2018: Does the benefit of corporate tax cuts accrue to shareholders or consumers?

GARY RANSOM: Yes, I had a question on the corporate tax rate. And we have a debate in my investment world about where the benefits of that cut fall. And I’d say the consensus is going to the consumer as it gets competed away over time. But perhaps some of it sticks to shareholders.

And my question is, do you think, over the long run, some of the benefits sticks to shareholders? And maybe it’s even beyond auto insurance? Maybe it’s other businesses you have as well.

WARREN BUFFETT: Well, what people do generally with that is they take what they want to be the answer for them and then they hire — or they just attach themselves to some economist that gives them a more complicated way of saying it’s all going to be wonderful because it’s happened.

But the answer is that in the case of our regulated public utilities, the benefits are all supposed to go, and will go, to the utility customer, because we’re entitled to a return on equity if we perform well. And we’re not entitled to get excess returns because our tax rates changed. And similarly, if tax rates would go back up, we would expect to get compensated for that. So in that area — and that was 5 or $6 billion for us.

But in that area, absolutely, it goes to the user, the consumer. And it should.

Then the question is, with the remainder, does it get competed away or not? And the answer is sometimes it does, sometimes it gets competed very quickly and substantially. Sometimes it may be slow. And other times it probably won’t.

The one thing to know is that the change in the corporate tax law was good for shareholders, generally, and Berkshire shareholders. I mean — and that’s what Congress passed. And the intent had to be that if you were going to cut taxes that shareholders would get a particularly large portion this time. And some of you will agree with that politically and some of you won’t agree with it politically. But you’ll all benefit equally. (Laughs)

And I think it’s human nature if you’re getting a break to say it’s going to work wonderfully for everybody else. And we’ll find out whether it will or not.

It’s very, very, very difficult in economics to measure the impact of single variables. You cannot just do one thing in economics. People kind of learn that in physics and talk about butterflies in China and all that sort of thing. But the — every question you get in economics the next, any statement, you should say “and then what?”

And when you get into the “and then whats” you get start favoring people who give an answer to that in political life that happens to usually help you in some way or another, including your pocketbook. And we’ve see that with this. And it’s helped the shareholders at Berkshire Hathaway.

I would say that some will be competed away. Some, by law, will go to the utilities and some will benefit Berkshire shareholders. Charlie?

CHARLIE MUNGER: I have nothing to add.