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Warren Buffett- Watch the hands

Warren Buffett recently bemoaned the very wealthy for not paying enough federal tax.
He grieved that his staff often paid 36% marginal federal tax rates while he paid 17%. However, he forgot that the companies whose dividends he collected or capital gains he incurred had already paid 35% corporate tax on earnings; unless, that is, the companies were crony capitalists currying favor with the government paying no tax, i.e. General Electric.

Let’s set aside the question of whether the very wealthy should pay more taxes and scrutinize what the “Oracle of Omaha” is actually telling us.

Buffett’s ingenious investing methodology of picking sound, efficient companies has allowed him to amass a fortune. Whatever he may say, he invests money to maximize the return. Mr. Buffett is also a generous philanthropist who, it is safe to assume, wishes to maximize the benefit to others from his donations.

If Mr. Buffett views positively the operations of XYZ Company he will buy shares regardless of what he may say. Short selling XYZ’s stock would be an indication of Mr. Buffett’s less than neutral analysis of their efficiency.

The accumulation of more money than he wants or needs fortunately allows him to invest in causes helping fellow citizens. He once said, “you owe it to the rest of humanity to think about the other 99%.” It is safe to assume he scrutinizes these investments as much as his business investments.

Mr. Buffett has donated $10 billion dollars to multiple charitable foundations over the last six years including $1.5 billion to the Bill & Linda Gates Foundation. Although he may lobby for higher taxes, his actions indicate he believes otherwise. Nothing prevents Mr. Buffet from making donations to the government if he really believed such would be wise leveraging of his money.

As the prudent investor Buffett shorts(sells) stock of a company he believes is poorly managed. He also aggressively fights paying the taxes he owes. Buffett’s company, Berkshire Hathaway, continues to fight paying $1 billion in tax liabilities to the IRS from as far back as 2002. If he thought government was a good investment for the benefit of humanity why would he not only fail to donate more, but spend money fighting payment of his share? His avoidance of taxes is, in effect, shorting (selling) the government.

As we would watch a crafty magician, we should watch what his hands do, not his words.

Have a fulfilling and profitable day,

WC (Bill) Augustine

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