Berkshire buyback seen clashing with estate tax push

Wed Dec 12, 2012 6:19pm EST

Dec 12 (Reuters) - Warren Buffett's $1.2 billion share buyback from a single unnamed investor likely helped that person's estate save substantially on taxes, just one day after the Berkshire Hathaway CEO said the rich should actually be paying more, not less, when they die.

With the "fiscal cliff" looming and estate taxes set to rise dramatically in less than three weeks, the timing was seen as advantageous - and, according to Berkshire watchers, also out of place in the context of Buffett's recent tax activism.

"I would say 'Warren, would you please just keep your nose out of this.' He's not in a position to criticize what's good for America and for everyone else's estate," said Anthony Sabino, a professor of business at St. John's University. "He's no doubt utilized the present tax code to maximum effect."

Berkshire said it bought 9,200 Class A shares from "the estate of a long-time shareholder," whom it did not name, at $131,000 per share, a price in line with where Berkshire has traded in recent weeks.

Buffett's assistant didn't respond to a request for comment on the shareholder's identity. The shares represent 1 percent of Berkshire's Class A stock.

The repurchase came less than a month ahead of the looming "fiscal cliff," automatic tax hikes and spending cuts set for Jan. 1 that the White House and members of Congress have been negotiating to avoid.

Among other levies, the estate tax is expected to rise in the new year package by as much as 20 percentage points, which may have spurred the anonymous shareholder to sell now.

Buffett was a signatory of an open letter released Tuesday that called for a lower starting point for the tax and a higher taxation rate, beginning at 45 percent.

"We believe it is right to have a significant tax on large estates when they are passed on to the next generation. We believe it is right morally and economically, and that an estate tax promotes democracy by slowing the concentration of wealth and power," the 33 signers wrote in the letter released by the campaign, United for a Fair Economy.

He has also been publicly campaigning for more than a year for higher taxes on the wealthy, even lending his name to a proposal called the "Buffett Rule" that failed in Congress.

DEATH AND TAXES

Berkshire also said Wednesday it raised the threshold for future share buybacks to 120 percent of book value from 110 percent, the level it chose when it first approved a repurchase program in September 2011. The higher level allowed Berkshire to complete this latest buyback, which was above the old threshold.

After news of the buyback, Berkshire's shares were up 3.1 percent at $134,850.

Based on the company's book value at the end of the third quarter, the buyback limit would stand for now at $134,061.60. The stock has traded below that level for most of this quarter.

Buffett was always loath to offer share buybacks and consented to it last year only after Berkshire hit historically low valuations. In its most recent quarterly filing, Berkshire said it had not made any repurchases in the first nine months of 2012, after spending just $67.5 million on buybacks in 2011.

"I don't expect a significant repurchase program to be announced as (Buffett) is clear that he is in acquisition mode," said Michael Yoshikami, founder and CEO of Destination Wealth Management and a long-time Berkshire investor.

Berkshire ended the third quarter with $47.78 billion in cash, and Buffett has made no secret of his desire for a purchase in the $20 billion to $30 billion range.

Yet given his wealth and his own self-professed low tax rate, Buffett has been called out in some quarters for not practicing what he preaches.

"I have a problem with Warren, who's basically done with this (issue), to say 'yeah, raise the estate tax,'" Sabino said.

"I think, again, with all due respect for his sagacity at selling stocks, he's being incredibly short-sighted."

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Comments (40)
one_farmer wrote:
Good ol “Do as I say and not as I do” Warren. What a guy!

Dec 12, 2012 6:57pm EST  --  Report as abuse
This article seems to imply that the buyback helped the person’s estate save on estate taxes. I fail to see how that was achieved. If that anonymous investor is still alive, then selling back his shares to Buffett this year instead of next year would save him a large amount of capital gains tax. It doesn’t help him save on future estate taxes after he dies, however.

If that investor is on the cusp of death, then doing the buyback now would actually create a larger tax bill because he would be foregoing the step-up-in-basis that he would have gotten had he held the shares at death.

Dec 12, 2012 7:00pm EST  --  Report as abuse
JustSaying132 wrote:
Mr. Buffett has always been quite the hypocrite when it comes to paying taxes. If I’m not mistaken Buffett has a 10 year old case still pending over $1,000,000,000.00 in back taxes which he owes the IRS. Hey Buffett! PAY YOUR FAIR SHARE! Then, since you think the rich don’t pay their fair share, you should lead by example and send 55% of your wealth here:

Gifts to the United States
U.S. Department of the Treasury
Credit Accounting Branch
3700 East-West Highway, Room 622D
Hyattsville, MD 20782

Once you do that Mr. Buffett then maybe you can tell the rest of us were not pulling our weight. Until then, zip it. I don’t need to hear some rich guy who doesn’t pay his fair share lecturing others about how they’re not paying theirs. Hypocrite.

Dec 12, 2012 7:03pm EST  --  Report as abuse
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