Suppose that part of Berkshire Hathaway’s value is avoiding corporate income tax by combining insurance with conventional businesses. And part of the firm’s value is avoiding individual income tax by doing stock buybacks instead of dividends.
Warren Buffett says that Trump’s proposed federal corporate tax rate cut to 15 percent (don’t forget to add state taxes as well!) would help his investors (link). But if corporate and/or individual income tax rates are cut, would that devalue Berkshire Hathaway relative to other enterprises?
Phil are you a Berkshire Hathaway investor? I think you should disclose.
Buffett has said that lower taxes generally help companies with pricing power because they are already charging as much as they can, and lower taxes just means a bigger slice of a limited pie. Companies that are not monopolies, that are in tough competitive industries, are unaffected by taxes because the incidence is simply passed along to customers, either tax raises or cuts. So Buffett’s companies, which are generally monopolies or duopolies, would probably benefit from a tax cut and would not have to pass along the benefits to customers.
Wow — How does “combining insurance” with “conventional businesses” (whatever that might mean) “avoid” income tax”? And if that were all there was to it why doesn’t everyone do that to “avoid” income tax? And if a firm’s “value” could be increased simply by “avoiding individual income tax” (not clear how that works since firms don’t pay individual income tax and lots of shareholders, mutual funds, endowments, offshore hedge funds don’t either) why doesn’t everyone do that and the value of all companies could be increased thereby? Sounds like a formula to create infinite wealth out of nothing. And if that is the case why share it with for free on the internet? Wow.
This is a misunderstanding of the business. Berkshire Hathaway is a conglomerate, combining insurance with other full owned businesses. Warren uses the “float” from the insurance to provide capital for other profitable businesses. Thus, insurance is a source of low cost capital.
Other aspects, including being a unique acquirer of private businesses, where Warren will usually not interfere with the business owners, nor “tart up” the business and sell it, is also an important factor.
The primary business model is not dependent on tax avoidance.
Of course, they don’t pay any more tax than they need to, but this is true of any well run business.
Read “Snowball” for a good introduction.