Warren Buffett's Berkshire Hathaway could get a $37 billion windfall from tax cuts

Alex Wong/Getty ImagesWarren Buffett
  • Warren Buffett’s Berkshire Hathaway could be one of the biggest beneficiaries of tax reform, according to Barclays.
  • Analysts estimate that its book value could rise by about $US37 billion because of the lower corporate tax rate.
  • The tax cut reduces Berkshire’s deferred tax liability, which represents what it would owe the government if it sold its portfolio and took profits.

Warren Buffett’s Berkshire Hathaway could be one of the biggest beneficiaries of tax reform in the insurance sector, according to Barclays.

The company’s book value could increase by about $US37 billion, said Jay Gelb, an insurance analyst at Barclays, in a note on Monday. That’s $US10 billion more than what he estimated in a November note before the tax plan was finalised and signed.

Gelb estimated this because Berkshire would have a lower deferred tax liability, which represents what the company would owe the federal government if it sold its equity portfolio and took profits.

The Tax Cuts and Jobs Act, signed by President Trump in December, permanently cuts the corporate tax rate from 35% to 21%. This means Berkshire’s deferred tax liability – about $US78 billion – would fall because of the lower rate.

“We would view this magnitude of book value increase as favourable for BRK shares since it is generally valued based on price-to-book value,” Gelb said. He has a price target of $US357,000 on Berkshire’s A shares, about 19% more than where they opened for trading on Monday.

Berkshire Hathaway could also benefit from tax reform because its biggest investments are in the financials sector. Companies in this sector have historically paid the highest effective tax rate in the S&P 500, according to Wells Fargo. That could be a boon for some companies in the share of Berkshire’s public portfolio – about 40% – that’s in in financials.

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