Not one to be politically correct

New York: Warren Buffett, the self-made billionaire and son of a former Republican congressman, has widened the rift with his father's party by pressing for tax increases on the wealthy and reinforcing ties with President Barack Obama.

Buffett endured scorn from Republicans last month after he called the Tea Party approach to budget talks "insane" and proposed raising $500 billion (Dh1.83 trillion) by taxing the richest Americans. Buffett, chief executive officer of Berkshire Hathaway, was cited as an exemplar by Obama at least three times since July.

"Whenever Buffett says something, you can almost put money on the fact that within the next 48 hours, Obama's going to use the phrase, ‘My good friend Warren Buffett says blah, blah, blah'," said David Rolfe, chief investment officer of Berkshire shareholder Wedgewood Partners. "If you're going to tread into those waters, you need to expect the brickbats."

Buffett's criticism contrasts with praise he offered in the last decade to former California Governor Arnold Schwarzenegger and the political appointees of former president George W. Bush. The Tea Party movement, which made gains in last year's elections, was faulted by Buffett for silencing other Republican voices. Buffett plans to hold a September 30 fundraiser in New York City for Obama's re-election bid, Democratic officials said.

"He crossed the line from being an observer to being more of a participant," said Jeff Matthews, author of Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett. That, "to a lot of people seemed kind of weird and prompted a hostile reaction".

Buffett, 81, has championed causes like abortion rights and the estate tax through his career, even as he cultivated relationships with Republican leaders. Buffett, a Democrat, was an economic adviser for Schwarzenegger's 2003 campaign and repeatedly praised Bush's picks, including former treasury secretary Henry Paulson and Federal Reserve chairman Ben S. Bernanke, for their handling of the 2008 credit crunch.

Buffett raised his voice as Democrats and Republicans sparred over a budget deficit of more than $1 trillion and worked on campaigns for the 2012 presidential election. "The speak-softly approach wasn't working, and he didn't think enough people were paying attention," said Whitney Tilson, co-founder of Berkshire shareholder T2 Partners and a member of Patriotic Millionaires for Fiscal Strength, which advocates higher taxes on the rich.

Ridicule

"I think Mr Buffett needs a day job," Representative Joe Walsh, an Illinois Republican elected with Tea Party support, said in an interview on Bloomberg Television's Inside Track.

US Representative Michele Bachmann, a candidate for the Republican presidential nomination, derided Buffett's tax proposal as "a sound bite" and suggested he donate his fortune to the government. Another Republican candidate, Herman Cain, said Buffett was "playing the class warfare card". A headline in the Wall Street Journal's Deal Journal blog asked, ‘Is Warren Buffett a Socialist?'

The wealthy should pay more, given that "the poor and middle class fight for us in Afghanistan" and are often required to contribute a greater portion of their earnings to the government, Buffett said in the Times. He said billionaires had been "coddled long enough" by Congress and proposed increasing some government revenue from capital gains that are currently taxed at 15 per cent.

Republicans want to use their control of the House and their ability to block bills in the Senate to continue tax cuts passed under Bush and extended last year under Obama. If Congress doesn't act, the top tax rate on ordinary income will rise in 2013 to 39.6 per cent and the top tax rate on capital gains will climb to 23.8 per cent, partly because of an increase included in last year's health-care law.

Praise

Buffett has praised members of both parties for offering to compromise. Among them are Republicans Alan Simpson, co-chairman of a deficit-reduction commission; and Tom Coburn, an Oklahoma senator; and Democrats Erskine Bowles, the commission co-chair with Simpson; and Dick Durbin, an Illinois senator.

"They were putting the country ahead of their personal feelings," Buffett told Charlie Rose in the interview broadcast on PBS on August 15. "I may not agree with Tom Coburn but I think that, you know, I think he's a real statesman."

Buffett said candidates for the Republican nomination were taking a "country-be-damned" approach to budget talks. The contestants were "pathetic" in an August 11 debate when they indicated an unwillingness to accept $1 in revenue increases for every $10 in spending cuts, Buffett said.

Berkshire's ties to Washington increased in the past decade as Buffett moved the company beyond insurance, which is overseen by the states, into federally regulated industries of energy production and freight hauling. Berkshire lobbied Congress last year on lawmaker proposals to tighten regulation of derivatives.

"I have to think if I'm a shareholder that I'm disappointed," Meyer Shields, an analyst at Stifel Nicolaus, said of Buffett's criticism of Republicans. "There is enormous risk in taking one side and then, when the pendulum swings, just exposing yourself to that sort of backlash."

Buffett worked to minimise tax expenses for the private partnerships he managed in the 1960s, a focus that helped form his buy-and-hold stock-picking strategy and build his own personal wealth, Matthews said, citing Buffett's letters to investors. For most of the 1960s, capital gains were taxed at a maximum effective rate of 25 per cent while top wage earners paid marginal income tax rates of 70 per cent to 91 per cent, depending on the year.

As a money manager, Buffett's performance compensation was taxed at capital-gains rates, Matthews said.

"Here's a guy who benefited from the exact same inefficiency in the market that he's now yapping about," said Matthews, who owns Berkshire stock. "What he's not saying is, ‘Look guys, I ran a hedge fund, I used to benefit from the same tax advantages I'm complaining about now.'"

— Bloomberg