Buffett and Prop. 13, the sequel
Footnotes are among those things over which humanity fundamentally divides. On the one side are those who regard them as little more than typographical underbrush, impedimenta to a good story’s progress. In the other camp are those who find footnotes not just foundational, but fascinating -- the kind of close reader who suspects there is no truth larger than the sum of its details.
This is a story for the latter group, an engrossing controversy touching on both the history of California’s recent gubernatorial recall and the journalism it produced:
The protagonists are uber-investor Warren E. Buffett, chairman of Berkshire Hathaway, and the Wall Street Journal. On Aug. 14, then-candidate -- now governor-elect -- Arnold Schwarzenegger announced that the “Sage of Omaha” had joined his campaign as a financial advisor. The next day, the legendarily plain-spoken billionaire sent political analysts’ jaws plunging when he attacked California’s most sacred cow, Proposition 13, in an interview with the Journal’s Joseph T. Hallinan.
Buffett, the Journal reported, had “strongly suggested ... that the state’s property taxes need to be higher.... As an example, he pointed out the difference between his own property tax bills for homes he owns in California and Nebraska.
“His home in Omaha, he said, is valued at roughly $500,000. His current yearly property tax bill on that home: $14,401.
“In California, he owns a Laguna Beach home valued at $4 million, or eight times as much. The annual property taxes on that home are just $2,264 -- a fraction of what he pays in Omaha....
“ ‘This property-tax illustration, that tells you, you can draw certain conclusions from that,’ said Buffett. Noting that tax assessments also vary widely, he said of the tax system, ‘In effect, it makes no sense.’ ”
The interview’s contents were widely reported and Buffett was widely assailed, including on the Journal’s editorial page, which dryly observed that “no doubt the non-billionaires in Chico will appreciate Mr. Buffett’s generosity with their cash flow.” Schwarzenegger made a televised show of taking his advisor gently to the woodshed, and it seems likely that the incident played at least some role in the resolute no-new-taxes rhetoric he adopted for the balance of the campaign.
There matters stood until Monday, when the Journal took the extraordinary step of printing unedited a long letter to the editor in which Buffett attacked Hallinan’s story as “seriously misleading in a way that caused far-reaching reverberations.” Buffett wrote that he had refrained from expressing his objections “until we reached a date when my doing that would not influence the election.”
The core of Buffett’s criticism is that his examples involved not two, but 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.”
These examples, Buffett wrote to the Journal, were intended to convey “two highly important but uncomplicated points”:
“1. Residential property taxes in California are wildly capricious....
“2. In the case of properties that a homeowner has held for a long time, residential property rates in Omaha are far higher than in California.”
By omitting any reference to his second, more recently purchased, Laguna house, Buffett argued, the Journal had seriously distorted his views. Borrowing the hypothetical case proposed by the paper’s follow-up editorial, Buffett wrote, “My sympathies clearly are 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 length and detail of Buffett’s letter were unusual enough, but his remarks were followed in the Journal’s letters column by a lengthy signed response from Paul Steiger, the paper’s managing editor, who wrote: “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....
“In the interview, Mr. Buffett did make the other point that his letter emphasizes, that of the sharp disparity in the tax rates between the levies on one California property that he had bought many years ago vs. those on a nearby property that he had bought more recently.” Steiger went on to call the point “interesting” and wrote that it “might well have been included in the story in detail. Instead, it was referred to only briefly. In the tight confines of a newspaper article we always have to choose which of an interviewee’s many remarks to report.”
These days, much of the discussion surrounding America’s news media involves stuffing and then knocking around the straw man of political bias. Yet bias is far less often a significant factor in mainstream journalism than the talk-show brawlers would have us believe. Judgment, on the other hand, is indispensable. Serious-minded people will differ over its application -- even by conscientious editors and reporters, like those at the Journal.
Buffett could not be reached for comment. In an interview, Steiger declined to go beyond his published response, but did say, “Journalism is, as the famous saying goes, the first draft of history. As such, it is subject to enhancement, clarification and revision. We just don’t feel one is required here.”