Billionaire investor Warren Buffett was an outspoken Hillary Clinton supporter and has been in favor of higher taxes on the wealthy for some time. Meanwhile, Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) many subsidiary businesses and stock investments would undoubtedly benefit from the lower corporate tax rate being proposed by Republicans.
Here's what Buffett has said about the recently released GOP tax framework and what he thinks we should do when it comes to tax policy.
On the corporate tax proposal
There's widespread support for cutting the corporate tax rate in the U.S. on both sides of the political spectrum. However, Democrats and Republicans generally disagree on the magnitude of what those cuts need to be. For example, former President Barack Obama had supported a 28% corporate tax rate, significantly lower than the current 35% top rate, while the GOP is calling for slashing the rate to just 20%.
It is certainly true that the U.S. has a relatively high corporate tax rate as compared to the rest of the industrialized world. However, Buffett doesn't think a drastic cut is necessary. "We (Berkshire Hathaway) have a lot of businesses... I don't think any of them are non-competitive in the world because of the corporate tax rate," Buffett recently said in a CNBC interview.
Cutting the estate tax would be a mistake
The estate tax applies to estates of more than $5.49 million in taxable value, and only the amount above that is taxed. Furthermore, there are ways for wealthy individuals to reduce their estate tax liability, such as by taking advantage of the annual gift exclusion. Simply put, it only applies to the wealthiest American families.
Buffett recently said that there are going to be 2.6 million people who die this year in the United States, and only about 5,000 of them would end up owing estate taxes. This works out to the top 0.2%.
Republicans have been trying to repeal the estate tax for many years, and the basic argument is that these wealthy families paid income tax on their money already -- why tax it again after they die?
Buffett says that repealing the estate tax would be a big mistake. Since the tax affects a small percentage of Americans, he argues, there wouldn't be a major benefit to most people. He also says that allowing great sums of wealth to simply pass from one generation to the next is a poor way to allocate our nation's money.
"If they pass the bill they're talking about, I could leave $75 billion to a bunch of children and grandchildren and great grandchildren. And if I left it to 35 of them, they'd each have a couple billion dollars," Buffett told CNBC. "Is that a great way to allocate resources in the United States?"
Higher taxes on the rich?
Buffett has famously commented that he pays a lower tax rate than his secretary, and as we discovered when the Oracle of Omaha released a recent tax return during the 2016 presidential campaign, he probably does.
While this isn't a recent development, the so-called "Buffett Rule" sums up Buffett's feelings about how the wealthy should be taxed.
Simply put, the Buffett Rule states that all individuals who earn more than $1 million per year would pay a minimum 30% tax rate, regardless of how many deductions or other tax breaks they would otherwise be entitled to. This is a similar principle to the Alternative Minimum Tax, or AMT, but would be a higher rate targeted at a much higher income bracket.
Will a tax cut happen?
Despite many experts thinking tax reform isn't likely to pass, Buffett thinks that passage of tax cuts are likely this year. He feels that after the healthcare failure, Republicans need to get this done.
"Any politician that can't pass a tax cut is probably in the wrong line of business," said Buffett.
To be clear, whether we get a tax cut this year or a full-scale tax reform bill remains to be seen at this point. However, Buffett seems to think that the Republicans will get their way, at least in some form.