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Buffett: 'Medical costs are the tapeworm of American economic competitiveness'

Julia La Roche

Legendary investor Warren Buffett said that rising health care costs, not the tax system, is the number one problem that American businesses face.

“If you go back to 1960, or thereabouts, corporate taxes were about 4% of GDP, I mean they bounced around some. And now, they’re about 2% of GDP,” Buffett said during Berkshire Hathaway’s (BRK.A) (BRK.B) annual shareholders meeting. “At that time, health care was 5% of GDP, and now it’s about 17% of GDP.”

In Buffett’s view, this says a lot of what’s playing a bigger role in hindering business activity in the economy.

“When American business talks about taxes strangling our competitiveness, or that sort of thing, they’re talking about something that as a percentage of GDP has gone down from 4% to 2%, while medical costs, which are borne to a great extent by business, have gone from 5% to 17%,” he said.

“So, medical costs are the tapeworm of American economic competitiveness.”

He added that health care will be problem that society will face, regardless of what political party is in power.

Republicans are pushing for a tax cut for people like Buffett

In terms of the American Health Care Act, the Republicans’ plan to repeal and replace the Affordable Care Act, Buffett said that the net effect if it should pass that it would be a big windfall for wealthier Americans.

“The one thing I can tell you, if it goes through the White House … anybody with a $250,000 adjusted gross income and a lot of investment income, is going to have a huge tax cut,” Buffett said. “When there’s a tax cut, either the deficit goes up or they get the taxes from somebody else.”

Warren Buffett

Charlie Munger, Berkshire’s vice chair, agreed with the medical care costs are going wild. He noted that sometimes there’s “too much medicine” and “too much chemotherapy” for people who are “all but dead.”

Munger added that U.S. manufacturers are at a “big disadvantage” compared to countries where the government is paying the health care costs.

“On this issue, both parties hate each other so much that neither one can think rationally, and I don’t think that helps either,” Munger said.

Buffett agreed that it’s going to be “very tough” for the political parties to take on this issue.

“If you talk about about world competitiveness of American industry, it’s the single biggest variable where we keep getting more and more out of whack with the rest of the world,” Buffett said. “It’s very tough for political parties to attack it, but it’s basically a political subject.”

