Midwestern billionaires Koch brothers and Warren Buffett differed on taxing wealthy Americans and were near-polar opposites on politics
Billionaire conservative donor and industrialist David Koch died at the age of 79, his elder brother and CEO of Koch Industries, Charles Koch, announced on Friday, August 23. The cause of death was not disclosed, but Koch Industries said Koch, who lived in New York City, had contended for years with various illnesses, including prostate cancer, according to an AP report.
The Kochs were best known for a vast political network they built that became popularly known as the “Kochtopus” for its far-reaching tentacles in support of conservative causes.
As David bids goodbye to the world, we revisit the tale of the Midwestern businessmen — Warren Buffett and the Koch brothers — and their commonalities and differences.
When it comes to the similarities, the business magnates were born in the midst of the Great Depression, and all of them adopted the classic Midwestern heritage of industry and folksy friendliness. Besides, they also share a sharp acumen to make millions in the modern capitalist society.
The former majority owner of Koch Industries was ranked as the 11th richest person in the world by Forbes magazine, just below his brother Charles. The brothers had a combined fortune larger than that of Bill Gates or Warren Buffett.
The Kochs and Buffett both have taken advantage of the law of compounding. While Buffett's Berkshire Hathaway reinvests all its profits instead of paying an annual dividend, the Koch Industries reinvests 90% of its net income every year, a Town Hall Finance column said.
However, when it comes to how they made their fortunes, we see a significant difference in approach between Buffett and the Kochs.
Buffett makes careful investments in well-managed firms at competitive prices after observing them for long periods of time. This formula has served him well for the last 50 years, with Berkshire Hathaway consistently outperforming market indexes in terms of annualized returns.
On the other hand, the Koch brothers believed in the philosophy of acquiring firms and actually managing them based on “Market Based Management” (MBM). This strategy involves closely monitored incentives, compensation, product design, and manufacturing processes, and it has worked best for Koch Industries, clocking an average of 17% annualized returns since 1960.
Another major difference between the two tycoons is that while Berkshire Hathaway is a publicly-traded company, Koch Industries has remained private.
According to the Kochs, private businesses have way more flexibility as they aren't required to file quarterly reports to the public, neither do investors in their company have to worry about the ups and downs of their stock, which would otherwise be far more volatile.
Finally, the biggest difference between the two magnates is their political leanings and funding of causes.
Buffett is known to be a lifelong social democrat who has released sizeable funds towards programs like Planned Parenthood and the 2016 Hillary Clinton campaign.
On the other hand, the Koch brothers are well-known for supporting conservative and libertarian causes while majorly financing Republican candidates.
Furthermore, Buffett has for long been pushing for a higher tax rate on earnings of more than $1 million a year, and even more tax for those who earn more than $10 million.
According to him, federal taxes are lower today than they've been in the last 50 years. He once famously claimed that he pays lower taxes than the secretaries in his office, but that is only because most of his earnings come as capital gains and not wages.
On the other hand, the Koch brothers believe in conservative causes as they have funneled millions of dollars towards the Republican Party. But according to them, the government needs to go on a diet with their spending.
Charles Koch has previously cited the "massive uncontrolled increase in government spending" over the last several years and asserted he can spend his money more wisely than the government can.
"Much of what the government spends money on does more harm than good," he once famously said. "This is particularly true over the past several years with the massive uncontrolled increase in government spending. I believe my business and non-profit investments are much more beneficial to societal well-being than sending more money to Washington."
That said, public utilities like education, police, the judicial system, as well as the military are some things the private economy is just unsuited to cater to, but the debate is open on what services the government should provide and what is the best and most efficient way to provide them.
And, that's where your vote counts.