The Buzz

All markets and investing news all the time

Should there be a new Buffett rule?

August 26, 2014: 12:22 PM ET
obama-buffett-614xa

This cries out for a "Write your own caption contest here," right?

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

Billionaire investor Warren Buffett famously pointed out a few years ago that his secretary pays a higher federal income tax rate than he does.

That led to calls by President Obama for a proposed Buffett Rule, a change to the tax code that would raise the rate for many millionaires so they pay higher rates than middle-class Americans.

It also helped to perpetuate the perception that Buffett is more of a common man type than one of those aloof, "fat cats" on Wall Street that Obama complained about in a 2009 "60 Minutes" interview.

But now that Buffett's firm Berkshire Hathaway (BRKA) (BRKB) is investing in Burger King (BKW) -- the American fast food giant that may be able to lower its tax rate by purchasing Canadian coffee chain Tim Hortons (THI) -- is Buffett signaling that it's okay for corporations to get unpopular tax breaks?

Related: Burger King buying Tim Hortons

Obama, and many other politicians, have publicly called out companies that are taking advantage of this legal tax loophole known as an inversion.

In fact, drug store giant Walgreen (WAG) decided to not invert when it agreed earlier this month to buy the remaining shares of European pharmacy Alliance Boots that it didn't already own.

Many believe Walgreen bowed to political pressure since other companies, such as health care firms AbbVie (ABBV) and Medtronic (MDT), were being criticized for recent mergers that will allow them to move their corporate headquarters across the Atlantic. (I own AbbVie and have to admit that I'm peeved by its purchase of Ireland's Shire.)

Related: U.S. companies should pay U.S. taxes

Berkshire is committing $3 billion to help finance Burger King's acquisition of Tim Hortons. So that is not that big of an investment in the grand scheme of things for Berkshire.

A source with knowledge of the Burger King/Tim Hortons deal also told CNN that Berkshire's investment in Burger King is not advantageous from a tax standpoint.

In fact, since Berkshire "will be getting dividends from a foreign corporation" it will have to pay a 35% tax on them instead of the 14% it would pay if the company remained in the U.S.

The source added that it was not clear whether Burger King would save on taxes as a result of the Hortons deal.

What's more, the arrangement makes strategic sense since Burger King's majority shareholder is 3G Capital, the Brazilian private equity firm that Berkshire teamed up with to buy ketchup king Heinz last year. Buffett said at Berkshire's shareholder meeting in Omaha earlier this year that he would love to do more big deals with 3G in the future.

Still, you have to wonder if Obama is a little annoyed that Buffett is taking even a tiny part in what might wind up being an inversion.

Sure, Buffett is like any other businessman. He does not like paying more taxes than he has to. And that's his right.

In April, Buffett said that the growing number of inversions was a "crazy situation." (Check out the video below.)

But when Buffett was asked by a Berkshire investor at this year's shareholder meeting whether Berkshire would ever consider moving abroad, both Buffett and Berkshire vice chairman Charlie Munger emphatically said no.

Related: Warren Buffett says Berkshire would never leave the U.S.

They argued that the only reason they were able to succeed and become as wealthy as they are is because they built Berkshire in America.

With all this in mind, I asked some of my Twitter followers what they thought about Berkshire's investment in Burger King.

Several readers were not too kind.

Ouch. Almost sounds like they think Buffett is a real-life version of the Raymond Tusk character on Netflix's (NFLX) "House of Cards!"

But others were far less critical.

Yes! You could argue that the flurry of tax inversions lately is yet another example of how messed up the tax code is. So maybe we need a new Buffett rule -- lowering the corporate income tax rate permanently so that American companies never have to think about parking cash overseas again.

Another great point! Now would you happen to have a law blog?

Finally, one reader simply wanted to point out that "O Canada" is more tuneful than "The Star-Spangled Banner" -- an often maligned (and mangled) anthem.

Join the Conversation
Fear & Greed
Sponsored by
About This Author
Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

To view my watchlist

Not a member yet?

Sign up now for a free account
Stupid Stock Move of the Day
#StupidStock Move of the Day! Why is $WFM up 2.6% on no news? Still facing challenges. Recent earnings from $KR shows competition is brutal.
Powered by WordPress.com VIP.
Follow

Get every new post delivered to your Inbox.

Join 235 other followers