Just one day after the House of Representatives voted 217-213 to repeal and replace Obamacare, Berkshire Hathaway CEO Warren Buffett came out swinging against the plan and suggested that Congress – and businesses – are focusing on the wrong issues.
At Berkshire Hathaway’s annual shareholders’ meeting, Buffett suggested that the rising costs of health care, and not taxes, are the top barrier to growth for American businesses. Rather than championing for corporate tax cuts, Buffett posited that corporations would do better to examine the rising costs of health care in the country. ” Medical costs are the tapeworm of American economic competitiveness,” he declared.
“If you go back to 1960, or thereabouts, corporate taxes were about 4% of GDP,” Buffett said, noting that “now, they’re about 2% of GDP.” In contrast, Buffett explained that at the same time, “healthcare was 5% of GDP, and now it’s about 17% of GDP.”
Healthcare costs include not only the cost of health insurance but co-pays, medical bills, and the like. Those costs aren’t going away. And pushing those costs down the road is not only problematic but it’s also out of line with the rest of the world, says Buffett.
Charlie Munger, vice chairman of Berkshire Hathaway, echoed Buffett’s concerns, claiming that spiraling costs put manufacturers at a “big disadvantage” as compared to manufacturers in other countries. The costs of healthcare as a percentage of GDP in other developed countries hover around 10% of GDP, except for China where it’s much lower.
“If you talk about world competitiveness of American industry, it’s the single biggest variable where we keep getting more and more out of whack with the rest of the world,” Buffett said.
Buffett and Munger, who are on opposite sides of the political spectrum, acknowledged that the chances of a healthcare plan compromise are slim because Congress is so divided. Health care, says Buffett, is “basically a political subject.” Munger agreed, saying, “On this issue, both parties hate each other so much that neither one can think rationally, and I don’t think that helps, either.”
What is clear to Buffett is who might benefit from the bill. “It’s a huge tax cut,” he explained, “for guys like me.” The 86 year old Buffett is considered one of the most successful investors of all time. He has an estimated fortune of $73.3 billion, landing him at #2 on Forbes’ billionaire list (just behind Microsoft’s Bill Gates).
Buffett continued to talk tax and health care on NBC’s Squawk Box this week. Appearing on the show with Munger and Gates, he revealed, “I just did my tax return a month ago and my income tax bill was a little less than $4 million. And there’s line 62, and there’s $680,000 or something like that on there and line 62 disappears under this bill so I save $682,000 on a little less than $4 million.”
Line 62, which appears on page two of your federal form 1040, applies to taxes, per the instructions, “not reported elsewhere on your return or other schedules.”
For 2016, those taxes included the Additional Medicare Tax and the Net Investment Income Tax (NIIT). The Additional Medicare Tax of .9% applies to taxpayers with wages and any self-employment income of more than $125,000 ($250,000 for taxpayers married filing jointly). The Net Investment Income Tax of 3.8% applies to certain net investment income of individuals, estates, and trusts that have income above $200,000 ($250,000 for taxpayers married filing jointly). These taxes, aimed at high-income taxpayers, were intended to help pay for the cost of Obamacare. The taxes would be repealed under the proposal that the House just passed (remember that the Senate has not yet acted).
Buffett admits that he would benefit from the new law but wondered aloud who else might benefit, telling Quick, “I think it would be very interesting for the constituents of every Congressman that voted for this bill to ask just one question: Are you above $250,000 on your adjusted gross income and if you were, how much would you have saved from what you paid last year from this bill you just passed?” When questioned, he clarified that he was suggesting that some in Congress would, in fact, get tax savings from the bill.
“It was huge what they did on cutting taxes for the rich,” Buffett reiterated. If there’s one thing that can be ascertained from the bill, he says, it is that “we’re going to cut the h*ll out of income taxes for rich on investment income.”