Wednesday, December 12, 2012

Warren Buffet wants the rich to pay more taxes (except for him)

If a company has excess cash on its balance sheet it could a) declare a dividend or b) buy back shares.  Both actions have the potential to increase the value of its shares; however, dividends are taxable whereas share buy backs are not except to the selling shareholder.

Warren Buffet's Berkshire Hathaway does not issue dividends , which would hit its shareholders, Warren Buffet being the biggest one, with an annual tax bill, but does engage in share buybacks which results in no tax bill to Mr Buffet.  From a tax point of view this is the right decision, but highlights the hypocrisy of Warren Buffet complaining he doesn't pay enough taxes at the same time as engaging in every tax minimization strategy he can.

Talking of taxes, hypocrisy and Warren Buffet he today came out in favor of lowering the estate tax exemption to $2m from $5M.  For a man worth tens of billions this has no impact on him whatsoever. In fact it is irrelevant as given he has already agreed to donate the bulk of his wealth to the Gates Foundation his estate will probably pay very little in the way of taxes, if any at all.

As I wrote earlier this year:

Having spent his investing career accumulating enormous wealth, partially by trying to minimize his tax bill and enjoying the benefits of tax free compounding, Warren Buffet has seen the light and now thinks the rich should be paying more.  (Hmmmm.  It took him until he was fabulously rich and in his 80's to figure this out?)

Anyway if Buffet believes so strongly in the "rich" paying more taxes why has he agreed to donate the vast majority of his wealth to the Bill and Melinda Gates Foundation and effectively avoid paying over 50% of his net worth in estate taxes to Uncle Sam upon his demise?  Simple.  He clearly expects Bill to spend his money more wisely than the US Government...

Seems like everyone wants someone else to pay more taxes even a billionaire like Warren Buffet

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