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Warren Buffett's idea of fair taxes is part of a long tradition of business leaders' views leaking into politics, but becoming an issue in a contentious presidential campaign is not without its risks.
Since last fall, President Barack Obama has made many references to the “Buffett rule,” the president's proposal of a minimum income tax on people who make $1 million or more a year. He borrowed the idea from Buffett's writings that ultra-rich people shouldn't pay lower tax rates than middle-class Americans.
While some agree with Buffett, reactions have included sharp criticism and scrutiny of Buffett, his company, Berkshire Hathaway Inc., and even his secretary.
But what do Berkshire shareholders think of their CEO's outspokenness? There are signs that some shareholders are irked by Buffett's political profile, but there's little evidence so far that the headlines and commentary are affecting Berkshire stock or the profits from Berkshire's varied collection of businesses.
“I know there's some high-income people out there that wish Buffett would keep his mouth shut about taxes,” said Julius Ridgway, whose clients at Medley & Brown in Jackson, Miss., own shares in Berkshire. Buffett hosts an expected 35,000 shareholders for their annual meeting Saturday at the CenturyLink Center in Omaha.
“Buffett's been a Democrat as long as I've been alive,” Ridgway said. “He frequently has views that are unpopular with Republican investors. This one just happens to hit a bit closer to the pocketbook. But no one has called us up and said, ‘Sell my shares because of the Buffett rule.' ”
Ralph Witkin, a commercial real estate investor and longtime shareholder from Greenwich, Conn., said, “Being CEO of a publicly traded company, he has a responsibility to the shareholders, and getting involved in a political controversy is not satisfying that responsibility.
“He's a citizen, he's a taxpayer, but the public looks at it as when he speaks, it's the same as Berkshire speaking.”
Although it's hard to know whether Buffett's stance hurts Berkshire financially, Witkin said, “it's not a plus.” Some people may decide to boycott Berkshire company products, he said.
Yet Witkin, who doesn't agree with the Buffett rule, hasn't sold his Berkshire shares. He's even thinking about buying more if the price goes down.
Buffett risks harming his reputation, stock analyst Meyer Shields told Bloomberg News.
“It's not just that people will disagree with you, it's that they'll disagree with you vehemently and attack you personally,” said Shields, who has a “hold” rating on Berkshire for Stifel Nicolaus & Co. “Indirectly, he's causing his reputation to be damaged, and his reputation, I think, is still a big part of the Berkshire Hathaway investment story.”
But shareholder Allan Maxwell, a retired drug representative from Omaha, said he trusts that Buffett wouldn't do anything to harm his shareholders directly or indirectly.
“It's not going to affect a Coca-Cola purchase, or a Dairy Queen Blizzard or a See's candy or a Nebraska Furniture Mart. I just can't see it hurting anyone,” Maxwell said. “When he says something, he says it with a great deal of thought and a great deal of intelligence and integrity.
“He's kind of a beacon of light among billionaires.”
Wendy Jankoski, a money manager with Wealth Architects in Englewood, Fla., said she admires Buffett's willingness to speak out.
“I wish he would do more of that. I'd like to know what he thinks about health care.”
If she disagreed with his views, she said, “I might be a little bit perturbed,” but she doesn't worry about fallout that would harm Berkshire or its shareholders.
“People know what he has represented over the years,” she said. “If people disagree or decide that they don't want to own the stock anymore, then they can vote with their feet and sell it.”
It's hard to say if that's happening.
Berkshire's share price has lagged the overall stock market over the past year, but the gap began in April 2011, well before Buffett wrote in the New York Times on Aug. 15 that he and many other wealthy Americans pay unfairly low income tax rates.
Morningstar analyst Greggory Warren from Chicago said reasons for Berkshire's lagging stock performance include uncertainty over his successor, heightened by the resignation last spring of David Sokol, who many believed was a possible successor; lower profits by its manufacturing and property insurance businesses; and the difficulty that large companies like Berkshire have maintaining a rapid growth rate.
“If somebody's going to not invest into it because of his stance on taxation of the rich, then there are a lot of other reasons why they're not investing,” Warren said. “You may have a political point of view, but it's not going to stop you from investing in something that's going to make you money.”
Opponents of the Buffett rule include the International Franchise Association, which says the rule would keep franchise owners from creating new jobs. One member of the association: Berkshire's Dairy Queen division.
But three other small-business groups, the American Sustainable Business Council, the Business for Shared Prosperity and the Main Street Alliance, support the proposal. They say few small-business owners would be affected and the rule would make the nation's tax burden more fair, just as Buffett says.
“The real risk for him is that the company has a patina because he's considered infallible,” said business historian Wyatt Wells of Auburn University in Montgomery, Ala. “His reputation is a true asset to the company, and if he stumbles in the political field, it's conceivable that this would affect the reputation of the company.”
Wells said public interest in Buffett's tax rate would have faded quickly without Obama's willingness to push the idea. People pay little attention to Buffett's endorsement of a deficit-reduction plan laid out in 2010 by Republican Alan Simpson and Democrat Erskine Bowles, for example, because the president isn't pushing it.
Wells said he doubts Buffett harms Berkshire by expressing his views because Berkshire doesn't depend on political contacts for success. If he were a shareholder, he said, backlash from Buffett's political views would be far down on his list of concerns, behind Buffett's age and health and the issue of big-company growth.
“It's not entirely fair to say that because you're the president of a company, you have to check your political preferences at the door,” Wells said.
Buffett said in a recent TV interview that, since most people can't afford a political action committee to influence government, he has a responsibility to speak out on public issues. “I think that if you have an ability to speak out and you see things that you think are wrong, I think you ought to talk about them.”
Industrialist Andrew Carnegie, financiers J.P. Morgan and Andrew Mellon and others were active politically in the late 1800s and early 1900s, when the nation's leaders faced some of the same issues as today: taxes on the wealthy, regulation of business, the economy.
More recently, investor George Soros also is politically active, and Texas businessman H. Ross Perot ran for president twice, in 1992 and 1996.
The Buffett rule is getting continued attention because it hits exactly at the division between the two parties, said Elizabeth Theiss-Morse, political science chairman at the University of Nebraska-Lincoln.
“I don't think it's just political gamesmanship,” she said. “The really engaged part of the mass public is in this fundamental disagreement over taxes and the size of government.”
But Theiss-Morse doubts that Buffett's comments will affect Berkshire's businesses.
“If it's a product and you don't like the politics of the person making the product, you can decide not to buy the product. But I think that Warren Buffett's a different thing. It's about making money on investments.”
“If people still make money being with him,” she said, “they will stick with him.”
The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.
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