Buffett bashes dividend plan

Buffett bashes dividend plan

By Joe Baker, Senior Editor

The U.S. Senate recently passed a measure sought by President Bush, namely to end the tax on stock dividends. The move has been criticized as welfare for the rich.

One of the strongest critics is legendary market master Warren Buffett. Buffett is CEO of Berkshire Hathaway, an investment company.

The Senate’s bill would make taxes on dividends drop to 50 percent this year, no tax next year until 2006, then become fully taxable in 2007.

Buffett said: “The mental flexibility the Senate demonstrated in crafting these zigzags is breathtaking. What it has put in motion, though, is clear: if enacted, these changes would further tilt the tax scales toward the rich.”

He noted that at present the rich, while paying a somewhat higher rate than those with smaller incomes, still pay a smaller portion of their income in taxes.

As an example, Buffett said if his company paid $1 billion in dividends next year, he, as CEO, would get $310 million in additional income. He would owe no further tax and his tax rate would drop to 3 percent, while his receptionist would be paying 30 percent, 10 times as much.

The administration claims the $310 million in Buffett’s pocket would stimulate the economy because he would invest it and create more jobs. Buffett said the senators fail to realize that if Berkshire Hathaway kept that money, it also would invest it and create new jobs.

Buffett said the plan invites, almost commands, corporations to twist their behavior in a major way. He said shareholders could simply have their corporations pay no further dividends this year, when they are partially taxed, but would have the companies pay those amounts in 2004, when they are tax-free. In 2006, they would take double the normal dividend and avoid dividends completely in 2007.

“Overall, it’s hard to conceive of anything sillier than the schedule the Senate has laid out,” Buffett said. “Indeed, the first President Bush had a name for such activities: ‘voodoo economics.’ The manipulation of enactment and sunset dates of tax changes is Enron-style accounting, and a Congress that has recently demanded honest corporate numbers should now look hard at its own practices,” he said.

Buffett reminded the public that: “When you listen to tax-cut rhetoric, remember that giving one class of taxpayers a break requires—now or down the line—that an equivalent burden be imposed on other parties. In other words, if I get a break, someone else pays. Government can’t deliver a free lunch to the country as a whole.”

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