U.S. Markets open in 3 hrs 30 mins

Why Warren Buffett is pounding the table for Hillary Clinton

Warren Buffett introduced presidential nominee Hillary Clinton at a rally in Omaha, Nebraska on Monday.

Buffett, CEO of $360 billion company Berkshire Hathaway (BRK-A, BRK-B), endorsed Clinton in December. Why did he do this?

Buffett disagrees with Trump’s depiction of the economy

Throughout his campaign, Republican nominee Donald Trump has been painting a gloomy picture of the economy. His message crescendoed when he spoke at the Republican Convention.

Buffett, however, argues the candidates who have been framing the economic backdrop as dire are dead wrong.

“It’s an election year, and candidates can’t stop speaking about our country’s problems (which, of course, only they can solve),” he wrote in his annual letter to Berkshire shareholders. “As a result of this negative drumbeat, many Americans now believe that their children will not live as well as they themselves to. That view is dead wrong: The babies being born in America today are the luckiest crop in history.”

American GDP per capita is now about $56,000—six times the amount in 1930 (the year Buffett was born) in real terms. “America’s economic magic remains alive and well,” Buffett wrote in his letter.

Berkshire Hathaway has not stopped betting on future growth in America. Most recently, it acquired aerospace company Precision Castparts, which is sensitive to economic cycles.

Buffett believes the wealthy should pay higher taxes

When he endorsed Clinton in December, Buffett emphasized the large gains that have been made by the wealthiest Americans—something that hasn’t been enjoyed by the broader population.

Buffett said that Clinton “will make sure that those people who are having to work two jobs to barely get by will not have that kind of world for themselves and their children moving forward.”

Clinton added, “I want to be the president for the struggling, the striving and the successful,” she said.

Buffett has advocated the richest Americans should pay higher taxes. He specifically cited that the top 400 wage earners saw their income increase sevenfold while their tax rate fell to 16.3%. “So they got a one-third tax cut as their income went up seven to one,” he said.

Clinton’s tax plan includes her support of the so-called Buffett Rule, which would set a minimum tax rate on individuals making over one million dollars a year. The Buffett Rule was named after Warren Buffett based on comments he made in 2011 when he argued it was wrong that rich people like himself could pay less in federal taxes as a portion of income than the middle class.

“The 400 of us pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1% of humanity, you owe it to the rest of humanity to think about the other 99%,” Buffett said while speaking at a political fundraiser for Hillary Clinton in 2007.  

Buffett’s support for increased income taxes on the wealthiest was part of a tax plan proposed by President Barack Obama in 2011. The Buffett Rule was not in the President’s 2012 budget proposal and the White House initially stressed it as a guideline rather than a legislative initiative. The rule, however, was later submitted for deliberation in the Senate. In April 2012 the bill received 51 affirmative votes but was stopped.

Buffett supports wealth redistribution

In 2010, Buffett formally announced ‘The Giving Pledge’ with Bill Gates aimed at inspiring the wealthy people of the world to give the majority of their net worth to philanthropy, either during their lifetime or upon death.

And he defended his support of lower-income populations within a capitalist framework in a 2015 op-ed in the Wall Street Journal.

“The economic rewards flowing to people with specialized talents have grown dramatically faster than those going to equally decent men and women possessing more commonplace skills,” he wrote.

He added that the widening gap is the consequence of an advanced market-based economy. He said, today’s “mismatch is neither the fault of the market system nor the fault of the disadvantaged individuals. It is simply a consequence of an economic engine that constantly requires more high-order talents while reducing the need for commodity-like tasks.”

While celebrating the rich like Henry Ford, Steve Jobs, and Sam Walton, Buffett said education isn’t enough of a solution.

Buffett doesn’t support raising the minimum wage

For some, it may be surprising to hear that Warren Buffett does not favor raising the minimum wage as a way to close America’s widening wealth gap. In an op-ed for the Wall Street Journal in 2015, Buffett wrote that raising the minimum wage would distort our market system.

Clinton too has not come out to support a $15 minimum wage.

Buffett instead has promoted what he sees as a better answer: an expansion of the Earned Income Tax Credit (EITC), which currently goes to millions of low-income workers.

“Payments to eligible workers diminish as their earnings increase,” he explained. “But there is no disincentive effect: A gain in wages always produces a gain in overall income. The process is simple: You file a tax return, and the government sends you a check.”

For Buffett, the EITC is a better solution because it’s about more than just money.

“In essence, the EITC rewards work and provides an incentive for workers to improve their skills,” he continued. “Equally important, it does not distort market forces, thereby maximizing employment.”

Buffett added that the plan needs improvement, including reducing fraud, shifting payments to monthly installments from annual, and increasing dollar amounts for those earning the least.

Although Buffett and Trump have immense wealth in common, they very clearly differ when it comes to policy.