Buffett’s Hypocrisy on Taxes Comes Through Again
The Burger King/Tim Hortons merger is big news largely because it comes soon after President Obama chastised American companies for trying to perform so-called tax inversions. Obama and Treasury Secretary Jack Lew strongly implied that tax inversions were not economically patriotic. So, of course, the media has jumped all over this latest deal.
However, reducing taxes does not appear to be the motivation for this particular merger. After all, Tim Hortons’ marginal tax rate of approximately 28% is actually running a bit higher than Burger King’s 25% tax rate. Still, if the merger proceeds, the U.S. government will lose out even if the combined entity’s overall tax rate goes up. That’s because the merged company will be headquartered in Canada.
Enter Warren Buffett. Remember him? He’s the man who has regularly advocated for higher income and estate taxes on wealthy Americans. He’s the man who has argued that the rich should leave most of their money to the government. Yet he’s also the man who manages to escape high taxes by receiving most of his income in the form of tax-favored dividends and capital gains; and by making sure that most of his fortune goes to the Bill and Melinda Gates Foundation, thus significantly reducing potential estate taxes as well.
So what is Mr. Buffett doing now? He is helping to finance the Burger King/Tim Hortons deal. According to unconfirmed reports, Buffett’s Berkshire Hathaway is planning a PIPE. That’s an acronym that stands for private investment in public equity. It seems that Berkshire will invest billions of dollars in preferred stock. Given the company’s past history, this preferred stock will pay a very generous dividend to Berkshire and it will be convertible into common stock sometime in the future.
There’s nothing wrong with that. Buffett is clearly one of the greatest, smartest, and savviest investors of all time and he is doing exactly what he is supposed to do — make money for shareholders. Yet this deal is also consistent with Buffett’s hypocritical nature when it comes to taxes. On the one hand, he argues for higher taxes on the rich. On the other, he does everything he can to reduce the tax bite by taking advantage of loopholes. Interestingly, in this particular deal the overall tax bite could go up. It’s just that the money will go to the Canadian government, not the U.S. government.
Read Vahan’s blog at www.janjig.com.
Vahan Janjigian is Chief Investment Officer at Greenwich Wealth Management, LLC, a SEC Registered Investment Adviser, where he manages portfolios for clients in separate accounts. Dr. Janjigian is a former Forbes magazine columnist and former Editor of the Forbes Special Situation Survey. According to Hulbert Interactive, his stock picks returned more than 18% annually during one of the market’s worst 10-year periods.
Dr. Janjigian holds the Chartered Financial Analyst designation and has earned degrees in general sciences and finance from Villanova University and Virginia Polytechnic Institute and State University (Virginia Tech). He previously served on the faculties of several universities, including the University of Delaware, Northeastern University, the American University of Armenia, and Boston College, where he taught courses in corporate finance, financial theory, investments, accounting, and economics; and he currently teaches a seminar on equity investment management to business executives in Singapore through Baruch College’s Zicklin School of Business. Dr. Janjigian has served as an expert witness on matters involving portfolio management, churning, suitability, and hedge fund manager compensation.
Dr. Janjigian has published his research in numerous scholarly and professional journals; and has been quoted in many leading newspapers and magazines, including Barron’s, Forbes, The Wall Street Journal, and USA Today. He appears as a guest commentator on various television and radio networks, including Fox, CNBC, MSNBC, and CBS Radio. Dr. Janjigian is the author of Even Buffett Isn’t Perfect (published by Penguin) and co-author of The Forbes/CFA Institute Investment Course (published by Wiley).