by CalWatchdog Staff | November 28, 2012 10:03 am
Nov. 28, 2012
By John Seiler
During the recent campaign, Gov. Jerry Brown insisted that people would not try to avoid his Proposition 30 tax increase by halting investments and “hiding” their money. Prop 30 boosts the top state income tax rate on millionaires to 13.3 percent from 10.3 percent.
Warren Buffett just wrote the same thing in a New York Times op-ed, insisting that the wealthy don’t react when their taxes go up. “So let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased,” he wrote. “The ultrarich, including me, will forever pursue investment opportunities.”
The evidence, including Buffett’s own investment history, indicate otherwise.
The London Telegraph reported yesterday:
“In the 2009-10 tax year, more than 16,000 people declared an annual income of more than £1 million to HM Revenue and Customs.
“This number fell to just 6,000 after [Labour Party Prime Minister] Gordon Brown introduced the new 50p [percent] top rate of income tax shortly before the last general election.
“The figures have been seized upon by the Conservatives [who run the current government] to claim that increasing the highest rate of tax actually led to a loss in revenues for the Government.
“It is believed that rich Britons moved abroad or took steps to avoid paying the new levy by reducing their taxable incomes.
“George Osborne, the [Conservative] Chancellor, announced in the Budget earlier this year that the 50p [percent] top rate will be reduced to 45p [percent] from next April.”
In September, France increased its top tax rate to 75 percent. CNBC reported:
“Two months after Bernard Arnault’s bid for Belgian citizenship shocked France, another major cultural figure has crossed the border in a quest for lower taxes.
“Indeed, according to Belgian newspaper Le Soir, French superstar actor, Gerard Depardieu, has recently bought a mansion in the southern Belgium’s francophone region. His new home is in the town of Nechin, located just about a mile from the border, where French expats notoriously make up 27 percent of the local population.
“The move could allow the quintessentially French actor to escape the tax increases put up by the recently elected Socialist government in France.
“Indeed, the budget unveiled in September by French President Francois Hollande included one of his most controversial campaign promises: a 75 percent tax for incomes over 1 million euros ($1.27 million).”
Aside from Brigette Bardot, Depardieu is the only French actor most modern Americans recognize. It’s a kind of a real-life sequel to his movie “Green Card.” For him to leave is a blow against French chauvinism.
As to Buffett, the Weekly Standard reported, based on a new biography of him by Alice Schroeder:
“Early in his career, Buffett invested heavily—almost one third of his early fund’s capital—in Sanborn Map, a company that mapped utility lines and such. But he soon grew frustrated with the company’s leadership, which ‘operated more like a club than a business,’ and which refused to return greater dividends to investors. So Buffett amassed more and more stock, and with control of the company finally in hand he pressed the board of directors to split the company in two (one for the mapping business, and one to hold the company’s other outsized investments).
“Finally, the board capitulated. But with victory finally at hand, Buffett nearly scuttled the deal because of … taxes. As Schroeder recounts, quoting Buffett, one director proposed that the company just cleanly break the company, despite the tax consequences—”let’s just swallow the tax,” he suggested.
“To which Buffett replied (as he recounted to Schroeder):
” ‘And I said, “Wait a minute. Let’s — ‘Let’s’ is a contraction. It means ‘let us.’ But who is this us? If everyone around the table wants to do it per capita, that’s fine, but if you want to do it in a ratio of shares owned, and you get ten shares’ worth of tax and I get twenty-four thousand shares’ worth, forget it.”
“Buffett was willing to walk away from a deal because the taxes would have taken too much of a bite out of it. Fortunately for him, the board gave in and allowed him to structure the deal that he liked, saving him from his own [Grover] Norquistian response.
“That’s not the only time that taxes played a major role on Buffett’s decisions, as recounted by Schroeder. Later in the book (pp. 533-534), she recounts how Buffett chose to structure his investments under Berkshire Hathaway’s corporate umbrella, rather than as part of his hedge fund’s general portfolio, precisely because of the tax advantages.”
Et tu, Warren?
As to California, during the Prop. 30 campaign, Brown touted a study by two Stanford professors that supposedly showed millionaires wouldn’t leave the state if their taxes were jacked up. At CalWatchdog.com, I debunked that study.
California soon is going to find out the hard way that, yes, the rich do avoid tax increases. In addition to $1 billion in tax increases on sales taxes that hit everybody, Prop. 30’s income tax increases are expected to bring in at least $5 billion.
By the middle of 2013, we’ll see if millionaires reply, as Brown and Buffett insist, “Thank you, sir, may I have another!” Or whether, like Buffett himself, and like recent French and English emigre millionaires, California’s wealthy folks find ways to avoid the latest looting.
Source URL: https://calwatchdog.com/2012/11/28/will-millionaires-avoid-prop-30-tax-increase/
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