Warren Buffett thinks that President Donald Trump’s massive tax cut plan will help Berkshire Hathaway’s bottom line but won’t change the way it invests in its business.
Buffett noted that the possibility of a corporate and investment tax cut will likely be beneficial to the profits of Berkshire Hathaway. The Berkshire CEO said that the drop in the investment tax would lower their deferred tax obligations for gains on their investment would drop.
“We have $US90 or $US95 billion in gains, and our owners, dollar for dollar, will participate in that,” Buffett said. “If the rate were to drop 10%, that $US9.5 billion is real.”
At the same time, Buffett said that the possibility of tax credits intended to spur investment wouldn’t move the needle much.
Asked by journalist Andrew Ross Sorkin about the possibility of investing in capital projects if the Trump administration follows through on its promise of an investment tax credit, Buffett said it “depends on how it’s worded,” but said a change in the law wouldn’t motivate the company to sink more money into capital-heavy businesses like Burlington Northern railroads.
“I can’t recall sending anything out to our managers saying ‘let’s do this because the tax law is going to change’,” Buffett said.
Charlie Munger, Buffett’s partner, agreed with the assessment.
“We’re not gonna change anything at the railroad just for some little tax jiggle,” Munger said.
Buffett and Munger seemed to agree that most businesses would likely not substantially change their large-scale investment decisions due to the incentive.
The only difference it could make, said Buffett, would be to the timing of a scheduled investment. The legendary investor gave the example of an airline considering buying a bunch of planes in December of a year. If a tax credit would only be applicable to that year, the airline would be incentivized to hustle and make the purchases. If the credit will start the next year, the airline would likely delay the investment until then.
That’s why he said it was important for lawmakers to announce the effective date of any tax breaks well in advance.
Overall, however, Buffett wasn’t too enthused about the impact of the credits.
“It’s so speculative anyway in terms of what the law will be,” Buffett concluded. “It doesn’t change anything for us big time at all.”