Virtually everyone agrees the U.S. tax system is broken, but there is very little agreement about how to fix it. It’s gotten to the stage where Americans just take it for granted that the rich and corporations will pay a small share of their income in taxes relative to the middle class, but there is still a debate on the morality of how those with money avoid paying taxes and at what point “good tax strategy” becomes out and out antisocial greed.
A recent article by Allan Sloan in CNN Money compares the tax strategies employed by two venerable American economic institutions: Apple Inc. (NASDAQ:AAPL) and Warren Buffett’s multiconglomerate empire.
Apple’s shameful tax strategies
Sloan slams Apple Inc. (NASDAQ:AAPL)’s tax strategies in his article, saying the company goes to “extraordinary lengths” and will do anything it possibly can to “siphon profits out of the U.S.” using foreign holding companies that pay very little tax to any country.
Sloan sums up Apple Inc. (NASDAQ:AAPL) antisocial attitude accurately. “The Apple tax games exposed last year by the Senate’s Permanent Subcommittee on Investigations were outrageous. They are, in a word, shameful. The fact that the games aren’t illegal doesn’t make them right. Apple and its ilk are mooching off people, including me, who believe in helping support the country that helps make our success possible.”
Warren Buffett’s tax strategies
Warren Buffett is no angel. He has ruthlessly exploited corporate America to enrich himself and his family and cronies for more than five decades, but he’s no tax cheat. Sloan points out that businesses he controls will certainly take advantage of the standard tax loopholes available for the industry, but don’t go to excesses looking to cheat Uncle Sam out of every nickel and dime.
In discussing how Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) and Graham Holdings Co (NYSE:GHC) managed to save a total of $675 million or so in taxes by using a “cash-rich split-off”, Sloan said he did not think it was “right” (and pointed out it would be easy to close the loophole), but that it was pretty much standard practice for large enterprises today.
Sloan also refutes claims that Buffett’s large “pre-donations” of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) stock are an attempt to avoid estate taxes. “Buffett’s donations of Berkshire stock are wildly tax-inefficient. Because he’s giving away “appreciated securities” worth more than he paid for them, he can’t use the deductions he creates to offset more than 30% of his income. I estimate that he’s created $10 billion of charitable deductions that he’ll never use. That doesn’t strike me as bad apple behavior.”