Berkshire Hathaway 2017 Annual Meeting Audience Question # 16

Warren has never instructed Berkshire’s managers to do anything differently because of investment tax credits or accelerated depreciation

Warren Buffett:

OK. Andrew?

Andrew Ross Sorkin:

Thank you, Warren. This question comes from Ryan Prince.

“President Donald Trump and his advisors have talked about proposing a substantial investment tax credit to provide incentives for long-term corporate fixed capital investment.”

“In BNSF, Berkshire owns a sprawling infrastructure portfolio requiring regular routine maintenance investment of substantial scale.”

“What impact would an investment tax credit have on BNSF’s capital investment decision- making, from a return on investment capital perspective, as well as in terms of timing?”

“And just as importantly, given the current economy and employment picture, would such a tax credit amount to a subsidization of otherwise mandatory maintenance capital investment or a proper incentive to stimulate investment?”

Warren Buffett:

Yeah, well, it would all depend on how it was worded… you know, because… we’ve had investment tax credits in this country, and we’ve had bonus depreciation. It’s another form of it.

We… and we do get extra first-year depreciation. That does not enter into our calculation very much.

You know, in fact… certainly at the Berkshire level, I’ve never instructed anybody to do anything different because of investment tax credits or accelerated depreciation. There may be some calculations done down at the operating company level.

It’s certainly true in something like wind projects and solar projects. They are dependent on the tax law, currently. There may come a time when they aren’t, but they wouldn’t have been done without some subsidization through the tax law.

But I would say, if you change the depreciation schedules and, you know, double depreciation
…triple depreciation, for… that… we’re going to do what we need to do at the railroad to make it safer and more efficient if we just had ordinary depreciation.

And I doubt if there would be any dramatic differences. Obviously, if you were going to, say, buy a bunch of planes and the law was going to change on December 31st, and the math made it better to wait till January 1st or do it this December 31st, you make that kind of calculation.

But I can’t recall, in all the years, that I’ve ever sent out anything to our managers saying, “Let’s do this because the tax law is being changed or might be changed,” or something of the sort.

As I mentioned earlier, it changes just a little bit if you think there’s going to be a change in capital gains rates at a given time. Obviously if it’s going to… the rate’s going to be lowered, you would take losses ahead of time and defer gains, maybe, a little.

And that’s why it’s useful, actually, if the tax committees in the Senate and the House are working on something, it might be useful if the chairmans would say that, “If we do make any changes, we’re likely to use this effective date,” or something of the sort. And I think they’ve done that a few times in the past.

We are not, the big tax-driven item… is… in wind and solar. And that is a specific policy, because the government has decided they want to move people… or society has decided… they want to move people toward those forms of electric generation. And the market system wouldn’t do it.

And there may come a time when the market system will do it all by itself.

We won’t make big changes. And it’s so speculative anyway, in terms of even what the law would be.

But beyond that, if it becomes less speculative as the law and it really looks like something is going through, it doesn’t change us big time at all.

Charlie?

Charlie Munger:

Nothing to add. We’re not going to change anything at the Berkshire… at the railroad… for some little tax jiggle.

Warren Buffett:

Yeah, if we need a bridge repaired, we’re going to repair the bridge, you know. And if need… we need a lot of track maintenance all the time and that sort of thing. And it just, I don’t think Matt and I have ever had a talk about it since we’ve owned the railroad, but…

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