Berkshire Hathaway Annual Shareholder letter 2022 [pdf](berkshirehathaway.com)
berkshirehathaway.com
Berkshire Hathaway Annual Shareholder letter 2022 [pdf]
https://www.berkshirehathaway.com/letters/2022ltr.pdf
68 comments
Didn’t expect this in their shareholder statement.
“At Berkshire we hope and expect to pay much more in taxes during the next decade. We owe the country no less: America’s dynamism has made a huge contribution to whatever success Berkshire has achieved – a contribution Berkshire will always need. We count on the American Tailwind and, though it has been becalmed from time to time, its propelling force has always returned.”
Nothing is stopping them from paying more taxes right now. Why not lead the way and check that off their to-do list immediately?
I'm not sure that's actually true. Taxes are set in law. If you write to the IRS saying my tax bill is $1000 but I'm sending you a check for $10,000 because I want to pay more I imagine they'd have to return it.
Just write it to these fine people:
https://fiscal.treasury.gov/general-fund/
https://fiscal.treasury.gov/general-fund/
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Because that’s not how you reform a broken system.
Warren also seemed to strongly hint (quoted below) that Treasury should be getting more of its revenue from corporate income tax. Maybe your quoted part was him reinforcing that point and putting BAs money where its mouth is.
"The $32 trillion of revenue was garnered by the Treasury through individual income taxes (48%), social security and related receipts (34 1⁄2%), corporate income tax payments (8 1⁄2%) and a wide variety of lesser levies. Berkshire’s contribution via the corporate income tax was $32 billion during the decade, almost exactly a tenth of 1% of all money that the Treasury collected. 8
And that means – brace yourself – had there been roughly 1,000 taxpayers in the U.S. matching Berkshire’s payments, no other businesses nor any of the country’s 131 million households would have needed to pay any taxes to the federal government. Not a dime."
"The $32 trillion of revenue was garnered by the Treasury through individual income taxes (48%), social security and related receipts (34 1⁄2%), corporate income tax payments (8 1⁄2%) and a wide variety of lesser levies. Berkshire’s contribution via the corporate income tax was $32 billion during the decade, almost exactly a tenth of 1% of all money that the Treasury collected. 8
And that means – brace yourself – had there been roughly 1,000 taxpayers in the U.S. matching Berkshire’s payments, no other businesses nor any of the country’s 131 million households would have needed to pay any taxes to the federal government. Not a dime."
I don't get the enthusiasm for raising money from corporate income taxes versus individual income tax. Mr. Rich Moneybags pays the same corporate income taxes per share of Berkshire as Joe Schmoe, whose entire retirement pot might be a single BRK.A.
Mr. Rich Moneybas probably pays no personal income tax, and certainly pays a lower effective rate than Joe Schmoe.
Taking the tax money as corporate tax means they end up paying the same percentage, without Moneybags’ CPA leveraging shell companies and loopholes to avoid tax than Schmoe pays.
Taking the tax money as corporate tax means they end up paying the same percentage, without Moneybags’ CPA leveraging shell companies and loopholes to avoid tax than Schmoe pays.
Rich moneybags never has to sell. He can just take out a margin loan and skip the taxes.
Surely you can't loan into infinity and have to sell at some point to start paying off the debt.
Suppose I have 100 million in my investment portfolio and a 5% interest rate. I want to buy a house for $10 million. So I withdraw 2 million in cash and get a margin loan for 2 million so I don't have to sell any securities. I take the 2 million in cash, get a mortgage for 8 million, and buy the house. On average the market returns 7%. So my $100 million portfolio is earning $7 million per year less the loan interest of 100k which comes to $6.9M. After 2 years I pay off the mortgage and repay the margin loan. I now have a house and I didn't have to pay any taxes on my securities to buy it.
What if the market goes down? Well, I just wait for it to go back up again. I can easily afford to wait, my margin of safety is huge. Since the margin loan is for 2 million, and I need a 50% margin of safety by law, then the portfolio value would need to decline to 2 million (98% decline) before my loan gets called.
What if the market goes down? Well, I just wait for it to go back up again. I can easily afford to wait, my margin of safety is huge. Since the margin loan is for 2 million, and I need a 50% margin of safety by law, then the portfolio value would need to decline to 2 million (98% decline) before my loan gets called.
"...and don't call me Shirley"
Because of the class difference between working/labor and capital owning classes. One has a hedge against bad decisions based on the backs and labor of the other.
This is political grandstanding and virtue signalling. It also presumes that increasing taxes above current levels helps the economy-- that is definitely not a given. The real reason, I suspect, is that elites have a lot of political control, increasing taxes increases that power, and it makes it harder for competition to catch up. So increasing taxes is a moat for the elite and helps the government achieve the elites' political goals; win-win for them, but a loss for the economy and the common man. But great for virtue signalling.
Could you please explain in more detail how a CEO of a profitable massive corporation signaling desire to pay higher corporate income tax is a loss for the economy and the common man.
If anything he might be suggesting in the letter that corporations aren't paying their fair share relative to the common man.
If anything he might be suggesting in the letter that corporations aren't paying their fair share relative to the common man.
Because the the largest corporations often clamor for more taxes and/or regulations knowing that it hampers their competitors more than them.
It is a moat and keeps the status quo.
He understands how finance works, and he understands how compound interest rates work; he got the benefit of "low interest rates" on taxes and generated a lot of wealth; if he increases taxes for upstarts and himself, the upstarts are harmed more, since he has the legacy wealth from the historical discount.
Aristocrats made the laws favor themselves, and since they already owned all the land and wealth, no one was going to challenge them inside the legal framework.
There is a tendency, once you make your own fortune, to get political influence and make laws that make it harder for others to do the same thing. Change the rules of the game so you can't fall. Lobbying is a key business skill these days.
He understands how finance works, and he understands how compound interest rates work; he got the benefit of "low interest rates" on taxes and generated a lot of wealth; if he increases taxes for upstarts and himself, the upstarts are harmed more, since he has the legacy wealth from the historical discount.
Aristocrats made the laws favor themselves, and since they already owned all the land and wealth, no one was going to challenge them inside the legal framework.
There is a tendency, once you make your own fortune, to get political influence and make laws that make it harder for others to do the same thing. Change the rules of the game so you can't fall. Lobbying is a key business skill these days.
corporate taxes are _always_ passed on to the consumer.
Higher fees, higher prices, whatever lever you can pull.
Higher fees, higher prices, whatever lever you can pull.
That's not true - they are not always passed on to the customer. It depends. Unless the corporation has a monopoly, it can not just increase the prices. There is a concept in economics called elasticity of demand, to simplify, it states that with increase in price there will be a drop in demand. So corporations have to balance, and in most cases the tax increase will be shared between the consumer and the corporation.
They might not be the CEO of that profitable massive corporation for much longer if the board and shareholders do not hold the same sentiment.
To put it simply, private businesses will allocate capital more efficiently than the government does. (At least a few people still think that.)
The “direction” of that efficiency is always toward profit and against the very laboring class that makes the product the owners use for profit.
With a collective, co-op, employee owned, or government run industry - one can edict the various rates and ratios.
Look at the US energy company “eversource.”
Posting huge profits in an industry directly related to life and health and yet, doubled one of its rates this year. DOUBLED. Why? “Fuel costs”.
Fuel costs which have fallen.
With a gov run electric system, people will game based on votes. Not shareholder ROI.
Plus, people have a very “interesting” history when they disagree with a gov. From protest to removal of heads from bodies...
It’s not as simple when corporations are involved.
They are more evil than any of history’s evil men.
With a collective, co-op, employee owned, or government run industry - one can edict the various rates and ratios.
Look at the US energy company “eversource.”
Posting huge profits in an industry directly related to life and health and yet, doubled one of its rates this year. DOUBLED. Why? “Fuel costs”.
Fuel costs which have fallen.
With a gov run electric system, people will game based on votes. Not shareholder ROI.
Plus, people have a very “interesting” history when they disagree with a gov. From protest to removal of heads from bodies...
It’s not as simple when corporations are involved.
They are more evil than any of history’s evil men.
If corporations are accepted to be "evil" (and we have lots of examples of mega-corporations that haven't held to "don't be evil"), then simply taxing them and having them continue to be evil doesn't make a lot of sense. Perhaps it would be better to abolish corporate structures and find a new paradigm with greater personal responsibility with small companies more responsive to customers and their customers' values? If people feel responsible for their actions, then they are more likely to "not be evil", instead of being a raindrop in the flood that believes they should just do as they are told. A large part of the US economy is small business, small businesses can live by their values instead of the inexorable pull towards more profit. I'm not saying all small businesses do, but it's more of a personal choice of their values and their customers' values rather than a large tendency to "become evil with more profit and seeking monopolies".
Completely agree. In my opinion a solid start is worker-owned co-ops.
Question is if they allocate it in ways the democratic majority wants it to be allocated.
Or skip the middle man and let people keep their dollars and spend them how they want?
How do you decide on the path the road should be built on? Everybody building a few feet individually?
Most people are not debating the building of roads, and most of those are at state and local levels anyways. The bigger debate is on the actual federal budget, which has ballooned over time into all sorts of items which cannot be assumed to be uncontroversial or even generally agreed on by a majority of citizens.
A lot of us would prefer if the federal government actually did allocate some more of its funds to maintaining the roads and infrastructure that we have; that would be a great start.
A lot of us would prefer if the federal government actually did allocate some more of its funds to maintaining the roads and infrastructure that we have; that would be a great start.
They probably agree that A road has to be built, but exactly WHERE gives you about as many opinions as 5hwre are participants in the discussion. This requires some approach for structuring the decision making. Representative democracy is one. And yes, for such hands on topics it is relatively simple. But "big topics" have equal problem with many opinions, where some form of consensus has to be found.
I'm in awe at the level of pretzel logic on display here. The rich are famously supportive of higher corporate tax rates because it helps them entrench their moat?
It presumes no such thing. It says that they hope and expect to make more profit in future than they do today. As they pay tax on a proportion of profits, increasing profits will mean they are increasing the amount of tax they pay even if taxes are kept at current levels.
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Can you explain what “virtue signaling” means? It always sounds like “they secretly agree with me but are saying something different because they’re bad people”. Which is just odd.
Taken literally, it’s when a person takes an action or says something -- the “signal” -- based on some principle -- the “virtue”. I think when it’s used as a pejorative (“this is just virtue signaling”), it’s being called out as disingenuous in some way. For example, if a fossil fuel company publicizes work they did to remove carbon from the atmosphere but doesn’t talk about (or even calculate) how much carbon they introduced. I could see someone calling that “just virtue signaling”.
I’m sure there are many other examples but that’s generally how I understand it. I don’t intend for my example to reflect any specific event in the past, if that matters (ie. “I made it up”). Hope that helps.
I’m sure there are many other examples but that’s generally how I understand it. I don’t intend for my example to reflect any specific event in the past, if that matters (ie. “I made it up”). Hope that helps.
Do you recognize "self-promotion" as a kind of behavior people do, that makes their recommendations less reliable for you than recommendations from uninterested people? Virtue signalling is another kind of motivated speech where the speaker may be sincere but doesn't acknowledge their own self-interest. They gain status from professing to believe more extreme forms of socially approved views.
The benign form of virtue signalling is something like publicly mourning for a while after your spouse dies so other people understand you aren't a sociopath. The runaway form of it is jumping on your spouse's funeral pyre because it shows you are more devoted than anyone else. Or in this case burning up your company's profits on unnecessary taxpaying to show you are wealthy/socialist enough to do that.
The benign form of virtue signalling is something like publicly mourning for a while after your spouse dies so other people understand you aren't a sociopath. The runaway form of it is jumping on your spouse's funeral pyre because it shows you are more devoted than anyone else. Or in this case burning up your company's profits on unnecessary taxpaying to show you are wealthy/socialist enough to do that.
One way that BH has historically made good acquisitions is by taking over a company with cashflow but not enough liquidity to afford a giant tax bill - for instance on the founder's death.
> America would have done fine without Berkshire. The reverse is not true.
They can always just pay more themselves right? Why don't they do that instead of grandstanding about hoping to pay more?
If one company pays more voluntarily, it's unlikely the head of that company will remain there very long!
And then people wonder why others are tired of virtue signaling...
There is no inconsistency with advocating for changing the rules of the game for all players, while also playing according to the existing rules until that happens.
Are they lobbying for that or just writing it like it's a dream?
I do not see what difference that would make. Writing it, especially in a widely read publication, is a form of lobbying anyway.
Why does it not make a difference to bribe politicians? That's the whole point of lobbying isn't it?
I have no idea where this conversation is going. Lobbying is not bribing, and even if one were to assume lobbying is effectively bribing, expressing one’s opinion in a newsletter is certainly not bribing, so you are going to have to help connect some dots.
I was the one that said the newsletter wasn't lobbying. Someone else made that point
I'm surprised you didn't slyly link to the donation page.
One entity contributing more voluntarily does essentially nothing. All it does is give a free victory to competitors.
One entity contributing more voluntarily does essentially nothing. All it does is give a free victory to competitors.
At least it would put some money where their mouth is. Are they spending any of their lobbying money on increasing their taxes? Until then it's nothing but hot air pretending to care
Can you elaborate on their point? Can people only speak about things they have funded? What money did you spend to give you the right to make that post?
IMO it is fine to express opinions and advocate positions even without contributing financially. I’m interested in why that’s a problem.
IMO it is fine to express opinions and advocate positions even without contributing financially. I’m interested in why that’s a problem.
It's objectively not a problem. It just reeks of virtue signaling to me. But I'm not a billionaire so my opinions don't matter much in this country
Reading the letter in full, it is clear that when he says he expects and hopes to pay more taxes, it is because he expects and hopes that profits will increase.
Don’t they already pay double tax since the companies they own also pay taxes?
>Despite our citizens’ penchant – almost enthusiasm – for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America.
https://www.berkshirehathaway.com/letters/2022ltr.pdf
I'm an American in my early 30s. My impression is that within my lifetime, the self-criticism and self-doubt has increased a lot. Does this accord with the perspective of older Americans? I remember my dad (in his 60s) said that the pre-Watergate times really were quite different in terms of the trust that Americans had in their government. But he didn't give me a sense of the overall trend over the past few decades.
It does feel to me like we've reached the zone of diminishing returns to negativity. For example, if America now was like the America I grew up in, I feel like we would make at least a token effort to figure out what went wrong with the CDC's response to the pandemic and how the agency could do better next time, through some sort of blue ribbon commission. But it feels like the pandemic (and everything else) has become hopelessly partisan in a way that interferes with constructive change.
https://www.berkshirehathaway.com/letters/2022ltr.pdf
I'm an American in my early 30s. My impression is that within my lifetime, the self-criticism and self-doubt has increased a lot. Does this accord with the perspective of older Americans? I remember my dad (in his 60s) said that the pre-Watergate times really were quite different in terms of the trust that Americans had in their government. But he didn't give me a sense of the overall trend over the past few decades.
It does feel to me like we've reached the zone of diminishing returns to negativity. For example, if America now was like the America I grew up in, I feel like we would make at least a token effort to figure out what went wrong with the CDC's response to the pandemic and how the agency could do better next time, through some sort of blue ribbon commission. But it feels like the pandemic (and everything else) has become hopelessly partisan in a way that interferes with constructive change.
According to the first page of the letter, they have a pretty good track record.
In 58 years, they outperformed the S&P500 39 times. That is 67% of the time, which according to R comes down to a p value of 0.01:
In 58 years, they outperformed the S&P500 39 times. That is 67% of the time, which according to R comes down to a p value of 0.01:
binom.test(x=39, n=58, p=.5)
=> p-value = 0.01193
In 1984, Warren Buffett wrote an article to address this criticism - https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-a...
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On it's face, it seems implausible that 1 in 50 investors were as successful as Warren Buffet.
Not going to do the math here, but the magnitudes are quite important.. It seems like the worst years are around 20% worse than the S&P, but there are several years where their outperformance is more than 100%.
The Buffett letters, and returns, get worse each year. To reiterate my comments on earlier ones, it's amazing that in this era of financial chaos, Buffett seems to be so uninvolved and get so little use out of his vaunted warchest & credit... There's nothing new here if you've read 2 or 3 of the previous ones, and it's astonishing how navel-gazing and hermetic it is: this could have been written in 2015 or 2010 or 2005, there's basically no way to tell other than from a few marquee names. Bring to mind everything that has happened in the past 2 or 3 years which is relevant to finance and politics and investing, which is a lot, and see how much of it you can find even the slightest allusion to in here.
I agree, as of late I think I have come to realize Warren is extremely cold and calculated and holds his cards close to his chest. I went to the shareholder meeting in omaha in 2017 and felt even then he was much more open in the years prior letters. You'd think he would have touched on inflation, the everything-bubble that was 2021 fueled by out of control government spending. What's the future of unemployment in America? Technology, more color on Apple their largest stock holding (41%[1] of their total portfolio)?
[1] https://www.cnbc.com/berkshire-hathaway-portfolio/
[1] https://www.cnbc.com/berkshire-hathaway-portfolio/
I'd say he is one of the least cold people I can think of but he is 92 and slowing down a bit in terms of explaining the latest trends.