[Viewpoint] Buffett a genius, perhaps, but no savior

American billionaire Warren Buffett made headlines last August after his company invested $5 billion in Bank of America, saving it from a liquidity crisis. Some called him a savior of America Inc. and noted that it wasn’t the first time he had thrown a financial lifeline to a major American enterprise in times of crisis.

But such praise is at the very least an overstatement. Buffett is undoubtedly a genius when it comes to making investments. But he shifts his capital around based on where he sees money pooling in the future. He got a great deal on Bank of America by acquiring its shares after they had plunged more than 30 percent in a single month amid rumors that it was sitting on a huge pile of bad assets. As such, he is a faithful pupil of the so-called value investing principle, or finding an outstanding company at a low price.

He bought $3.3 billion preferred shares in General Electric in 2008 amid the liquidity crunch inspired by a meltdown on Wall Street and has received dividend payments of 10 percent for each of the last three years on this. He is also guaranteed a 10 percent premium if or when he resells the shares. Through such prudent moves, he has turned Berkshire Hathaway into one of the most profitable investment companies in the world.

Last August, Buffett advised the U.S. government to slap heavier taxes on the super-rich in an op-ed price that ran in the New York Times. In the article, he confessed to having paid just 17 percent in income tax the previous year, while the percentage on his secretary’s federal income tax bill was 35 percent. He called upon the government and Congress to fix the raging inequalities in the tax code by demanding that people like him pay their fair share.

In honor of his candid suggestion for reform, the U.S. government and Democrats have named a related bill - which would levy taxes of at least 30 percent on millionaires - as the “Buffett tax.” At present, U.S. tax rates on payrolls are in the range of 10 percent to 35 percent. Buffett’s secretary, who has worked for him for over 20 years, paid the highest possible rate because her income has shot up in recent years.

For capital returns, investors are taxed between 5 percent and 15 percent. These taxes remain in this range because higher rates tend to scare off investors. If marginal interest levels are raised too high, it would have a negative effect on capital investment due to the less attractive profits.

As debate about whether the rich should face higher taxes heats up in Korea, politicians have come under pressure from the public to raise the rates on super-rich individuals and corporations ahead of this year’s legislative and presidential elections in April and December, respectively.

However, even though Buffett called for the discrepancies between capital and payroll taxes to be fixed, this was somehow interpreted here as a demand for an outright tax hike on the wealthy. The maximum tax rate on the highest income bracket was consequently raised to 38 percent in December, up from 35 percent. Under Korea’s tax code, which levies taxes on person’s entire income, including capital profits, Buffett would have had to pay the highest rate. His secretary, with a lower capital return, would have received a substantially smaller sum on her tax bill. In such a scenario, Buffett would not have written the New York Times opinion piece at all.

In Korea, a “Buffett tax” would not really apply, but local politicians seem to have neither the time nor patience to study the proposed U.S. bill. Furthermore, attacking the rich is an easy way of winning votes from the middle and working classes, which is what matters most to politicians. Large conglomerates and their owners have good reason to be unpopular, but if they break the rules, they should be punished by the law rather than the tax code.

Buffett has become an exemplary model of a wealthy businessman. He is also one of the world’s most generous philanthropists, along with Bill Gates. But what he excels at is placing investments that do not fail.

He has been interested in making money since the age of six, when he bought crates of Coca Cola at 25 cents a bottle from his grandfather’s shop and sold them to his neighbors for 30 cents each. By the age of 11, he was already investing in securities. Now, he is the CEO and primary shareholder of Berkshire Hathaway, which holds a shareholder’s meeting at its headquarters in Omaha, Nebraska, every April.

No corporate shareholder’s meeting receives as much public and media scrutiny as Buffett’s. Journalists swarm to glean investment hints and prophecies from the so-called “Oracle of Omaha,” while Buffett is seen playing cards with his shareholders and sipping bottles of Coca Cola.

As the company has long been a major shareholder in the world’s largest beverage company, this is just another of Buffett’s clever marketing tricks. At the end of the day, Buffett is simply a very clever businessman.

by Shim Shang-bok

*The author is an editorial writer of the JoongAng Ilbo.