A Tax Break for Warren Buffett?
News coverage of the tax cut bill now in Congress has noted that the bills
contain special favors for certain companies and individuals, including Warren
Buffett, the legendary Omaha investor and second-richest man in America. What
exactly is the special favor for Buffett?
Special favors in legislation almost always are disguised as provisions of
general application. They apply to "any company founded in June 1958 and
located in a city with a population between 150,000 and 200,000," or similar
language that fits only one beneficiary. The alleged "special favor" for
Buffett, however, really is a change in the general law, for better or worse,
and not a sweetheart deal just for him.
Under current law, a charitable foundation cannot own more than 20 percent
of the stock of any publicly traded corporation. This law was enacted in 1969,
when Congress was concerned about the power and possible misuse of foundations.
The purpose of the 20 percent limit was to prevent wealthy families from
maintaining control of public companies indirectly through a foundation. By
passing his stock on to a foundation, rather than to family members themselves,
the patriarch could guarantee that it wouldn't be sold by heirs or dispersed
over the generations. The Senate version of the new tax bill would raise the
limit from 20 percent to 40 percent and ultimately (in 2008) to 49 percent.
The provision was sponsored, at Buffett's request, by his home state
senator, Democrat Bob Kerrey of Nebraska. Buffett owns 40 percent of his
holding company, Berkshire Hathaway. He has publicly stated that he will leave
his stock to his wife, or if she dies first, to his family's private
foundation. "In either event, Berkshire will possess a controlling shareholder
guided by the same philosophy and objectives that now set our course," he
writes on the Berkshire Hathaway Web site. Buffett's "philosophy and objectives"
are widely admired, so the concerns of 1969 have not been raised this time
around.
Next question?
