The Sage of Omaha gets dragged into the US election battle.
"I learned long ago, never to wrestle with a pig. You get dirty and besides, the pig likes it" -- George Bernard Shaw (probably)
Whenever Warren Buffett, the boss of Berkshire Hathaway (NYSE: BRK-B.US), talks about the stockmarket, investors tend to pay attention. Sometimes he says something which attracts a different audience, and he did this recently with his remark that his secretary pays a higher rate of federal income tax than he does.
President Barack Obama has picked up this comment and run with it, going as far as to propose the "Buffett rule" whereby a 30% minimum tax rate would be levied upon incomes above $1 million a year.
Since we are in a US Presidential election year, Obama's Republican opponents have opposed this, even though their main contender pays a similarly low rate of tax, and as a result Buffett and his secretary have become a campaign issue. Some shareholders are questioning whether this affair could now be damaging Berkshire's businesses.
RBS loses hundreds of millions due to politics
When politics and business mix the results can be painful for investors. Stephen Hester, Chief Executive of the Royal Bank of Scotland (LSE: RBS), has been slated in the media this week for receiving his £963,000 bonus. Some of the loudest complainers have been members of the last government who approved his bonus scheme in the first place!
Investors have started to worry about political interference in RBS and several hundred million pounds have been wiped off its market value as a result. The problem is that RBS will find that it is far harder to recruit senior staff because of the intense scrutiny and political interference that they will be subjected to.
A sometimes cosy relationship
Big business often cosies up to politicians because they have the power to pass laws which can damage or favour their interests. So it's no surprise that some of Obama's opponents have accused Buffett of engaging in "crony capitalism", the most influential of which is America's top-rated talk radio host Rush Limbaugh.
One suggestion is that Buffett got Obama to block the proposed Keystone pipeline, which was intended to move oil from Canada to the USA, in order to help Berkshire's railroad subsidiary Burlington Northern Santa Fe. The impact that the ban will have on Berkshire's bottom line is going to be trivial and, in my view, the main reason for the ban is that Obama is playing to wealthy environmentalists in order to raise more money for his campaign. But since that doesn't fit the critics' narrative, they ignore it.
As Mark Twain said, "A lie can travel halfway around the world while the truth is still putting on its shoes."
We've been here before
Buffett has been attacked before by politically motivated campaigners, most notably in 2002-2003 when anti-abortionists claimed that Berkshire was paying for abortions.
Back then Berkshire operated a charitable donation programme where shareholders said where they would like the money to go and the company then allocated the money by weight of votes. Amongst the many groups that received money was Planned Parenthood, a family planning advisory service. Since the furore was damaging some of Berkshire's businesses, Buffett cancelled the programme in July 2003.
Plenty of traction
However, the Buffett tax story is going to run and run because we're in an election year, and it just happens to combine the worlds of politics and finance.
Early this morning, I checked the level of interest by typing "Warren Buffett" into Google to see what its auto-complete feature suggested. The top suggestion was "taxes" and "secretary's salary" came in third. People are clearly very interested in this topic.
Personally I think that that it's a storm in a teacup. Does anyone seriously choose where they buy electricity, home furnishings, insurance or rail freight transportation because of political considerations? I believe that it will all be forgotten by December, whoever occupies the White House, so I'm not selling any of my shares!
> Here's your free Essential Investor Kit. Over the next few weeks, you'll get share ideas, a sector report and much, much more. Don't miss out!
> Tony owns shares in Berkshire Hathaway
