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Why Warren Buffett Doesn't Fear the Fiscal Cliff, and How He'd Fix it

Warren Buffett, CEO of Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B), is doubtful that Congress can get its act together and compromise on the fiscal cliff before the Dec. 31 deadline.

However, Buffett expects a deal to be reached shortly after that deadline, and he is not concerned with going over the infamous fiscal cliff.

"The fiscal cliff does not enter into my long-term investment decisions… and it wouldn't surprise me if we go past January 1," Buffett said on CNBC's Squawk box Wednesday morning. "[If that happens] I don't think the world will come to an end."

Buffett is in the minority with that sentiment, as investors have been fretting over the fiscal cliff since the election and will continue to do so until Washington finalizes a deal.

Warren Buffett on How to Fix the Fiscal Cliff

Buffett has been active in the media this week, most notably with his op-ed in Monday's The New York Times.

There he reiterated his stance for higher taxes on the wealthy, but recommended raising taxes at the $500,000 threshold, instead of U.S. President Barack Obama's $250,000 suggestion.

And that's not his only suggestion for dealing with the fiscal cliff.

While Buffett did not outline a concrete plan for handling the dilemma, he said he could, "go with a number of plans."

Specifically, he suggested the end result of a compromise should create U.S. revenue at 18.5% of GDP and expenditures at 21%.

The "Oracle of Omaha" said that he has no problem having capital gains and dividends taxed at ordinary rates, as long as the plan involves moving towards those stated goals for revenue and spending as a percentage of GDP.

Buffett said those objectives have basically been in place since World War II, but they've moved around a bit. Ultimately he thinks that a plan that incorporates these benchmarks will not increase the national debt-GDP level, and overtime Buffett thinks it will bring down the debt-GDP level and encourage growth.

Report: Peter Schiff has a different take on how the U.S. should handle the fiscal cliff. Check it out – and tell us how you feel – here.

Buffett on the Fairness of Taxes

The "Buffett Rule," which would place a minimum tax of 30% on individuals making more than $1 million a year, has been criticized as not actually making a dent in the deficit, yet Buffett is still a very strong advocate of the idea.

In today's interview he made clear that he is a proponent of paying a 35% tax rate on all his income, whether it's from investments or not. He went as far to say that the super-rich are a small minority who don't pay any taxes and are among the "moochers" Mitt Romney referenced in his "47%" comments.

Besides having the wealthy paying their "fair share" of taxes, Buffett wants to see corporations, such as Apple Inc. (Nasdaq: AAPL) and General Electric Co. (NYSE: GE), which have sometimes paid no corporate taxes, pay a higher amount.

"The biggest beneficiary of reductions in tax rates in the last 30 or 40 years has been corporations, and the biggest increase has been in the payroll tax," Buffett said when asked about the fairness of corporate taxation.

"If you go back to the 1950s and 1960s, about 4% of GDP was paid in corporate taxes and tax rates were 52% for a long period and then 48%. So it's fallen from 4%, over 4% of GDP, to the 1.5% range."

Speaking of the payroll tax, which many expect to see raised back to its pre-2010 level of 6.2%, Buffett wants to abolish its income cap (currently at $110,100) . This is a subject that rarely gets mentioned in Washington and could generate billions in revenue, fixing what he calls the most "regressive" tax in the country.

Lastly, Buffett the eternal optimist, says that if Jan. 1 comes and the fiscal cliff is not resolved he will not be laying off any workers and if a cap on charitable deductions were put in place, he would not give away any less to charity.

Warren Buffett may be calm heading into the fiscal cliff, but having billions stored away helps just a little. For those who want more guidance on handing the current economic uncertainty, check out this article by Money Morning Chief Investment Strategist Keith Fitz-Gerald on five ways to beat the fiscal cliff.

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Join the conversation. Click here to jump to comments…

  1. Michael | November 28, 2012

    Yes when you have friends in government that will bail you out of mistakes. The rest of us have to pay for our losses and his.

  2. JSharkey | November 29, 2012

    I definitely think Warren Buffett is right – raising income threshold will help people. More so, raising the income level tax relief would spare the millions of middle income Americans.

  3. phil | November 29, 2012

    Buffetts idea is wrong on many levels. first, EVERYBODY should pay some income tax. Its total bullshit to say that the rich have it better than the poor and therefore the poor should not pay.
    I have made money and SAVED for my years when I could not have a job. That means that I denied myself a lot of the luxuries my contemporaries were enjoying,i.e.. bigger houses, new cars every 4/5 years, big screen tvs and yes in the early years a stereo system. Those 100. 00 here and there started to add up and some of my investments paid handsomely. Now after 40 years I have more than most of those that consumed WAY more than me, AND NOW BUFFETT AND GOVERNMENT WANTS TO SAY THAT I'M NOT PAYING MY FAIR SHARE WHEN I AM SELF SUFFICIENT AND WOULD LIKE TO REMAIN THAT WAY SAVE FOR GOVT. CONFISCATION ON MY SAVINGS AND INVESTMENTS. AND BY THE WAY THE GOVT. WILL TAKE AWAY WHAT I DONT SPEND WHEN I DIE. THIS IS INSANITY AND THOSE THAT LISTEN TO BUFFETT SHOULD REALIZE HIS REASON TO PUSH FOR WHAT OBAMA WANTS, HE GETS ACCESS TO THE PRESIDENT. HE HAS SOLD OUT FOR INFO FROM THE HIGHEST SOURCE IN THE LAND.
    Since when can we trust our elected officials to really cut spending, NOT CUT THE RATE OF INCREASE but real cuts to spending. IT AIN'T GOING TO HAPPEN, So the dont fall for the trap of your paying you fair share( alternative minimum tax took care of that). I am paying my fair share and more.
    And by the way will someone tell me how the rich avoid paying ANY taxes. My accountant says its a bold face lie. the AMT keeps me from using deductions past a certain point, therefore i can never not pay taxes.

  4. savanah horn | November 29, 2012

    I am only 13 years old but i am curious about how fiscal cliff effects the economy!!!!!

    please write back soon

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