Warren Buffett is under fire for avoiding taxes. Give him a break.

warren buffett
Warren Buffett.

OPINION

  • Warren Buffett is getting roasted for avoiding taxes after ProPublica’s bombshell report.
  • The billionaire investor is donating almost all of his money to good causes.
  • Buffett lives modestly, supports higher taxes on the wealthy, and doesn’t use popular tax loopholes.
  • See more stories on Insider’s business page.

Warren Buffett is being cast as the face of billionaire greed after ProPublica reported this week that he pays very little in federal income taxes relative to his vast wealth.

However, the investor’s minimal tax bill seems far less outrageous when viewed in the context of his modest lifestyle, philanthropic efforts, the nature of his company and its shareholders, his calls to raise taxes on the wealthy, and his refusal to use popular tax loopholes.

The case against Buffett

ProPublica analyzed leaked copies of Buffett’s tax returns between 2014 and 2018, and found the Berkshire Hathaway CEO paid just $24 million in federal income taxes on $125 million of reported income. The non-profit publication emphasized how little tax he paid by pointing out that his net worth grew by an estimated $24 billion in that five-year period.

“No one among the 25 wealthiest avoided as much tax as Buffett, the grandfatherly centibillionaire,” ProPublica declared.

Read more: Warren Buffett is hoarding $80 billion of cash, cleaning up his stock portfolio, and declining to bash bitcoin. Veteran investor Thomas Russo says why that strategy will ultimately pay off.

Politicians including Sen. Chris Murphy, Sen. Bernie Sanders, Sen. Elizabeth Warren, and Rep. Pramila Jayapal rushed to condemn Buffett and his fellow billionaires, calling for heftier taxes on the super rich and the closure of loopholes in tax laws.

ProPublica highlighted Buffett’s two main strategies to minimize his income, and therefore his taxes. The investor keeps over 99% of his wealth in Berkshire stock – which isn’t taxed until sold – and his company doesn’t pay a dividend, which shareholders would have to pay taxes on.

Not a typical billionaire

ProPublica reported that billionaires such as Amazon CEO Jeff Bezos and Tesla CEO Elon Musk paid no federal income taxes in some years, partly by taking out loans and deducting the interest paid on them from their incomes. There’s no indication that Buffett uses the same tricks; the investor said in 2016 that he has paid taxes every year since 1944.

Bezos is reportedly building a yacht so large that it comes with a support yacht, while Musk previously boasted a real-estate portfolio valued at north of $100 million – although he appears to have sold most of it to fund his dream of colonizing Mars.

The 90-year-old Buffett lives far less extravagantly. He resides in the same house in Omaha, Nebraska that he bought for less than $32,000 in 1958 ($290,000 in today’s dollars). He grabs breakfast at McDonald’s on his daily drive to Berkshire headquarters, guzzles Coca-Cola, and snacks on See’s Candies. He treats himself with an occasional trip to Dairy Queen, and entertains himself by playing online bridge.

The investor doesn’t use a company car, belong to any clubs where Berkshire pays his dues, or commandeer company-owned aircraft for his personal use – even though Berkshire owns NetJets, which sells fractional ownership of private jets.

Buffett also buys damaged cars and has them repaired to save money, and drove the same Cadillac for eight years until his daughter told him it was embarrassing and badgered him into upgrading to a newer model in 2014.

Notably, the Berkshire chief has drawn a $100,000 annual salary for the past 40 years – a fraction of the $15 million average pay of S&P 500 CEOs in 2019 – and doesn’t receive bonuses or stock options. While some details might be embellished, it’s clear that he lives a modest lifestyle relative to other billionaires.

Giving it all away

Buffett defended his tiny tax bill in a detailed statement to ProPublica, explaining that he’s pledged to donate more than 99% of his fortune to good causes. He’s donated about half of his Berkshire stock – worth about $100 billion at the current stock price – to five foundations since 2006.

The Berkshire chief told ProPublica that he prefers to hand his money to charitable organizations such as the Bill and Melinda Gates Foundation instead of the government.

“I believe the money will be of more use to society if disbursed philanthropically than if it is used to slightly reduce an ever-increasing US debt,” he said.

Read more: Warren Buffett’s Berkshire Hathaway has $140 billion in cash, yet it pulled billions out of Apple, Costco, and Chevron. Veteran investor Chris Bloomstran explains why the cash pile isn’t excessive and the sales made sense.

Buffett, aware that skeptics would likely dismiss his charity as a tax write-off, added that he’s only garnered 50 cents in tax benefits for every $1,000 he’s donated over the past 15 years.

The investor made a similar point in 2016, after Donald Trump accused him of taking a massive tax deduction. Buffett shared the details of his 2015 tax return, highlighting that he paid $1.8 million in federal income tax on $11.6 million of gross income, and only deducted $3.5 million for charitable contributions despite giving almost $2.9 billion to charity that year.

Moreover, Buffett noted that only $36,000 of his $5.5 million in total deductions that year were unrelated to charity or state income taxes. He added that he’s never used a “carryforward,” which allows taxpayers to deduct losses or tax credits from previous years. He pegged his unused carryforward at north of $7 billion in 2010.

Buffett clearly sees charitable donations as a reasonable way to pay fewer taxes, and has championed them in the past.

“If you want to give away all of your money, it’s a terrific tax dodge,” he quipped in response to an investor’s question at Berkshire’s annual shareholder meeting in 2010. “I welcome the questioner or anybody else following my tax dodge example and giving away their money. They will save a lot of taxes that way, and the money will probably do a lot of good.”

Buffett is also happy to keep his fortune in Berkshire stock. It signals to investors that he’s confident in his company and focused on generating long-term value, and means he has more skin in the game than anyone else. Moreover, he doesn’t feel guilty as his company’s success will ultimately benefit society.

“Many shareholders, including me, enjoy the long-term buildup in value, knowing that it is destined for philanthropy, not consumption or dynastic aspirations,” he told ProPublica.

Buffett also explained that Berkshire doesn’t pay a dividend because its shareholders overwhelmingly voted against one in 2014. They prefer Buffett to allocate Berkshire’s profits across the conglomerate and use them to buy quality stocks and businesses, instead of returning cash to them. Buffett also views buybacks as superior to dividends for several reasons, not just tax efficiency.

Buffett wants higher taxes

While some billionaires complain of excessive taxes on the wealthy, Buffett has called for higher taxes on the richest 1% of Americans, as well as changes to the tax code to prevent tax avoidance.

The investor highlighted more than a decade ago how ridiculous it was that his secretary paid a higher tax rate than him. The revelation spurred President Barack Obama to pursue the removal of tax breaks for the wealthy, and name his ultimately unsuccessful bill after Buffett. “If all the diseases have been taken, I’ll take a tax,” the investor joked at the time.

Buffett has also called for policies to reduce income inequality, such as expanding the earned-income tax credit to help workers get ahead. He once testified to Congress that estate taxes should be higher and better enforced, he told ProPublica, but his “persuasive powers proved to be limited.”

Overall, it’s not surprising that under the current tax rules, a 90-year-old who keeps his fortune in his company’s stock, and funds a simple lifestyle with a modest income, doesn’t pay a lot of tax.

It seems harsh to go after Buffett when he’s giving away virtually all of his money, calling for higher taxes on the wealthy, refusing to use several loopholes to pay less tax, and running a company where holding its stock for the long term and not paying a dividend makes perfect sense.

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Nearly 7 million tax returns haven’t been processed by the IRS because of stimulus changes

IRS office
Internal Revenue Service.

  • The IRS is behind in processing tax returns for nearly 7 million Americans.
  • Changes in the December and March stimulus bills account for the delay, as does a cut in IRS staffing.
  • Lawmakers have asked the IRS to extend deadlines and remove requirements on filing amended returns.
  • See more stories on Insider’s business page.

President Joe Biden signed his $1.9 trillion stimulus package on Thursday, a win for many Americans who needed financial aid to recover from the pandemic. But that has slowed things down for the Internal Revenue Service to the extent that 7 million Americans are now waiting for tax refunds.

In December, Congress passed a $900 billion stimulus package that included $600 stimulus checks the IRS had to distribute. The more recent passage of the American Rescue Plan requires the agency to begin distributing $1,400 stimulus checks, and to field adjustments to unemployment benefits – a tax exemption on the first $10,200 of benefits – as well as a new child tax credit.

According to IRS data, 6.7 million tax returns have not yet been processed in 2021, but in 2020, only around 2 million returns faced processing delays, reflecting the effects of the stimulus changes.

IRS spokesman Robert Marvin told The Washington Post on Friday that while most refunds take 21 days to be issued after filing season starts, some refunds may take longer.

“Many factors can affect the timing of your refund after we receive your return,” Marvin said. “Some tax returns take longer to process than others. For example, returns with an error, incomplete information or those affected by theft or fraud may take longer to process.”

In addition, the Government Accountability Office found in a March 1 report that from 2010 to 2019, IRS staffing was down by almost 23% and its budget was cut by 20%, factoring into the processing delays that must be resolved manually.

“IRS’s overall 2020 performance was significantly impacted by its reliance on manual processes such as for paper returns, and its limited ability to process returns remotely while processing centers were closed,” the report said. “As a result, as of December 2020, IRS had a significant backlog of unprocessed returns and taxpayer correspondence.”

Democratic lawmakers have expressed concern with the backlog the IRS is experiencing, and the effects the backlog has on taxpayers who need their refunds to stay financially afloat. House Ways and Means Committee Chair Richard Neal and House Oversight Subcommittee Chair Bill Pascrell called for the IRS to extend tax filing season on March 8, citing the lack of help taxpayers were receiving from the agency.

More recently, 21 Democrats, led by Senate Majority Whip Dick Durbin, called on Friday for the IRS to remove the current requirement of an amended tax return for taxpayers who have already filed and want to account for tax relief in the stimulus bill.

“We recognize the challenges of implementing this change in tax law during filing season, particularly as millions of Americans have already filed their tax returns for 2020,” the letter said. “This underscores the need for Treasury and the IRS to take every action to ensure that all eligible individuals, including those who have already filed their 2020 tax return, are aware of and able to receive this critical relief.”

Biden’s stimulus plan included $1.9 billion in additional funding for the IRS, but the agency has yet to respond to lawmakers’ concerns on processing delays.

Read the original article on Business Insider

With Trump out of office, the Biden administration decides if Congress can have the ex-president’s tax returns

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Donald Trump’s taxes could soon be in the hands of House Democrats.

  • A US judge on Friday gave the Biden administration two weeks to decide on a position in a lawsuit over Donald Trump’s tax returns.
  • House Democrats sued to obtain the records.
  • A lawyer for House Democrats said they are issuing another subpoena to obtain Trump’s taxes.
  • Visit Business Insider’s homepage for more stories.

The Biden administration has been given two weeks to decide whether or not to drop the previous administration’s opposition to releasing Donald Trump’s tax returns, The Washington Post reported.

In 2019, Democrats on the House Ways and Means Committee sued to obtain the former president’s IRS filings. On Friday, the US judge in the case, Trevor McFadden, elected to give the new president’s team some time to reconsider what government lawyers will argue in the case.

A key objection to handing over the returns was that it would violate the separation of powers between the legislative and executive branches of government. With Trump no longer president, this no longer applies, the Post noted.

“It would be a former president trying to stop a political branch, rather than one branch suing another. At least that’s my instinct,” McFadden said Friday.

A spokesperson for the Ways and Means Committee, which has jurisdiction over tax issues, did not immediately respond to a request for comment.

In September, The New York Times obtained some of Trump’s tax returns, revealing that he paid just $750 in federal income taxes in both 2016 and 2017.

Last summer the US Supreme Court ruled that Trump could not stop New York investigators from issuing subpoenas for his tax returns and other financial documents. Prosecutors there are investigating the former president’s business empire and whether it broke state law.

Have a news tip? Email this reporter: cdavis@insider.com

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