Blog Archives

Billionaire CEO and chairman of Berkshire Hathaway, Warren Buffett, tells the world investors that they need to bet on the “natural juices” of capitalism in the United States even though the country’s lawmakers are currently struggling to narrow the budget deficit.

During 2012, Buffett’s entire compensation declined by 14% during the year to $423,923. Berkshire Hathaway spent less money on his security during this time, but his overall salary remained the same at $100,000.

During an interview that Warren Buffett conducted with Business Wire’s CEO – a subsidiary of Berkshire Hathaway that also distributes press releases – he mentions that people have a tendency to “focus too much on what the government’s done, and to give them either credit or blame. The real credit belongs to our system.”

Throughout many of his 82 years, Warren Buffett uses his annual letter to shareholders, as well as his public appearances to make note of the prospects for the largest economy in the world, the US, which is also the place where the majority of Berkshire Hathaway’s businesses are based. He even called for a major tax increase to the wealthiest individuals in the US as a way to reduce the budget deficits and hold back cuts, but Republicans believe that this will actually hurt economic growth.

In a recent video interview posted online between Cathy Baron Tamraz and Warren Buffett, he mentions that the US economy “is coming back because of the natural juices of capitalism and not because of the government. We have a wonderful system that eventually is self cleansing and always moves forward.”

During the last three months of 2012, US gross domestic product actually slowed to a 0.1% annual pace. At the time, defense spending plunged the largest since the era of the Vietnam War. Congress put forth a mandate to cut $1.2 trillion in spending across the board. This is going to start in 2013 and it’s spread out over a nine-year period, in an effort created in 2011 to increase the US debt limit.

The reductions are almost going to be evenly split between non-defense spending and defense spending, and they are intended to be so difficult that lawmakers couldn’t possibly let them occur. President Barack Obama and the Democrats have wholeheartedly disagreed with the Republicans as to whether or not a new plan should include new tax revenue.

The Gas Pedal

Warren Buffett is the second richest person in the United States of America, and during his March 1 letter, he mentions that Berkshire Hathaway plans to keep its “foot on the floor” in regards to spending capital as he fully takes advantage of other opportunities presented in the United States of America. Berkshire Hathaway, based out of Omaha, Nebraska, has spent $9.8 billion in 2012 on equipment and plants in order to bolster its energy businesses and railroads. Buffett also wrote that they will most likely even exceed that amount during 2013.

“Opportunities abound in America,” said Buffett.

Warren Buffett built Berkshire Hathaway over 50 years ago through incredible stock picks and business takeovers worth over $250 billion. Some of its operating units produce car insurance, cover natural disasters, sell newspapers, make paint, sell chocolate, diamonds and furniture.

Berkshire Hathaway’s stock is up roughly 14% this year, and during the past quarter it has earned more than 40 fold. The current value of the stock at the time of this writing is $153,312 per share.

“Right Soil”

In the same Warren Buffett interview with Tamraz, he mentions that history shows us the true potential of the United States economy, and he cites issues like the two World Wars, the Civil War and the Great Depression.

“We went from a wooded land to an incredible, absolute abundance of riches” because the United States has had a system that can “unleash human potential,” said Buffett. “Never bet against what humans can accomplish if they’re operating in the right soil. And we have the right soil.”

Mr. Warren Buffett believes he understands the biggest challenge that President Obama will face during his second term, and that challenge is Congress.

Even though the Oracle of Omaha believes that Congress will present Obama with his biggest problem during his second term, he also believes that the United States will overcome the poor decision-making of lawmakers.

“What is right about America just totally dwarfs what’s wrong with Washington,” said Buffett in a recent interview on CBS News.

The billionaire investor has regularly criticized lawmakers during his career. Throughout the entire fiscal cliff debate, Buffett strongly recommended that Republicans “put country before party” in an effort to come to an agreement that would prevent $1.2 trillion in automatic spending hikes and tax cuts. They managed to avert the fiscal cliff, but President Obama and Congress didn’t come to an agreement until the 11th hour.

During 2011, Warren Buffett made an effort to influence Washington with a proposal where the ultra rich Americans would be required to pay a much higher tax rate than the American middle class. The plan was dubbed “the Buffett Rule” and the Senate ultimately didn’t agree with this plan.

Buffett recently spoke about another major issue that Washington is facing during his interview with CBS. The issue was the national debt. The leaders of the Republican Party believe that we should only raise the debt ceiling if an effort is made to reduce the debt through major cuts in spending. If Congress doesn’t do anything, the US can potentially lose its ability to meet its financial obligations during the middle of February, which we learned from our report by the Bipartisan Policy Center.

“It is not a good thing to have it going up in relation to GDP,” mentions Buffett in an interview. “The debt itself is not a problem.”

Here’s a brief look at some of the most important topics touched upon in a conversation that Charlie Rose has with Warren Buffett during an interview.

Enjoy!

Charlie Rose: I want to start with your recent opinion piece on a minimum tax for the wealthy. You take a stand against the idea of taxes curbing investment.

Warren Buffett: I’m going to call you tonight at midnight, and I’m going to be panting, and I’m going to say, “This is the best investment idea I’ve ever had.” Are you going to say, “How much will the tax be?”

Charlie Rose: So where do you set the rate?
Warren Buffett: On incomes of over $1 million, the excess $1 million should have a minimum tax of 30 percent. And then over $10 million, 35 percent. The reason I’m suggesting that is because the 400 highest taxpayers in the most recent year we have figures for, 2009, who had average incomes of $202 million, half of those people paid at a rate below 20 percent. A quarter paid at a rate below 15 percent. And believe it or not, six, average income of $202 million, paid nothing. I mean, they were members of Romney’s 47 percent, and I suspect he got their vote. That’s just a bunch of moochers. I think tax law should be progressive. And I think that when people make $15 million or $20 million or $200 million and pay a 10 percent rate, something should be done about it.

Charlie Rose: Do you think the president will listen?

Warren Buffett: I hope the president and Congress are responsive to it. There are all kinds of things wrong with the tax code, and reform is called for, but I don’t want to wait around until all of that stuff is done to do some things that are obvious now.

Charlie Rose: How dangerous is the fiscal cliff?

Warren Buffett: I don’t think it will do that much. People assume that a solution will be found quite promptly. It’s a little like the debt ceiling. The rest of the world may think we’re idiotic at times, but they don’t think we’re going to commit suicide.

Charlie Rose: You’re confident about the U.S. economy?

Warren Buffett: It’s getting better. It’s been getting better since, really, the summer of 2009. We’ve got four years straight now where the stock market has given a positive return. We had a tremendous bubble, and when it burst it had ramifications for all aspects of society. And it was magnified by the abuses that had taken place on Wall Street. So the dominoes were lined up, but we’ve been on the mend now for three years.

Charlie Rose: What would you tell investors?

Warren Buffett: Overwhelmingly, for people that can invest over time, equities are the best place to put their money.

Charlie Rose: Not bonds?

Warren Buffett: Bonds might be the worst place to put their money. They are paying very, very little, and they’re denominated in a currency that will probably decline in value. Other than that, they’re terrific.

Charlie Rose: You’re adept at valuing companies. Why are you so good at it?

Warren Buffett: I only get into situations where I know the value. There are thousands of companies whose value I don’t know. But I know the ones that I know. And incidentally, you don’t pinpoint things. If somebody walks in this door and they weigh between 300 and 350 pounds, I don’t need to say they weigh 327 to say that they’re fat.

Charlie Rose: You’ve said you’re hunting for a big elephant. How do you choose a company to acquire?

Warren Buffett: If you’re talking about buying an entire business—which we’re talking about in this case—I’m familiar with all the companies when you get to that size. It’s really a question of when the CEO, the board, is actually thinking about doing something. The initiative really has to come from them because Coca-Cola (KO) isn’t for sale, Wells Fargo (WFC) isn’t for sale, 99 percent of the companies are not.

Charlie Rose: In international terms, where do you see the best economic prospects?

Warren Buffett: Europe is still drifting downward to some degree. And Asia’s coming off the best rate of growth, but they’re coming down somewhat. The U.S., actually, is strongest relative to where it was six months ago or nine months ago. Housing is coming back big-time. But five years from now, 10 years from now, the world everywhere will be doing better.

Charlie Rose: Why?

Warren Buffett: Just because capitalism and market systems work. It’s been working, you know, since 1776 here. And it wasn’t because we had stimulus programs in 1794. Our system unleashes people’s potential. And we’ve got 312 million people that want to do better tomorrow than today. Over time, that works. This country goes forward, and it’ll continue to go forward. The luckiest person in history on a probability basis is the baby being born in the United States today.

Warren Buffett made quite the statement when talking about higher taxes and voluntary payments:

Republicans recently called out multibillionaire Warren Buffett, and requested that he donate money to the United States Treasury in order to help with our current deficit reduction issues, in which Mister Buffett told Time magazine that everyone should join hands in the effort.

“If we go to a contribution system, I’ll match the total contribution made by all Republican members of Congress. And I’ll even go three for one for McConnell,” said Buffett, according to the excerpts of the interview released by Time magazine.

I’ll pay if you do but I won’t if you don’t: this is otherwise looked upon as the collective action problem. It’s actually one of the main reasons why we have this taxation issue. We can all certainly agree that some of the taxes raised by the United States government are certainly essential. And it’s safe to say that all taxpaying citizens should pay according to the abilities they have in which they are capable of doing so.

One of the main problems that seriously puts limitations on people’s willingness to chip in is the fact that they believe other people aren’t paying their fair share. It’s the collective action problem, and we need to come up with a way to figure out how everyone actually pays their fair share. That way nobody will backslide and everybody will play his or her part.

The answer to this problem is law and democracy. We might complain about it, or even whine about certain things, but if the elected officials tell us that we have to have to pay certain taxes, then by golly that’s exactly what we’re going to do because we have to.

But we can certainly look at this collective action problem from a different perspective. What is all the tax money being spent on? Is it going to end up in the hands of one group or another, or will it be distributed to the areas where it is truly needed? If it goes to the right places, then people will not have such a difficult time paying when extra money is demanded of them.

So Buffett has certainly made a very interesting challenge, but did he really deliver a knockout blow? There is still a possibility that taxes won’t actually need to be raised. Maybe we can cut our spending instead. If you take a good look at the Federal budget, I’m sure you can spot areas of spending that really aren’t necessary. But that’s just one man’s opinion, and obviously I don’t have any say in this matter.

It makes sense to not only ask people to pay their fair share in taxes, but really look over the existing budget and decide whether all of this money is actually necessary. You don’t always need to ask people to give up so much money if it is being spent in wasteful ways.

Warren Buffett, billionaire investor, mentioned this past Wednesday that he’s really confident in Congress’s ability to eventually pass a plan that will address the upcoming fiscal cliff, even if that plan doesn’t come to fruition until earlier next year.

Warren Buffett also mentioned that the current debate over the upcoming automatic tax increases and cuts in spending that will take effect on January 1 aren’t going to affect his investment decisions at all.

“The fiscal cliff has nothing to do with long-term investment decisions,” said Buffett during his interview on CNBC.

Buffett believes that Congress will eventually put together a plan that makes perfect sense, whether it happens prior to the spending cuts and tax increases or not.

“I think there will be a lot of pressure if they don’t get an agreement by December 31,” said Buffett.

Buffett made an appearance this past Wednesday on CNBC with Carol Loomis. This appearance was to discuss her new book highlighting his career called “Tap Dancing to Work: Warren Buffett on Practicing Everything, 1966-2012.” The duo made a few different guest appearances together this week promoting the upcoming launch of the new book.

Buffett was also in the headlines earlier this week when he repeated his call for higher taxes, which was published in an opinion article in The New York Times. During his CNBC interview this past Wednesday, he mentioned that President Obama liked his article when he spoke with him on the phone this past Saturday. The two men didn’t talk about their difference in opinion over whose taxes should be increased.

Buffett reiterated that he is fully supporting Obama’s proposal to put an end to the Bush tax cuts for the wealthy. He also says that he’d like to set the tax increase at $500,000 income instead of the $250,000 income suggested by President Obama. He also mentioned that Congress should place a minimum tax of 30% on any income between the amounts of $1 million and $10 million, and if the income is higher than that, then a 35% rate should be implemented.

Buffett also made mention that Congress needs to consider raising corporate taxes as well. He mentioned that 30 or 40 years ago, American businesses paid taxes that roughly equaled 4% of the nations GDP. If you compare that to last year’s corporate taxes, it only represents about 1.5% of US gross domestic product.

“Corporate taxes have not been a problem for corporate America,” said Buffett.

Buffett also spoke about the structure of his own company, since they are a worldwide conglomerate… where he rejects the idea that it is set up to reduce the amount of taxes paid by Berkshire Hathaway. He tells us that Berkshire Hathaway, and all of the subsidiaries of his company, pay the regular rate of taxes on all of their profits.

Berkshire Hathaway owns over 80 companies. Some of the companies are railroads, jewelry, manufacturing, apparel, restaurant, utility and furniture companies. All in all, the utility and insurance businesses typically make up more than 50% of the overall income that Berkshire Hathaway produces.

Don’t worry. Even though there is lots of hysteria revolved around the fiscal cliff in the United States of America, the Oracle of Omaha tells us that we as a nation have nothing to fear.

Warren Buffett, CEO of Berkshire Hathaway, and billionaire philanthropist, is the man who goes by the moniker the “Oracle of Omaha” because of his excellent investing prowess. He tells us that no matter which way the fiscal cliff debate goes, Americans will not “permanently cripple ourselves.” With that being said, we’d be much better off if Congress were united, especially the Republican representatives, he tells CNNMoney.

“If 25 Republicans put country before party we won’t go over the fiscal cliff,” he mentions in an interview with CNNMoney.

Buffett also added that even if the lawmakers end up in gridlock, he doubts it will last very long or cause too much damage.

“[If Congress] can’t get along for the month of January, it’s not going to torpedo the economy.”

It’s not in Warren Buffett’s nature to fear making his views known on issues that are very similar. He’s done it quite often in the past. While the debt ceiling debate was going on last year, as an example, Buffett told us that the Republican-controlled Congress was “going to blow your brains out” by not raising the debt ceiling any higher. He also mentioned that not raising the debt ceiling could certainly be the “most asinine act” in the history of Congress.

This time, there are other economists making very similar statements to Warren Buffett. Larry Summers warns us that the fiscal cliff should not “become a license for terror.” In the meantime, New York Times columnist and Nobel prize-winning economist Paul Krugman is accusing the GOP of “holding America hostage” by demanding that Bush era tax cuts continue to protect the wealthy.