Republicans savage Buffett and his tax proposal

Warren Buffett, the self-made billionaire and son of a former Republican congressman, has widened the rift with his father's party by pressing for tax increases on the wealthy and reinforcing ties with President Barack Obama. Buffett endured scorn from Republicans this month after he called the Tea Party approach to budget talks “insane” and proposed raising $500 billion by taxing the richest Americans. Buffett, chief executive officer of Berkshire Hathaway Inc. (BRK/A), was cited as an exemplar by Obama at least three times since July. “Whenever Buffett says something, you can almost put money on the fact that within the next 48 hours, Obama's going to use the phrase, ‘My good friend Warren Buffett says blah, blah, blah,'” said David Rolfe, chief investment officer of Berkshire shareholder Wedgewood Partners Inc. “If you're going to tread into those waters, you need to expect the brickbats.” Buffett's criticism contrasts with praise he offered in the last decade to former California Governor Arnold Schwarzenegger and the political appointees of former President George W. Bush. The Tea Party movement, which made gains in last year's elections, was faulted by Buffett for silencing other Republican voices. Buffett plans to hold a Sept. 30 fundraiser in New York City for Obama's re-election bid, Democratic officials said. “He crossed the line from being an observer to being more of a participant,” said Jeff Matthews, author of “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett.” That, “to a lot of people seemed kind of weird and prompted a hostile reaction.” Support for Republicans Buffett, 81, has championed causes like abortion rights and the estate tax through his career, even as he cultivated relationships with Republican leaders. Buffett, a Democrat, was an economic adviser for Schwarzenegger's 2003 campaign and repeatedly praised Bush's picks, including former Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke, for their handling of the 2008 credit crunch. Buffett raised his voice as Democrats and Republicans sparred over a budget deficit of more than $1 trillion and worked on campaigns for the 2012 presidential election. Buffett, whose fortune is valued at more than $35 billion, has delved into public policy since July in a New York Times op-ed and interviews with CNBC, Bloomberg Television and Charlie Rose. “The speak-softly approach wasn't working, and he didn't think enough people were paying attention,” said Whitney Tilson, co-founder of Berkshire shareholder T2 Partners LLC and a member of Patriotic Millionaires for Fiscal Strength, which advocates higher taxes on the rich. “He's doing it because he believes in it, not because it's in his self interest.” ‘A Sound Bite' Buffett built Omaha, Nebraska-based Berkshire from a failing textile mill into a $180 billion seller of insurance, energy and freight hauling with more than 250,000 employees. “I think Mr. Buffett needs a day job,” Representative Joe Walsh, an Illinois Republican elected with Tea Party support, said today in an interview on Bloomberg Television's “Inside Track.” “These millionaires and billionaires are the folks that try to create jobs and grow the economy. The last thing we want to do is increase taxes on them right now.” U.S. Representative Michele Bachmann, a candidate for the Republican presidential nomination, derided Buffett's tax proposal as “a sound bite” and suggested he donate his fortune to the government. Another Republican candidate, Herman Cain, said Buffett was “playing the class warfare card.” A headline in the Wall Street Journal's Deal Journal blog asked, “Is Warren Buffett a Socialist?” ‘Coddled Long Enough' The wealthy should pay more, given that “the poor and middle class fight for us in Afghanistan” and are often required to contribute a greater portion of their earnings to the government, Buffett said in the Times. He said billionaires had been “coddled long enough” by Congress and proposed increasing some government revenue from capital gains that are currently taxed at 15 percent. “Buffett has always been in favor of taxes, and he's always been in favor of a progressive scale,” said Roger Lowenstein, the journalist and author of “Buffett: The Making of an American Capitalist.” “What's new is that the Republican Party has moved to the right of Genghis Khan.” Republicans want to use their control of the House and their ability to block bills in the Senate to continue tax cuts passed under Bush and extended last year under Obama. If Congress doesn't act, the top tax rate on ordinary income will rise in 2013 to 39.6 percent and the top tax rate on capital gains will climb to 23.8 percent, partly because of an increase included in last year's health-care law. Charity Pledge Buffett met less public resistance when he and Microsoft Corp. co-founder Bill Gates challenged fellow billionaires last year to commit at least half their wealth to philanthropy. Executives including Blackstone Group LP CEO Stephen Schwarzman had already staked out resistance to tax increases proposed by Obama. Schwarzman likened an Obama proposal to Adolf Hitler's invasion of Poland, Newsweek reported in 2010. Schwarzman apologized for the comparison and maintained his opposition to increasing revenue from the so-called carried interest paid to executives at private-equity firms and hedge funds. Carried interest is the portion of profits taken as compensation and taxed at the capital-gains rate which is lower than ordinary income-tax rates. Obama's plan, like Buffett's, focuses on applying income tax rates to some earnings that are currently categorized as capital gains. Alan “Ace” Greenberg, former CEO of Bear Stearns Cos., is among executives who support Buffett's call for higher taxes on the wealthy. ‘I Want to Pay More' “I agree with him, I want to pay more taxes,” said Greenberg, now at JPMorgan Chase & Co. “For him to pay less taxes percentagewise than what his secretary pays is ridiculous.” Buffett has said his tax rate is the lowest among the about 20 employees at Berkshire's headquarters. Capital gains from most assets held for longer than a year are taxed at a top rate of 15 percent, while wage income is taxed at a top rate of 35 percent. The difference between those two accounts for Buffett's lower rate. Buffett has praised members of both parties for offering to compromise. Among them are Republicans Alan Simpson, co-chairman of a deficit-reduction commission; and Tom Coburn, an Oklahoma senator; and Democrats Erskine Bowles, the commission co-chair with Simpson; and Dick Durbin, an Illinois senator. ‘A Real Statesman' “They were putting the country ahead of their personal feelings,” Buffett told Charlie Rose in the interview broadcast on PBS on Aug. 15. “I may not agree with Tom Coburn but I think that, you know, I think he's a real statesman.” Buffett said candidates for the Republican nomination were taking a “country-be-damned” approach to budget talks. The contestants were “pathetic” in an Aug. 11 debate when they indicated an unwillingness to accept $1 in revenue increases for every $10 in spending cuts, Buffett said. Buffett faulted Republican members of Congress who refused to concede points to Obama in pursuit of a broader compromise. The negotiations, which yielded an agreement for $2.4 trillion in deficit savings and identified only spending cuts, were conducted under the threat of a U.S. default as Congress approached a deadline to raise the nation's borrowing limit. Buffett evoked the image of House Speaker John Boehner and Senate minority leader Mitch McConnell, both Republicans, driving a car. He said the talks became a showdown with a Democrat car to see which would flinch to avert a collision. ‘They're Insane' “A group behind them said, ‘Throw out the steering wheel, Mr. Speaker, and make those people realize that we're not going to agree to anything unless we get our way,'” Buffett said. “You feel they're insane. You lose. And the American people lost.” Berkshire's ties to Washington increased in the past decade as Buffett moved the company beyond insurance, which is overseen by the states, into federally regulated industries of energy production and freight hauling. Berkshire lobbied Congress last year on lawmaker proposals to tighten regulation of derivatives. “I have to think if I'm a shareholder that I'm disappointed,” Meyer Shields, an analyst at Stifel Nicolaus & Co., said of Buffett's criticism of Republicans. “There is enormous risk in taking one side and then, when the pendulum swings, just exposing yourself to that sort of backlash.” Buy and Hold Buffett worked to minimize tax expenses for the private partnerships he managed in the 1960s, a focus that helped form his buy-and-hold stock-picking strategy and build his own personal wealth, Matthews said, citing Buffett's letters to investors. For most of the 1960s, capital gains were taxed at a maximum effective rate of 25 percent while top wage earners paid marginal income tax rates of 70 percent to 91 percent, depending on the year. As a money manager, Buffett's performance compensation was taxed at capital-gains rates, Matthews said. “Here's a guy who benefited from the exact same inefficiency in the market that he's now yapping about,” said Matthews, who owns Berkshire stock. “What he's not saying is, ‘Look guys, I ran a hedge fund, I used to benefit from the same tax advantages I'm complaining about now.'” “Carried interest income, taxed at a 25 percent rate, has been less than 2 percent of Mr. Buffett's total taxable income in his 60 years of investment activity,” Carrie Kizer, an assistant to Buffett at Berkshire, said in an e-mail. Buffett didn't comment for this story. Political Donations Buffett made political donations of $112,300 since 1990, according to data from the Center for Responsive Politics in Washington. Obama, Hillary Clinton and Democratic Senator Ben Nelson of Nebraska were among the biggest individual recipients. Three former lawmakers from the Republican Party, Christopher Shays of Connecticut, Nebraska's Tom Osborne and Nancy Kassebaum Baker of Kansas, received a total of $8,900 from Buffett, according to the data. Buffett's father, Howard Buffett, was a Republican representative from Nebraska. Buffett, who advised Obama during the 2008 election campaign, was awarded the Presidential Medal of Freedom in February. He met the president at the White House in July to discuss philanthropy, and Obama called Buffett this month to talk about the economy. “I think he's leading us to the right place,” Buffett said in a July 8 interview with Bloomberg Television's Betty Liu. Obama “has ideas about what America can and should be that are in synch with mine.” Buffett said he paid almost $7 million in federal taxes on about $39.8 million of taxable 2010 income. Buffett makes a salary of $100,000 at Berkshire and records capital gains on the returns from his personal investments. The bulk of his wealth is held in shares of Berkshire, which doesn't pay a dividend. Buffett has said that more than 99 percent of his fortune will go to charity. The donations will allow him to reduce his estate tax liability. --Bloomberg News--