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CNBC Transcript Part 4: Warren Buffett on the 'Buffett Rule'

Monday, 27 Feb 2012 | 1:26 PM ET
Ask Warren Buffett | The Transcript Part 4
Ask Warren Buffett | The Transcript Part 4

Warren Buffett appeared live on CNBC's Squawk Box this morning, February 27, 2012, for his annual "Ask Warren" three-hour marathon.

This is part four of a transcript of his comments. (Click here for part three)

BECKY: By the way, if you were listening to SQUAWK earlier this morning, you know that Warren Buffett is bullish on housing.

Warren, you talked about how this is maybe the best place to put your money, maybe even better than the stock market?

Buffett: Buy Single Family Homes
Warren Buffett, Berkshire Hathaway chairman/CEO says that buying single family homes is a great way to short the dollar.

BUFFETT: Well, I think if you have a way to manage the single-family home — yeah, single-family homes are selling at very attractive prices in many places and the mortgage financing you can get is unbelievable.

BECKY: Right.

BUFFETT: It's a great way to short the dollar.

BECKY: All right, we're going to have a lot more on that conversation and much more. SQUAWK BOX back right after this quick break.

***

ANDREW: I don't want to go there. Let's get back to Warren Buffett and Becky, who's in Omaha this mooning. I got a question if you'd indulge me, Warren. I've been doing a little bit of research while you've been talking. Now just about the tax rate, which you've talked about the tax rate — higher tax rate in the '50s and '60s being 52 percent, but the effective tax rate during that period on the .01 percent, and there's a study — I'll send it to you — says the effective tax rate on a .01 percent back then was actually 71.4 percent in the 1960s and 74.6 percent in the 1970s. And my question is, would those rates fly today and what would the impact on the economy be. And I ask that in the context that in the '50s and '60s some people would argue — and we had a number of people emailing already — suggesting that the wind was at our backs, if you will when you think about the economy during that period.

Warren Buffett: Tax Code Favors Rich
People have generally thought that people with combined average income of $270 million were probably paying a rate that was equal, according to Warren Buffett, Berkshire Hathaway chairman/CEO. The code has shifted into the favor of the extremely wealthy, he says.

BUFFETT: Well, I don't think they — they probably wouldn't fly today and I don't think they necessarily need to fly today. What you really need to do is have tax rates that people pay. And, you know, as I point out people — I think people have generally thought that people with $270 million of average income were probably paying a rate that was equal to — it isn't just the secretary in my office, it's everybody in my office. I think they probably thought they were paying in the 30s or something like that till you actually look up the figures. And incidentally if you go back to 1992, almost all of them were. It's just that the code has gotten to favor more and more the extremely wealthy and that's why the wealthy have seen — they've seen their net worth — the net worth of the Forbes 400 since 1992 has gone from 300 billion to a trillion five, five for one. So it — you know, we have a system that has drifted toward favoring the ultra-rich and...

JOE: You know, Warren...

BUFFETT: ...you know, we — but I don't — I don't — I don't think — I don't think we ought to go back to 70 percent rates, no.

JOE: I keep getting — I keep getting this question. You own — you own roughly a third of Berkshire Hathaway. Why don't you consider that the $2 billion that you pay — that Berkshire pays a certain tax bill, you own a third, so basically that income that Berkshire gets, the $2 billion, why don't you consider that as something that — that would skew your tax rate a little bit higher. You include it in your net worth. Why don't you include that $2 billion, your pro-rata share of Berkshire's tax bill since you don't pay yourself any ordinary income or minimal why don't you consider that as part of your tax bill?

BUFFETT: Well, I'm going to give away every share, every single share of Berkshire I have so that really belongs to philanthropies. You can argue that philanthropies may be paying it...

JOE: Or paying 2 billion.

BUFFETT: ...but I just — I've heard the double taxation article — argument a lot and actually I have — I have Governor Romney's tax returns here as well as my own tax returns. And it's kind of interesting. Here is, for example, in 2004 I had 46 million of capital gains. And, Becky, you can put up the last page of that return and you'll see on that return that millions and millions of dollars to capital gains and a few thousand of that was doubly taxed. I made a lot of that, millions and millions of dollars, from profits and Treasury inflation-protected bonds. There's no double taxation there. I made some of it from real estate investment trusts. There's no double taxation there.

Here are the same figures for 2006 when I had 40 million of capital gains and here's the last page of my schedule D there. Every single one of those stocks in which I was making millions of dollars was a Korean stock. They didn't pay a dime of United States federal income tax. So, and if you look at Governor Romney's return you'll see that he made substantial capital gains from companies where the companies themselves went public, but they in some cases pay no federal income tax and in other cases have paid very minor federal income taxes. So it is true there is some double taxation. There's an enormous amount of double taxation though with my secretary. If she gets a salary of X and we won't use her. We'll just use anybody who gets a salary of $100,000. They are paying 13.3 this year, 15.3 in 2010. They're paying 13.3 percent in payroll taxes and then that same income gets doubly taxes and gets taxed for income tax purposes. They get no deduction for their Social Security taxes in computing their federal income tax. So we have double taxation for tens and tens and tens and tens of millions of people who are making very small amounts of money.

BECKY: Warren, let me ask you this, though. By continuing to push this we did get a lot of questions, presumably from shareholders. One that came in was from David Evaul who said that having political positions are a part of public life. But for the life of me "I cannot understand why the CEO of a publicly traded company would antagonize roughly half of the political power in this country. Don't you have a fiduciary responsibility to shareholders not to get into such a public and antagonistic debates, no matter what your political views might be? It seems even Democratic shareholders would prefer you move to the sidelines of the political debate."

BUFFETT: No, I don't think if you're a CEO that you put your beliefs in a blind trust. I mean, I don't think you give up your citizenship. We have 270,000 people who work for Berkshire. There's not one of them that I've ever asked about their political views, or there's not one of them that I've told in any way to refrain from expressing their beliefs whether they're religious beliefs or political beliefs. And I think that — my cleaning lady, Mary, does not have voice. She doesn't have a super PAC, she can't spend $10 million trying to influence, you know, under free speech. I mean, free speech for her is something you can read about in the First Amendment. It doesn't mean a thing. I do have some kind of ability to speak out and I think that if you have an ability to speak out and you see things that you think are wrong I think you ought to talk about them.

BECKY: Let me ask you how this has gotten played in the political debate, though. There's another question that came in from Larry Polena in Cleveland, Ohio. Control room, it's number 40. He says, "It seems like the president has expanded the tax increase proposal you had, yet is still attaching your name to it. I thought the proposal you made was much more narrow than what the president has talked about when he talks about the Buffett tax proposal. Can you explain the idea you originally had and how it is more narrow in scope in terms of the number of people affected than what the president's talking about"?

We had a lot of people who said the 250,000 rate vs. the million.

BUFFETT: No. I never said 250. The Wall Street Journal sort of implied I said 250 in an editorial there, so I can see how people may have gotten that idea. But I have said above a million and I've said a minimum tax. And there are plenty of people that make over a million, over 5 million, over 10 million that pay normal tax rates. And I would not have — what I talk about would have no effect on them at all. It's only the people who are paying very low tax rates like me, but like some of my friends and like those 131 out of 400 who had an average income of 270 million who are paying less than 15, those are the ones I'm talking about. So I would have a minimum tax above a million and perhaps a different level of minimum tax above 10 million. Now Senator Whitehouse of Rhode Island has introduced a bill that is largely along that line. But it is — it does not apply to people with 250, it does not apply to everybody that makes 100 million.

BECKY: And what's your understanding of the president's understanding of the Buffett rule?

BUFFETT: Well, there has not been a specific bill as I understand it. But Senator Whitehouse has a specific bill. And his bill phases it in at a 30 percent minimum tax, counting payroll taxes, starting at a million. Now it phases in so that if you make a million and one dollar you're not worse off than if you made 999,000. But it — he has a bill that incorporates the principle I've talked about. It's not exactly what I would have, but you know...

Ask Warren Buffett | Download the transcript
Ask Warren Buffett | Download the transcript

BECKY: Something along those lines.

BUFFETT: ...that's always going to be the case.

BECKY: Although we get something like number 89, control room. This is a little bit tongue-in-cheek. But is there a tax you don't like? This was a Twitter that came — a tweet that came through. "When did this start and you're aware there's another side of the balance sheet?" What do you say to people like that?

BUFFETT: I don't like any tax. I've got my tax return here from when I was 13 and I paid $7 and I can tell you that I did not like paying the $7 at that time. The — no — but the reality is that we are going to have to raise 18.5 or 19 percent of GDP and revenues and I certainly think that the people who are very wealthy should do more than the people like my cleaning lady. And I'm not going to like it. You know, when I sit down and write the check for whatever it may be I'm not going to like it. But I also like this country and I think that what this country offers is wonderful and I think a very rich country should take care of the people that get the short straws in life. So I believe in things like Social Security, which is paid for by taxes. I believe in a good public school system, which is paid for by taxes. Even people who have no children, I think, should be paying, particularly if they're well to do, I think they should be paying for the — for a good school system for society as a whole. I believe in good medical systems. So, you know, that does not come free. And taxes are what we pay.

BECKY: There are a lot of people who are trying to figure out the economy, and we could talk more about this in a just a minute. But, overall, your view of the economy is that it continues to improve.

BUFFETT: The economy has been getting better since late summer of 2009. I said it was getting better then, and it's been getting better. And we see it in all our — we have 70 plus businesses, and we're seeing it in every place except those related to home construction.

BECKY: OK. Joe, we're going to talk more about that in just a moment, but I figure this is a good time to kind of look at what the economy is seeing and what Mr. Buffett sees in the stock market and other arenas, too.

JOE: All right, sounds good, Beck. A lot more with Warren Buffett right after break.

Let's check on the futures this morning. They've been trading lower most of the session, the market session, a little bit better than they were, down about 50 points.

Now making headlines, US economists seeing more reasons for optimism this year. A new survey from the National Association for Business Economics, that as forecasters have raised their expectations for employment. Also for new home construction and business spending this year. We're going to have more headlines and some stocks to watch coming up in just a bit. SQUAWK BOX with three hours of Warren Buffett will be right back.

CLICK HERE FOR PART FIVE: WARREN BUFFETT PERSONALLY OWNS SOME JPMORGAN SHARES

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