the TV station from Graham, and Graham isn’t taking Berkshire’s stock. NewSub is doing all of the stock, TV station and cash swapping. As such, the swap may meet Sec. 355 of the federal tax code that exempts capital gains.

“This particular cash-rich split-off breaks new ground since, to our knowledge, it is the only one in which the investment assets of the distributed subsidiary consist, at least in part, of the stock of the very shareholder to whom the subsidiary’s stock is being distributed,” Willens wrote on Thursday.

Berkshire’s swap deal with Graham Holdings and similar moves the investment conglomerate has made in exiting large investments in Phillips 66  and White Mountain Insurance indicate that Warren Buffett isn’t interested in paying taxes on Berkshire’s investment gains when cutting deals on behalf of the company’s shareholders.

That comes as Buffett has placed himself front-and-center in a debate over taxation that has simmered in Washington for decades.

If you haven’t thrown up yet, I suggest you read my most popular post ever on our favorite crony oligarch from back in August 2011: A Wolf in Sheep’s Clothing.

Full article from The Street here.

In Liberty,
Michael Krieger

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  1. Dr Stanford N Gerber

    The only difference between Buffett and Zell is that Warren tries to project a decent image..Zell could care less abut doing so..Both are Pigs except now I’m insulting a group of innocent animals

  2. Of course the uber-rich stump for more income taxes – it’s obvious that people like Gates, Buffet, Soros, etc., wouldn’t mind paying 100% of their income because any one of them could live indefinitely on zero income. It’s on the rubes to wise up and stop listening to these bozos share their opinions on a tax that hardly touches them.

    Meanwhile, Michael, do you know know anything useful about achieving liberty?

    Can you explain, for example, what made St. Patrick so great?

    • I’m not Michael, but I’m of Irish lineage. St. Patrick was made great because he is said to have driven all the snakes from Ireland. Now Ireland has no snakes.

      I’ve been thinking that the U.S. has need of St. Patrick right now. We could sorely use one who could drive he snakes from our country. He could begin on Wall Street and work his way to Washington, then to the banking system.

      This would be the biggest migration of snakes the world has ever seen.

      • Sorry, that’s one of Patrick’s legends, and a famous part of his story, but not (the main reason) *why* he is great.

        Taken metaphorically, that he drove out the evil corrupt bozos, would be a good reason to consider him great.

        But in fact what made him great (and a Saint) is that he taught us how to drive out whichever snake we wanted to … but you don’t appear to have learned it, either, because you appear to be waiting for someone who already has (like me, who is ~75% Irish).

        Did you know that Patrick was in fact a rich Roman citizen on holiday who was stolen, and made a slave in the mountains of Ireland? Talk about life hacks!

        • How clever of you, Tommy me lad. I got the metaphor the first time. I’m not waiting for someone who has “already figured this out” to tell me again. That’s what I meant when I said we could use him here to rid the US of snakes. Metaphor for the Wall Street gangs and the Washington elites, then the dreaded banksters. Get it?

          Patrick was indeed a Roman citizen of Britannica, but he only 16 when he was kidnapped in Britannica and taken to Ireland. I suspect nefarious motives, but no one knows what they were. He certainly wasn’t on holiday.

          He made his way back to Britannica 6 years or so later. Then he returned later as a missionary, then a bishop, and rose to be the Prelate of Ireland sometime in the 5th Century, but the date isn’t certain.

          So with his wisdom and the establishment of monasteries where the monks studiously copied every book they could get a hold of, the Irish saved Western civilization by preserving much knowledge that would have been otherwise lost.

          Makes me proud to be of the land o’ Erin.

          • Of course you got the right metaphor (even though it looks like the legend actually meant the animal, which begs the question; how did that metaphor arise?)

            Meanwhile, you appear to have read Cahill’s book, but didn’t learn what made Patrick great (even though he said so directly?) No, it wasn’t his role in the storage of the Canon in some monastery on a dell off the coast; that would be more appropriately credited to the love of language and competence displayed by the Irish (and Scottish) during certain periods of time.

            I’m sorry, but you aren’t ready for actual freedom because you don’t have the knowledge to keep it.

            No, seriously – if you read Thomas Cahill and didn’t pick up on one of the major facts about Patrick, you really aren’t ready.

            Also, I think it was 9 years he spent shepherding sheep in the nude. “On holiday” is also approximately what Cahill described, precisely because Patrick was but a youth, therefore he was traveling with his folks … and for what nefarious purpose do you imagine?

            Meanwhile, yes, you are certainly waiting, because evidently BEING that snake-eradicated radical hasn’t occurred to you, despite the option being available to you the whole time. That option *exists* because of what Patrick taught the world … but you don’t know what I mean, because you don’t appear to have learned it!

            Like you and Michael, I’m Irish.

            Unlike either of you, I know what freedom is.

            Wouldn’t you like to know, too?

            http://www.abelard.org/e-f-russell.php

      • Are you Northern Irish or Southern Irish?

        • If by Northern Irish, you mean am I a resident, or did my forebears come from Northern Ireland? The answer is no. I am of Southern Ireland, not the colony of Britain.

  3. Incidentally, avoiding taxes is an all-American activity. Someone who _honestly_ cared about liberty would applaud such success, as I do our illegal pals from south of the border.

    Learn better, Michael:

    http://www.amazon.com/Those-Dirty-Rotten-Taxes-Revolts/dp/0684843943

    • Dr Stanford N Gerber

      I served in the Korean War.1951-1952 and still afterwards had great hope for America…no longer do I have such hope…the so called .01 are ruining the country and most of the people in it by their obscene greed and utter contempt for the other Americans who do thw hard work and fight Capialistic wars for the wealthy..People like Sam Zell, Ivan Brodsky, Steven Cohen, M Milken, Greenberg,,Taub, Swartzmann and their disgusting immoral economic behavior…someday if every we get a just and moral government they will pay their just penalties But don’t count on it..I’m completely discouraged and turned off by what we have allowed to happen

      • I share your sentiment, but Western Civilization has been collapsing since the Greeks discovered the square root of 2. Why does it keep stubbornly refusing to actually collapse?

        Or are you talking about the dollar collapse (which is a good thing for the schmoes who have prepared for it, if they are allowed to operate freely?)

        Oddly enough, Thales’ standard still rules:

        “But how do you know?”

        La Rasa thinks they are invading America…just like every other immigrant was rumored to have hoped to believe. Join the club, I say.

        The concern for punishing the people who stupidly follow perverse incentives blocks the effort to remove those incentives. I’d much rather end the scam, even if means the scammers get off. Punishing the bad guys, but leaving the machinery in place is no help to anyone, especially the people who deserve the knife.

  4. I think Krieg’s article misses the point:Berkshire Hathaway has a fiduciary duty to do what is in the shareholders best interest. Paying less taxes if legal is clearly one of them. So I think the article is a bit hyperbolic. Buffett studies other corporations and he simply caught this loophole a long time ago by following a fellow investor.

    Buffett is still a douche. But avoiding taxes for shareholders isn’t one of the reasons.

    I share the sentiment of the other gents hers though: we’re not looking too good in America right now—when the only narrative is how high can the market go no matter the costs or what the fallout will be t has gone beyond pathetic. it’s simply scary and I don’t see Bitcoin ( a great payment system but not that important to help humanity IMO) or precious metals helping in the slightest.

    There is simply no where to hide.

    • It appears you are the one that “missed the point”: the author is demonstrating Buffett’s hypocrisy. The tax avoidance part is the evidence of that hypocrisy, not the gist of the article’s subject.

      You may not “see” how PM’s have been real money for at least 5000 years, but some of us have better vision.

      Some of us realize our “paper” used to have “Gold Certificate” ($50 bill) and “Silver Certificate” ($20 bill) stamped on it, which allowed the holder to exchange for real assets: gold and silver. Hence the old saying: “Good as Gold” because it was, the issuers of the currency were restrained from obscene printing.

      They had to back it with more than the “full faith” of the US Government (Obama, Biden, McCain, Graham..names that fill us with “faith” and “confidence”, yes?)

      NO.

      I hope that assists you in understanding a subject (PM’s) in which you seemingly are “less than well- informed.”

    • I agree upon a few issues. Warren Buffet made his billions by buying popular American brands then closing U.S. plants and moving operation over seas. Why buy ols American brands made in Vietnam, the brands are no longer American. Why not just buy directly from China and avoid middle men billionaires?

      • Not true, David. Buffett may have done what you say a few times, but that’s not his MO. The primary way he made billions is by being a veritable pirate. He began his fortune by looking for and finding family-owned businesses with good potential, but which are in dire straights because the principal of the business had died, which forced the family to sell the business to pay the death taxes (the politically correct term is inheritance taxes). Before the poor soul was in the ground, Buffet was on their doorstep with his checkbook offering them 40 cents on the dollar of the value of the company — its value after inheritance taxes — since he knows they cannot pay the inheritance tax and keep the business. too.

        This is nothing but abject vulturism and piracy. I am galled by the number of people who think he made his fortune because he’s such a brilliant investor. Yet, by the lights of other pirates, he has just been very shrewd.

        He loves the inheritance tax and supports Obama and Liberals in retaining it. Since it is incongruent with preserving family wealth it might seem oximoronic, but it isn’t. As for his saying he’s leaving nothing to his children, he’s lying again. They are set up with trusts and stock ownership six ways from Sunday. He carefully avoids any of his own public claims about how the rich pay less taxes than the middle class so as not to interfere with his own quest for more money.

        Further, he has been in court with the IRS for more than ten years over some $15 billion in unpaid taxes. Only he could afford to fight that hard and that long. And it certainly isn’t costing him that much money to carry on the fight.

  5. Sure like to hear what Professor William Black has to say about this “swap.”

    The wager here is tax avoidance. The entire set up is to avoid paying taxes…there is no other evident purpose.

  6. Mike, as someone who is also not too happy with Mr. Buffett, I actually disagree with you. When Warren talks about rich people paying more taxes he talks about personal taxes, not corporate. When it comes to corporate taxes, the ethical thing to do is to perform one’s fiduciary duty and therefore pay the least taxes possible as long as one follows the law. As a matter of face, many holders of Berkshire are the 99% and so this is a tax break for them too

    As for your “A Wolf in Sheep’s Clothing” thesis, even there also you’re actually kind of wrong because Buffett is NOT leaving much money for his kids like so many oligarchs. He is donating it all, which is an alternate way of redistributing wealth (one that I support very much actually).

    So… maybe you have gone too far.

  7. Everyone should use tax avoidance through every means available in the tax codes to pay as little tax as possible. There are plenty of very legal ways to do this, and it’s as American as apple pie. Anyone who isn’t using these is a fool. However . . . Buffet’s case is different. He’s a pirate. And that’s the gist of this article.

    Buffet and his BH behemoth uses every conceivable way to avoid taxes including many that are not legal and have been contested in court by the IRS for years to the tune of several billion — yes billion — dollars claimed in unpaid taxes. BH can afford to keep the government in court for years, whereas few others can. This is where he is shown to be the liar, hypocrite and pirate that he really is.

    He is in the same game as Soros et al in backing and supporting Obama all the way. And the msm derides the Koch Brothers for contributions against Obama. What a joke. They aren’t close to what Buffett, Soros and others “give”. Strangely, we see no “hit pieces” on Soros or Buffett, like we do about the Koch Brothers.

    Part of Obama’s game is cultural/society dischord and divisiveness. So, to support the divisiveness, Buffett announces that he pays less tax than his secretary pays. Of course, this sounds horrible to people, and especially to those who hate the rich. But what he doesn’t tell us is that his “salary” from BH is less than his secretary’s. Understanding of course, he can set his salary at anything he wants. It doesn’t effect his personal life since he can expense everything he buys or pays for through BH. He probably uses his so-called “salary” for walking around money.

    He advocates “death taxes” because this enables BH to buy up family run businesses for 40 cents on the dollar and less if he can get away with it, since the family will lose the business anyway due to the “death tax” on the owner.

    He advocates higher taxes and is Obama’s personal advisor because he knows BH is not going to pay them anyway. It would be well for us to consider what it takes to be a economic adviser to an avowed Marxist.

    Recently Buffett wrote a letter to his shareholders in BH protesting a shareholder group who were gathering votes to make BH pay dividends. Buffett wrote that he would not do that. Period.

    Some writer earlier thought it was admirable that Buffett was not passing on his fortune to his heirs, but was giving it to charity. Personally, I don’t care if he throws it in the ocean. What most people including the writer above don’t realize is that Buffett’s heirs all have monstrously huge stock holder stakes in BH. So Buffett’s giving them his shares upon death would cost them more than they’d gain. I fail to see the virtue of his back-patting for this. It’s apparent some don’t realize how M3 money (shares, equities, securities, etc.) can be manipulated.

    Buffett must be recognized as a very smart financial trader, a savant. But intelligence and ability are not, and never have been, synonymous with being a honest, or being a descent person. We have only to look at some of our politicians for proof of this.

  8. Dr Stanford N Gerber

    CAPTALISM does not work for the vast majority of people.but we don’t learn…..An even better example of greed run amok is Sam Zell. I hope be burns in hell

    • As the vast majority of people exist only as a result of the fruits of capitalism, your claim is obviously false on it’s face.

      I would guess that you’ve mistaken the crony capitalism and manipulated credit markets we are currently experiencing for the free price profit-and-loss system that the word ‘capitalism’ usually means.

      Likewise, “greed run amok” is a purely propaganda term, offered as a substitute for a rational criticism.

    • No, Dr. Gerber, we’ve all learned, or should have learned, quite the contrary. That is, that capitalism is a systemic part of any conceivable economic system, since the trade of labor and materials for another form of value, whether it is money or goods, must occur or any economic system cannot function.

      What we have NOT learned is that the sole reason for everything said in this column and its comments is because of the abject inequities and fraud of the US tax code.

      It has been so bastardized by those in political positions to offer tax advantages to those who are powerful enough to buy them, that the person or business without the means to buy themselves a Congressman do not have a similar means to avoid taxes.

      Ridding our nation of the existing tax code for both individuals and corporations, along with the IRS, and replacing it with a flat or equal tax on every earner, whether individual or corporate, would eliminate the near criminal tricks of Buffett and other pirates, and BH, GE and other corporate parasites and reduce the IRS to a mere bookkeeping function.

      Then we rid ourselves of those politicians who are only deal-makers for their own self-interests vis a vis, trading cut-outs in the tax code for money to run for re-election.

      Equal outcomes is not the question, but equal taxation allows everyone the same opportunity. We shouldn’t wonder why our country is in such miserable shape.

      It’s not the economy, stupid. It’s the tax code, stupid.

    • Do you mean capitalism or the free market? Communism sure the L didn’t work. Economic corruption in the United States of America is directly profound to Presidential policy. The Constitution hasn’t been in effect since late 1979 in America.

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