When asked at Saturday’s annual shareholder meeting why he sold 115 million shares of Apple over the past quarter, the Oracle of Omaha predicted companies like his could find themselves handing over more of their earnings to Uncle Sam. And he for one is fine with the idea. 

“With present fiscal policies, I think something has to give. And I think higher taxes are quite likely,” he said, lecturing other companies for constantly scrutinizing the tax code for the smallest loopholes that can reduce their tax burden.

Under the Trump administration, the statutory rate for corporations was reduced to 21% in 2017 from a previous 35%, and Buffett recalled it has been much higher in the past. 

“They may decide that someday they don’t want the fiscal deficit to be this large, because that has some important consequences. And they may not want to decrease spending a lot, and they may decide they’ll take a larger percentage of what we earn, and we’ll pay it,” he said during his first shareholder meeting since the passing of longtime business partner Charlie Munger. 

Buffett has repeatedly advocated that those who can pay more taxes should do so, famously saying his secretary paid a higher tax rate than he did. The Biden administration is now looking to address that in the election year with a proposal for higher capital gains taxes, including on unrealized gains. 

As a result of the growing inability of D.C.’s political elites to agree on how best to tackle U.S. government debt, S&P Global in 2011 stripped the country of its AAA sovereign debt rating—something Buffett criticized at the time. The ratings agency has since been joined by Fitch, which downgraded the U.S. last year—and Moody’s is expected to follow. 

The broader topic of the national debt lends itself to misconceptions when people think of it in terms of personal debt. While the level must be managed prudently—U.S. national debt now stands at over $34 trillion, or 122% of the economy—it is not something that has to be paid off like a homeowner’s mortgage. 

Not even companies pay off their debt—many simply negotiate terms under which they can roll it over. In fact, investors demand that companies gear their balance sheets based on their risk profile, because if they don’t they won’t produce high enough returns on their equity. Indeed, the business model of buyout firms like Blackstone and Carlyle relies on optimizing the capital structure of a purchased company.

Buffett sees no alternative to U.S. Treasury bonds

Each country’s experience with debt is different—and it doesn’t always depend on the size of the debt.

Japan, for example, has shouldered far more debt than Greece, but until late last year it was predominantly held by domestic investors, a stable source of funding much like a bank’s guaranteed depositor base. Greece, however, was reliant on international investors who can shift their money from one jurisdiction to another at a moment’s notice. 

If spent on productive assets, debt is a useful tool for governments to improve their economy’s growth or resilience without resorting to taxation. Crisis only hits when investors lose faith in a government or a company’s ability to service its debt and the situation spirals out of control in a destructive feedback loop that sees investors demanding ever higher premiums to offset ever rising risk. 

Economists argue over where the tipping point hits when the level of debt as a proportion of the overall economy is no longer sustainable. But the U.S. enjoys three major advantages that explain why the debt hasn’t been a problem yet. 

For one, it has a highly flexible and resilient economy capable of adjusting to external shocks better than most industrial nations—this offers investors a more attractive return than parking their money elsewhere. 

It also has the deepest and most liquid sovereign debt market in the world, crucially allowing it to serve as a safe haven for capital in times of crisis—which is precisely when this advantage is needed the most. And finally, it has the world’s reserve currency so there is always a need for dollars, and the preferred means of holding them is through interest-bearing Treasuries rather than cash. 

“My best speculation is that U.S. debt will be acceptable for a very long time, because there is not much alternative,” said Buffett.

If anything, the U.S.’s problem is that too many administrations—both Republican and Democratic—have become complacent about the issue since Bill Clinton balanced the budget, knowing full well there has been no attempt at addressing burgeoning risks from the U.S.’s unfunded entitlement programs for Medicare and Social Security.