An outlook on the U.S. economy, with Warren Buffett, Berkshire Hathaway chairman/CEO, who says the deficit is not only a spending problem, it is a promise problem.
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Coho Capital 2Q20 Commentary: Podcasts, The New Talk Radio
Coho Capital commentary for the second quarter ended June 30, 2020. Q2 2020 hedge fund letters, conferences and more Dear Partners, Coho Capital returned 46.6% during the first half of the year compared to a loss of 3.1% in the S&P 500. Many of our holdings, such as Netflix, Amazon, and Spotify, were perceived beneficiaries Read More
let’s get back to becky and warren in omaha. here’s what i was thinking, warren. let’s say we raise revenues. let’s say we do the buffet tax. i’m getting the feeling — i don’t know, you can answer for me, you’re not necessarily talking about using the increased revenue to expand the size and scope of government to include more social programs or more of a safety net. would you use most of the increased revenue to pay down the deficit that we’re already running? or are you actually looking at it becoming more like europe in terms of a welfare state and social safety net? no. we need to reduce the deficit. i don’t think the difference between 8% or 9% gdp is that dramatic. most of the economy is recovering. the other is not the matter of time and not stimulus in my view. no, i — spending is going to have to come down. we are a very, very, very rich family. we have $120,000 of gdp per household in this country. it’s fabulous. it’s six times when i was born. even a rich family can promise too much. in the end, you deal with finite resources. and it’s easy to promise. and can you overpromise. and we overpromised. that’s why i feel terrible, frankly, for people that will find promises modified and/or broken. and i also feel it’s terrible to have a situation like that exist whether the rich are paying the most tax rates they made in my lifetime. i was paying higher tax rates back in the 50s and 60s when i had a very small income. we are not paying down anything. we may be reducing the sides of the deficit. incidentally, we can run a 2%, 2.5% gdp deficit indefinitely and not have it go up a percentage. we’ve done it. we’ve done it for the last 50 years, since world war ii. but the numbers we’re running now are not sustainable over time. the only way to change something that’s not sustainable is to change it. right. the 15, 25 you talked about, if we go — even if we met at 20.20 — you don’t have to meet, it can be 18 1/2, 20 1/2, even 21. but it’s coming down from 25, warren. what are r whatever you’re talking about, you’re talking about — that’s why a lot of people say we’re spending too much. and maybe, you know, both sides do have a point. that it is a spending problem first and foremost, that it’s going to have to come down no matter what. not only a spending problem, it’s a promise problem. right. you mean — but it’s an income problem, too. it is. but you’ve got — but then you come back to — it’s important income problem. but there is no question, you’ve got to go up 3 or 3 1/2 points on the income side. you got to come down four points or so on the expenditure side. and you’ve got to modify the promises or you’ll never get it done. the republicans, though, have said that the way that they can do this is, a, we’re in a recession that we’ve been coming out of and eventually as the economy improves, that will bring the revenue numbers back up. and, b, that if you cut back on some of the taxes, that it would actually increase the economy even further. do you think that’s the case? well, very interestingly, they say if you increase taxes, that will hurt the economy. but they say you can cut expenditures without hurting the economy. they say if you reduce the deficit one way, it doesn’t hurt. but to reduce the deficit the other way — they’re both stimulative. it’s not a great idea to do both, warren. in other words, cutting spending and raising taxes are both destimulative. where is your priority? it depends on who you raise them on. right. right. i mean if you — i got $6 million or $7 million in my pocket right now. do you really? just from last yaer. just from last year in terms of what the republicans saved me. and i could have paid 34% just as easily as 17%. the government would have $6 or $7 million. it would the change one thing i’d be doing. right. corporations are a wash in cash. with you spent $10 billion on ibm. we spent $5 billion on b of a. we spent 7.abillion — you think corporations are undertaxed in this country, warren? i do the no think tax rates are too high on corporations, not at all. you bring us down ten points and we make bill ynz more. your tax rate was 5% or something at berkshire, wasn’t it? no. what was it? what was it? our accounting tax break will be probably 32 or 33. what does that mean? well, i mean if you look at — if you go back to the back of our annual report and it shows the debts rate calculated. but that allows for deferred caps. our tax rate is — our tax rate is probably — it’s — if you take the s&p 500, our tax rate is probably seven points higher. so, warren — the average across the s&p 500? just to clarify, the infective rate you’re saying is about 33%? something like that. if you got our annual report there, look it up in the back. okay, we’ll take a look. just to switch gears, we have a number of viewers who asked the question. you talked about what you loaded up and bought including ibm. is there anything you sold in the last quarter? not much. yeah, we may have trimmed a little here and there. i like buying better. you know, you go back to the corporate tax rate though. people saying you ought to lower that corporate tax rate, simpson bowls considered doing that. it’s the same situation. make sure that people are actually paying that rate. is that an infeeffective way of doing it? we can come up with a much farrer corporate tax rate. will is no question about that. generally speaking, the proposals are you take the rate down and make it revenue neutral by knocking out the special things. i have nothing against that. that would benefit berkshire, frankly. but i will tell you if it’s going to be revenue neutral, it means just as many people will have their taxes increased as decreased. and those increased will be flooding the capitol with lobbyists. if it’s revenue neutral, i mean that means billions and billions and billions of more are going to come from some companies. we’re going to pay less at berkshire. that will be hard to pass. and that’s you don’t see much happening on that front. again — the desirable outcome, but i have a dog in that fight. anything that brings down the rate and gets rid of most of the loopholes, we benefit from. but that argument is the one that’s being reported. do you think it’s possible to get not only corporate tax rate but a personal tax rate that gets rid of a lot of those deductions and manages to still bring in revenue? is that possible? the washington of today? i think that’s very tough. i think the people who — if something’s revenue neutral, i think the people find their taxes going up are going to complain and spend a whole lot more money fighting it than the people on the other side. may not be impossible. but i’m just saying that’s the reality of sort of the functioning of washington. but we have simplified the tax code in the past. we have. the last time was back in the 80s. is it possible to do that again? it’s possible. but you don’t sound hopeful. i’m not real hopeful, no. for one thing, it needs to raise more revenue which makes it even more difficult. right.