CNBC Transcript: Warren Buffett on China, the Economy, and Corporate Jet Tax Breaks (Part 7)

Published: Monday, 14 Nov 2011 | 2:21 PM ET
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By: Alex Crippen
Executive Producer
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 JOE: Let's get back to Becky and Warren in Omaha. Here's what I was thinking, Warren. Or let's say that we raise revenues, let's say that we do the Buffett tax. I'm getting the feeling, and I don't know, you can answer for me, that you're not necessarily talking about using the increased revenue to expand the size and scope of government to include more social programs or more of a safety net. Would you use most of the increased revenue to pay down the deficit that we're already running? Or are you actually looking at becoming more like Europe in terms of a welfare state and a social safety net?

 BUFFETT: Oh, no. We need to reduce the deficit and I probably am for doing it. I don't think the difference between 8 or 9 percent GDP stimulus and 4 percent is that dramatic at this point. Most of the economy is recovering and the other is a matter of time and not stimulus in my view. But no, I—spending's going to have to come down. We are a very, very, very rich family. We have $120,000 of GDP per household in this country. It's fabulous. It's, like I said, it was six times when I was born. But even a rich family can promise too much. I mean, in the end you deal with finite resources and it's easy to promise and you can overpromise and we've overpromised. And that's why I feel terrible, frankly, that for people that will find promises modified and/or broken and I—and I also feel that it's terrible to have a situation like that exist when the rich are paying the lowest tax rates that they've paid in my lifetime. I was paying higher tax rates back in the '50s and '60s when I had very small income. So I—we are not—we're not paying down anything. We may be reducing the size of the deficit. And, incidentally, we can run a 2, 2 1/2 percent of GDP deficit indefinitely and not have GDP go up as a percentage—I mean not have—not have the debt go up as a percentage of GDP. We've done it. We've done it for the last 50 years since World War II. But the numbers we're running now are not sustainable over time. And the only way to change something that's not sustainable is to change it.

 JOE: All right, but I mean the 15, 25 you talked about if we go—even if we met at 20, 20 you're talking about...

 BUFFETT: We don't have to meet. Yeah, we don't have to meet, Joe.

 JOE: Yeah. Right.

 BUFFETT: It can be—it can—it can be 18 1/2, 20 1/2, 18 1/2, even 21.

 JOE: But it's coming down from 25, Warren. I mean, you're—whatever you're talking...

BUFFETT: Right.

JOE: ...about you are talking about so that's why a lot of people that say, `look, we're just spending too much' and maybe, you know, both sides do have a point, that it is a spending problem first and foremost that's going to have to come down no matter what.

BUFFETT: It's not only a spending problem, it's a promise problem.

JOE: Right.

BECKY: I mean...

JOE: Right.

BECKY: Right.

BUFFETT: Yeah. But it's—but it's—but it's an income problem, too.

JOE: It is, but...

BUFFETT: Yeah.

JOE: ...you know, you've got—but then you come back to...

BUFFETT: It's an important income.

JOE: Yeah.

BUFFETT: It's an important income problem, but there's no question you've got to go up three or three and a half points on the—on the income side and you've got to come down four points or so on the expenditure side and you've got to modify the promises or you'll never get it done on the expenditure side.

BECKY: The Republicans, though, have said that the way they can come about doing this is that, A, we're in a recession that we've been coming out of and eventually as the economy improves that will bring the revenue numbers back up. And B, that if you cut back on some of the taxes that it would actually increase the economy even further. Do you think that that's the case?

BUFFETT: Well, they—it's very interesting. They say if you increase taxes that will hurt the economy, but they say you can cut expenditures without hurting the economy. In other words, they say if you reduce the deficit one way it doesn't hurt, and if you reduce the deficit the other way that you got...

JOE: But—but they're both destimulative. Which—it's probably not a great idea to do both, Warren. In other words, cutting spending and raising taxes are both destimulative. I mean, where would your priority be?

BUFFETT: It depends.

JOE: I mean...

BUFFETT: It depends who you raise them on. It depends who you raise them on.

JOE: Right, right, right.

BUFFETT: I mean, if you—I've got 6 or $7 million in my pocket right now...

BECKY: Really?

BUFFETT: ...just from last—just from last...

JOE: Wow.

BUFFETT: She got more interested.

JOE: Wow.

BUFFETT: Just from last year...

JOE: The baby...

ANDREW: Right.

BUFFETT: ...just from last year in terms of what the Republicans saved me, you know. And I could have paid 34 percent just as easily as 17 percent. The government would have 6 or 7 million more and I had six or seven million less. It wouldn't change one thing I'd be doing.

JOE: Right.

BUFFETT: Our corporations are awash in cash. You know, we have spent...

JOE: Just...

BUFFETT: ...as I said, we spent 10 billion on IBM, we spent 5 billion on B of A, we spent 7 1/2 billion on capital expenditures, a record this year.

JOE: So you do think—do you think corporations are undertaxed in this country, Warren?

BUFFETT: I do not think tax rates are too high on corporations. No, not at all.

JOE: So you would—everybody says bring it down.

BECKY: What about the bigger argument?

JOE: Yeah, everybody says bring down the corporate taxes.

BUFFETT: Yeah, well, listen, I mean, Berkshire would love to have it brought down. I mean, if you bring us down 10 points and we make billions more. But...

ANDREW: Well, what was your tax—your tax rate was 5 percent or something at Berkshire, wasn't it?

BUFFETT: No, no, no, no, no.

JOE: What was it? What was it?

BUFFETT: No. Our—it'll—our accounting tax rate will be probably 32 or 3, something like that.

JOE: What does that mean, accounting tax?

BUFFETT: We don't—well, I mean, I mean, if you look at—if you go back to the back of our annual report and it shows the tax rate calculated. But that allows—that allows for deferred taxes. But our tax rate is...

ANDREW: So the—the effect...

BUFFETT: Our tax rate is probably—it's—if you take the S&P 500, our tax rate would probably be about 7 points higher.

ANDREW: So Warren, just to...

BECKY: Then the average across the S&P 500?

BUFFETT: Yeah.

ANDREW: Just to clarify...

BUFFETT: Right.

ANDREW: ...the effective rate you're saying is about 33?

BUFFETT: Something like that. If you got our annual report there, you can look it up in the back.

ANDREW: OK. We'll take a look.

By the way, just to switch gears because we've got a number of viewers who've asked the question, you talk about what you loaded up on and bought, including IBM, is there anything you've sold in the last quarter?

BUFFETT: Not much. We've—yeah. We may have trimmed a little here and there, but we've had no massive selling of any kind. I like buying better.

BECKY: You know, you go back to the corporate tax rate, though, and for the people who are saying you ought to lower that corporate tax rate, even Simpson-Bowles talked about doing that, but getting rid of a lot of the deductions.

BUFFETT: You...

BECKY: It's the same situation. If you can make sure that people are actually paying that rate, is that an effective way of doing it?

BUFFETT: Well, I—obviously...

BECKY: Reducing it, so let's say, 25 percent.

BUFFETT: Yeah. We can come up with a much fairer corporate tax arrangement than we have now. I mean, there's no question about that. But generally speaking, the proposals are you can take the rate down and make it revenue neutral by knocking out all those special things. I have nothing against that. That would—that would benefit Berkshire, frankly, but I will tell you, if it's going to be revenue neutral, it means just as many people are going to have their taxes increased as decreased and the ones that are going to have them increased are going to be flooding the Capitol with lobbyists. I—if it's going to be revenue neutral, I will—you know, that means billions and billions and billions more are going to come from some companies because we're going to pay less at Berkshire.

BECKY: Right.

BUFFETT: That's—that will be hard to pass. And that's why you don't really see much happen on that front.

BECKY: But again, the...

BUFFETT: It would be a desirable—it would be a desirable outcome, but I've got a—I've got a dog in that fight. I mean, that—anything that brings down the rate and gets rid of most of the loopholes, we benefit from.

BECKY: But that argument is the one that's being put forth. Do you think it's possible to get not only a corporate tax rate, but a personal tax rate that gets rid of a lot of those deductions and manages to still bring in revenue? Is that possible in the Washington of today?

BUFFETT: I think it's very tough. I think the people who find—if something's revenue neutral, I think the people who find their taxes going up are going to complain and spend a whole lot more money fighting it than the people on the other side. It may not be impossible, but I'm just saying that that's the reality of sort of the functioning of Washington.

BECKY: But we have simplified the tax code in the past.

BUFFETT: We have.

BECKY: The last time was back in the '80s.

BUFFETT: Right.

BECKY: Is it possible to do that again?

BUFFETT: It's possible.

BECKY: But you don't sound hopeful.

BUFFETT: Well, I'm not real hopeful, no.

BECKY: Hm.

BUFFETT: But for one thing, it needs to raise more revenue, which makes it even more difficult.

BECKY: Right.

BUFFETT: All right. Joe, I think we need to slip in another quick break here, but when we come back we do have more to discuss with Warren.

JOE: Excellent. OK. Great. Coming up, we have more from Warren Buffett. Don't miss SQUAWK BOX tomorrow. Becky's back week continues with Mario Gabelli and BlackRock's Larry Fink.

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