Posted 11:07 PM by Robert

Davis Descending XXIX: At Home With Warren Buffett!

A few days ago the Wall Street Journal reported:

Warren Buffett , the billionaire financial adviser to Arnold Schwarzenegger's campaign for California governor, strongly suggested in an interview that the state's property taxes need to be higher. Mr. Buffett, the chairman of Berkshire Hathaway Inc., took on California's famous Proposition 13, which has limited property taxes there since 1978. As an example, he pointed out the difference between his own property-tax bills for homes he owns in California and Nebraska. His home in Omaha, he said, is valued at roughly $500,000. His current yearly property tax bill on that home: $14,401. In California, he owns a Laguna Beach home valued at $4 million, or eight times as much. The annual property taxes on that home are just $2,264 -- a fraction of what he pays in Omaha. More to the point, said Mr. Buffett, the taxes on his Omaha home rose $1,920 this year, compared with $23 on the Laguna Beach home.

One of Warren Buffett's more annoying recurring devices in his political activities is to cite selectively to his personal financial situation, especially regarding taxes, without offering to actually disclose the entire picture. He continually and famously points to his $100,000 per year salary - but how many people who make $100,000 a year own a home in Omaha valued at roughly $500,000, never mind a home in Laguna Beach valued at $4 million? Where does the money come from and how much tax does he really pay?

Mr. Buffett often uses his carefully chosen personal factoids to propose populist-sounding "reforms" that actually threaten other people much more than himself - and that's the case with California real property taxes. For the vast majority of home owners, their house is by far their most expensive asset - and taxes on that asset are a substantial annual consideration. Indeed, what led to the passage of Proposition 13 were the dreadful and all-too-common consequences of making every California homeowner wonder from year to year if their incomes would be enough to pay taxes on a home value repeatedly determined by assessors working off whatever real property boom was then convulsing the state. But to Warren Buffett the real property taxes on that $4 Million Laguna Beach property is hardly a rounding error in his $30 Billion checkbook - indeed, the entire $4 Million is hardly a rounding error. Then there is the question of that $4,000,000 valuation. Laguna Beach is not cheap and real property values there have soared very high for very long. Does Warren Buffet really live in a $4,000,000 Laguna Beach house - or is that number the official appraised value, which is kept low by the workings of Proposition 13? $4 Million buys a nice house on the beach but so close to its neighbor that one could almost pass a cup of sugar across the shared staircase. Wouldn't that kind of house pose a security risk to a man worth $30 Billion, for example? Doesn't he need some privacy and distance - if not for mere luxury, then for safety? Thirteen Million Dollars buys a house on the water with just 6 Bedrooms, 4.5 Bath and 3,909 Sq. Ft.

To an ordinary - or ordinarily wealthy - person working in California, the real property taxes are just another form of taxation, to be added to the state income tax as a cost of living in this state. But it is unlikely that Mr. Buffett pays a dime of California income tax. That's because uber-wealthy, uber-mobile people like Mr. Buffett can choose to "earn" their income and "reside" just about anywhere they want - and they generally choose to "reside" and "earn" in states with no income taxes. But most people with $500,000 and even $4,000,000 homes have to work in the state where that house is located. And that means they will try to avoid living in California that much more if the taxes go up. And a lot of them have already left, as noted in this Wall Street Journal editorial: A new Census report says that were it not for Latino immigration, California's population would be falling. Between 1995 and 2000, more than 600,000 of its residents moved out of what was once America's promised land.

I am not suggesting here that Mr. Buffett values his marginal dollars less than others do. In fact, Mr. Buffett has something of a reputation as a personal tightwad, a man who is especially reluctant to provide luxuries for many of his closest relatives, for example. That is his right, of course. No, it is not that Mr. Buffett values his marginal dollars less than less-wealthy people do. Quite the contrary: Mr. Buffett generally seems to reveal these little bits of his personal financial situation exactly when he thinks it is worth his while financially to do so, especially when that means supporting some pro-tax, pro-regulatory politician whose favor he desires. I have noted in prior posts that Mr. Buffett's company, Berkshire-Hathaway, owns vast state-regulated insurance and natural gas interests in California - a state in which the pro-tax politicians who are dying to discard Proposition 13 are generally in the ascendancy. No doubt they appreciate Mr. Buffett's help in breaking down whatever barriers remain to ever-more-rapacious levies.

Similarly, Mr. Buffett has never, to my knowledge, indicated any particular interest in leaving substantial wealth to his living relatives upon his death - and there are considerable expectations among many close to the Great Man that he intends to leave essentially his entire estate to foundations and charities. If that expectation is true, then what is the significance of his opposition to the repeal of the estate/death tax? Well, his opposition to the repeal was certainly appreciated by Democrats in Congress.

I admire his cheek and his ability to shamelessly manipulate the media this way for personal benefit - I really do. I especially admire the fact that he gets away with it almost every time.

But there is still no excuse for the media not demanding to see tax returns and more general financial information from a man who is now continually attempting to effect huge political changes through the artifice of selectively releasing bits and pieces of his financial status. Nor is there any excuse for the media not subjecting Mr. Buffett to the same kind of political scrutiny to which other special-interest players in the political scene are subjected. But in both cases, the media don't.

UPDATE: This Los Angeles Times article reports:

Buffett bought his first home at Emerald Bay in 1971 for less than $100,000. He's seen the value of that home skyrocket to an estimated market value of $4.5 million. .... — he bought a second one on an adjacent lot later on...

Ah, ... breathing room!