http://online.wsj.com/article/0,,SB106781932410265400,00.html

The Wall Street Journal's Aug. 15 article about me, based on an interview that I gave one of your reporters about my association with Arnold Schwarzenegger's campaign, was seriously misleading in a way that caused far-reaching reverberations. For reasons that I will explain, I could not write to you about this matter until now.

The article, featured on the Journal's front page, carried a headline and opened with paragraphs devoted entirely to California taxes. That's fair enough: taxes were certain to be a major issue in the campaign.

In talking with your reporter, Joe Hallinan, I began by asking him to record the interview. He replied that his taping equipment was not working. Therefore, in verifying with him that what I'm about to recount is correct, you will have to rely on his notes. I do not expect you to find discrepancies, given that he asked me several times to repeat the key figures that I presented.

What I said in respect to property taxes was very specific. I gave him an example of three houses, two in Laguna Beach and one in Omaha.

• The first Laguna Beach house is a property that I bought in the early 1970s. It has a current market value of about $4 million and, because of the limitations embodied in Proposition 13, carried taxes of only $2,264 in 2003 vs. $2,241 in 2002.
• The second house, located just in back of the first, is one that I purchased in the mid-1990s. It has a market value of about $2 million and, simply because I bought it later than the first, carried taxes of $12,002 in 2003 vs. $11,877 in 2002.

I pointed out to Joe that these figures mean that the tax rate on the second house -- same neighborhood, same owner, same ability to pay -- is roughly 10 times the rate on the first house.

I then referenced my house in Omaha, which I believe to be worth about $500,000 (though it's assessed at $690,000). Taxes on it were $14,401 in 2003 and $12,481 in 2002.

I was satisfied, based on our conversation, that Joe understood the two highly important but uncomplicated points my examples spoke to:

1. Residential property taxes in California are wildly capricious, tied as they are to the date of purchase rather than the value of the property or financial circumstances of the owner.

2. In the case of properties that a homeowner has held for a long time, residential property tax rates in Omaha are far higher than in California.

In the interview, I then said, as the story reported: "This property-tax illustration, that tells you, you can draw certain conclusions from that." Give me an F for syntax. Even so, this comment clearly applied to both observations regarding property taxes.

Yet there was no mention in the story of my second house in Laguna nor any mention of the tax inequities within California. Instead, the headline, the body of the story and quote made it appear as if I was only talking about the difference in taxes between Omaha and California.

It's difficult to understand this omission. Imagine that a reporter were to ask a candidate about a fiscal problem and received this reply: "Spending is up 10%, taxes are down 10% -- you can draw certain conclusions from that." If the reporter quoted only the tax change portion of the sentence, and followed it with "you can draw certain conclusions from that," readers would be seriously misled.

The severe failings in the article were compounded a few days later when the Journal's editorial page made the mistake of relying on the accuracy and completeness of the Journal's reporting. Though the editorial would have undoubtedly made many of the same points it did had the writer read a complete account of my views, its analysis would have had to be at least somewhat different if the editorial writer had been aware of both points I had made.

For example, the statement in the editorial's second paragraph that "no doubt the non-billionaires in Chico will appreciate Mr. Buffett's generosity with their cash flow" would make no sense if the writer had understood that I was criticizing the inequities within California. My sympathies are clearly with the "non-billionaire" family purchasing a $300,000 house in Chico today that faces real estate taxes materially higher than those borne by this non-resident billionaire on his $4 million house in Laguna. This family, because of Proposition 13, has been selected to subsidize me.

The Journal's editorial page was not the only medium that drew incorrect and incomplete inferences from the story. The Omaha-Laguna comparison rocketed around the world accompanied by commentary that I was suggesting raising property taxes in California, with no mention at all that I was arguing they needed to be made more equitable.

When I subsequently explained to the Journal's Kevin Helliker just how misleading the story had been, our office received an e-mail from Joe Hallinan suggesting that I "might be interested in doing another interview with us, expanding on some of his earlier points." It is ironic that the reporter mentioned "expanding" my views when he -- or his editor -- were the ones who had truncated my views in such a misleading and unfair manner.

Another interview, of course, would have compounded the problem, since -- short of the Journal forthrightly acknowledging its original error -- it would have appeared that I was scrambling to revise my statement to limit political damage to Arnold. This is the same point, of course, that has deterred me from writing you, or otherwise talking about the tax issue, until we reached a date when my doing that would not influence the election.

Because the Journal's mischaracterization of my views has achieved such widespread publicity, I am planning to post this letter for an extended period on the Berkshire Hathaway Web site.

Warren E. Buffett
Chairman,  Berkshire Hathaway Inc.
Omaha, Neb.

RELATED MATERIAL • A Note From the Managing Editor1 For readers who want to consider these issues in more detail, the full text of the original article is available, along with follow-up articles, via the following links: • Page One: Buffett Hints Property Tax Is Too Low2 (Aug. 15, 2003) • Review & Outlook: Buffetting California3 (Aug. 18, 2003) • Schwarzenegger Says No to Higher Taxes4 (Aug. 21, 2003)

A Note

I respectfully disagree with Mr. Buffett. The article wasn't misleading. His central point to our reporter was the huge disparity in taxes on his home in Nebraska vs. those on his properties in California. Mr. Buffett described this disparity in the context of discussing with the reporter the troubled state of California's finances, strongly hinting that raising property taxes in California closer to levels in Nebraska might be one way of narrowing California's huge budget gap.

http://online.wsj.com/public/article/0,,SB106565265368713300,00.html

Buffetting California
 
Arnold Schwarzenegger has said that one of his priorities as Governor would be to "bring business back to California." This shows he understands the root of the state's current problems, but his tapping of Warren Buffett for advice is a sign that he doesn't yet understand the solutions.
 
Mr. Buffett is a wonderful stock picker but his politics lean toward tax and spend. Last week he opined that California's problem may be that it is undertaxed. He specifically cited Proposition 13, which limits property tax increases to 2% a year. It seems the billionaire is vexed that he pays less in property taxes on a more expensive home in California than he does back in Omaha. No doubt the non-billionaires in Chico will appreciate Mr. Buffett's generosity with their cash flow.
 
The Buffett diagnosis misses entirely that California's main problem is its high-tax, high-regulation government. The $38 billion budget deficit is merely a symptom of the fact that the state's liberal political culture is driving entrepreneurs and job-creating businesses out of the state. A new Census report says that were it not for Latino immigration, California's population would be falling. Between 1995 and 2000, more than 600,000 of its residents moved out of what was once America's promised land.
 
This takes some doing, considering the state's weather and lifestyle. But the liberal Democrats who now dominate Sacramento have piled mandate upon regulation upon new tax in recent years in an attempt to pay off their trial-lawyer, public-employee union and environmentalist backers. Governor Gray Davis tried to keep them in check for a year or so, but after the energy debacle he let the inmates start running things in return for their re-election support. His appeasement has now bought him the humiliation of a recall vote.
 
The Chamber of Commerce in Sacramento compiles a list of the new job-killing burdens on business and ultimately on worker/taxpayers:

• an eight-hour workday overtime rule unique to California that is far less flexible than federal law and opens employers to lawsuits;
• paid family leave of up to six weeks, the first such law in the country; and
• limits on greenhouse gas emissions, also the first in the country, that will raise prices on cars.

In his first appearance to discuss his economic views, Mr. Schwarzenegger said California needs to become a more business-friendly environment again. He said that as governor he would immediately tackle ways to reduce the state's workers-compensation insurance costs. However, he said he couldn't give many specifics about his broader approach because reliable information about the exact state of California's finances isn't available.

http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2003/08/16/MN263845.DTL | San Francisco Chronicle

Buffett's Prop. 13 comments cause stir

by Mark Simon, Chronicle Political Writer | Saturday, August 16, 2003

The smoothly running political machine of actor Arnold Schwarzenegger hit its first speed bump Friday when a top adviser to his campaign for governor suggested overturning California's landmark property-tax initiative, Proposition 13.

Warren Buffett, named earlier this week as an adviser to Schwarzenegger's campaign in a move widely touted as giving the movie star credibility on economic issues, may have nullified his own value when he told the Wall Street Journal that property taxes in California are too low and suggested that Prop. 13 ought to be undone.

Officials with Schwarzenegger's campaign scurried to distance the candidate from Buffett's attack on Prop. 13 while opponents wasted no time assailing the front-running Republican for the words of his adviser.

"We're flabbergasted someone is so out of touch with California that he would suggest a tripling of the property tax," said John Feliz, spokesman for state Sen. Tom McClintock. "We think maybe he needs to fire Warren."

Citing the inequity of the property taxes he pays on his homes in Omaha, Neb., and Laguna Beach, Buffett said the California cap on property taxes imposed by Prop. 13 "makes no sense."

Prop. 13 passed 25 years ago with 65 percent of the vote, and an entire generation of Californians believe that voting for the measure is the best single vote they've ever cast. The proposition rolled back property taxes and limited their annual increase to 2 percent.

"Warren's right," said Bruce Cain, director of the Institute of Governmental Studies at UC Berkeley. "It's an unequal system. But all the polling indicators I've seen show the appetite for changing the system is very low."

For Republicans, Prop. 13 is sacred text -- the benchmark by which most candidates are evaluated by key donors, top party leaders and many of the party's most loyal voters.

"I'm sure Arnold was mortified when he read (Buffett's comments)," said Frank Schubert, a longtime Republican political consultant who has run 16 statewide campaigns.

As recently as 2000, a ballot initiative attempting to make it easier to raise property taxes failed overwhelmingly, said Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association, predicting that anyone who attempts to roll back Prop. 13 today would face similar voter wrath.

'POLITICAL SUICIDE'

"It's political suicide for a California Republican to propose overturning Prop. 13," said Darry Sragow, a longtime Democratic political consultant. "A Republican is going to get his head caved in for this."

Schwarzenegger didn't propose overturning Prop. 13 himself -- in fact, his political strategists reacted as though a hand grenade had been thrown into their midst.

"Arnold Schwarzenegger has supported Prop. 13 for 25 years," said campaign spokesman Rob Stutzman, adding that the actor was the keynote speaker earlier this summer at an event honoring the silver anniversary of the passage of the property tax initiative credited with launching a national anti-tax revolution.

"Arnold is an admirer of Howard Jarvis (the late co-author of Prop. 13) and has referred to him as the original tax terminator," Stutzman said. "He will be a fierce protector of Proposition 13."

Schwarzenegger spent the day campaigning at Southern California schools and did not comment on Buffett's statements.

But Schwarzenegger spokesmen spent the day asserting that Buffett is only an adviser to the candidate and that he'll make his own policy decisions.

"Warren Buffett is speaking about his own philosophical position," Stutzman said. "The two of them are not going to agree on every single issue."

The flap over Buffett's comments only enhance the suspicions among conservative Republicans that Schwarzenegger is not a true California-style Republican committed to the no-tax, cut-spending philosophy that has been the mainstay of the state's GOP.

The suspicions already were roused by the prominent presence in Schwarzenegger's campaign of former advisers to Gov. Pete Wilson, who, as a candidate for governor on the same 1978 ballot on which Prop. 13 appeared, opposed the property tax rollback.

Early in the day, businessman Bill Simon called upon Schwarzenegger to disavow Buffett's statements.

"It's time for Arnold to come out from behind the curtain," Simon said at the opening of his Sacramento campaign headquarters. "I'd like to see where Arnold stands on these issues."

OFFICIALS BACKPEDAL

Later in the day, when Schwarzenegger officials began backpedaling from Buffett's comments, Simon spokesman K.B. Forbes said, "We're happy that the Schwarzenegger campaign listened to Bill Simon's advice of distancing himself. However, we want Arnold Schwarzenegger to make a pledge, as Bill Simon has, that he will not raise taxes. Is he going to be a tax-and-spend governor, or is he going to have the courage to take the pledge?"

Even Davis, making a campaign appearance at a heavily Hispanic school in Los Angeles, weighed in on Buffett's comments, telling reporters, "I could not disagree more. I'm very proud that property taxes in California are lower than the rest of the country. Prop 13 is principally responsible for that."

Chronicle staff writers Christian Berthelsen, Lynda Gledhill, Carolyn Lochhead and Mark Martin contributed to this report. / E-mail Mark Simon at msimon@sfchronicle.com.

URL: http://sfgate.com/cgi-bin/article.cgi?file=/c/a/2003/08/16/MN263845.DTL
©2007 San Francisco Chronicle