Warren Buffett and Bill Gates aren’t buying into President Donald Trump’s tax plan.
In an interview with CNBC on Monday, both Gates and Buffett downplayed the benefits of Trump’s tax cut for businesses and said that the promised higher growth due to the cut is overplayed.
Trump, who released a one-page outline of the plan on April 26, wants to cut the federal corporate tax rate to 15% from the current rate of 35% and has said this will create economic and business growth.
Buffett, however, was sceptical about the plan’s effect on Berkshire Hathaway. “I can’t think of any business where [Berkshire Hathaway is] in where our tax rate puts us at a — and we’re in a lot of businesses — significant disadvantage with foreign countries,” Buffett told CNBC’s Becky Quick. “For one thing, ours aren’t as high as we think they are in many cases. They’re not as low elsewhere.”
Buffett is correct that many companies do not pay the headline tax rate. The statutory rate is 35%, but the effective rate (the tax rate companies pay after deductions and such) for companies in the S&P 500 is closer to 24%.
Buffett was also dismissive of the suggestion by the Trump administration that increased economic growth will help pay for the tax cuts and make up the loss in government revenue, which is justified using a method called dynamic scoring.
“Everybody that wants a cut in taxes can hire some academics and they look for dynamic scoring and they say the country will really be better off if I pay less tax,” said Buffett. “I don’t blame them, its very understandable, so be very, very, very suspicious of dynamic scoring.”
Gates, for his part, said that any tax cut is unlikely to benefit businesses in the tech sector but will likely help shareholders.
“I don’t think that the success of the technology sector will be improved by some tax change,” Gates said. “The tech companies are not starving right now and this only comes up when you have profits, and these companies have very high profits. It’s not like we’re going to be stronger in the tech sector by making owners of those stocks richer.”
Trump’s tax plan has already faced opposition from Democrats and drawn concern from some Republicans. Despite initial promises to get it done by August, the Trump administration is reportedly concerned the plan may not get through Congress until 2018.