Warren Buffett on income inequality – minimum wages no answer

Always take it from where it comes. And in Warren Buffett’s case, it comes from earth’s only billionaire who argues that higher taxes should be applied to his kind – and warns that income inequality is a problem requiring far more attention. But Buffett is also the kind of person who tackles a challenge from all angles, focusing on those unintended consequences which bedevil seemingly obvious solutions. At the Berkshire Hathaway AGM over the weekend, his 50th in the chair, the 84 year old was asked about raising minimum wages. It’s clear from his answer the solution to income inequality lies far from the easy option politicians often plump for. – Alec Hogg    
By Margaret Collins and Noah Buhayar
REUTERS/Rick Wilking

(Bloomberg) — Billionaire Warren Buffett said the level of income inequality in the U.S. is “extraordinary” but that raising the minimum wage isn’t the best solution.

“I don’t have anything against raising the minimum wage but I don’t think you can do it in a significant enough way without creating a lot of distortions,” Buffett, 84, Berkshire Hathaway Inc.’s chief executive officer, said Saturday at the company’s annual shareholders meeting in Omaha, Nebraska. Those distortions “would cost a whole lot of jobs,” Buffett said.

Answering questions alongside Buffett, Charles Munger, 91, Berkshire’s vice chairman, said raising the federal minimum wage, which has been $7.25 an hour since July 2009, “would hurt the poor.”

Some large companies have recently announced plans to raise wages for their lowest-paid workers.

Wal-Mart Stores Inc., the nation’s largest private employer, announced a plan in February to begin paying all of its U.S. hourly workers at least $9 an hour in April and $10 an hour by next February. The move will result in raises for about 500,000 workers in the first half of the current fiscal year and cost about $1 billion, the Bentonville, Arkansas-based company said in February.

Berkshire held 67.7 million Wal-Mart shares as of Dec. 31, a stake with a value of about $5.3 billion based at Friday’s closing price. Senate Republicans last year blocked legislation that would have raised the minimum wage nationally to $10.10 an hour from $7.25.

Job Killer

President Barack Obama and Senate Democrats say that lifting the minimum would benefit the economy and reduce income inequality. Many Republicans and business groups say the plan would cost jobs.

Barak Obama
Picture: REUTERS/Larry Downing

Buffett, the second-richest person in the U.S., said raising the minimum wage was “a form of price fixing” and instead favored reforming the earned income tax credit, a refund paid to low and moderate income individuals and couples.

The nation’s jobless rate has dropped 1.2 percentage points from the end of 2013 to 5.5 percent in March, close to the level that Federal Reserve policy makers consider full employment. But lower unemployment has not translated into wage gains for many Americans.

“Everyone who is willing to work should have a reasonably decent livelihood in a country like the United States. How that is best achieved, I’m actually going to write something on that soon,” Buffett said.

Tax Credits

Buffett has said repeatedly that tax refunds are better for the economy and workers than forcing companies to increase wages.

“The earned income tax credit is much clearer,” Buffett said in an interview with CNBC last year. “That puts more money in the pockets of people who are working for low wages.”.

Almost 28 million U.S. taxpayers received the EITC in the 2013 tax year, according to IRS data in December. The payments totaled more than $66 billion and the average amount nationwide was about $2,407.

Berkshire employed 340,499 workers, as of Dec. 31, according to Buffett’s annual report to shareholders. Last year the billionaire investor told CNBC that “very, very few” of them make minimum wage.

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