Wednesday, December 12, 2012

Warren Buffett Employs Tax Avoidance Scheme to Avoid Taxes He Is Advocating Being Increased

Should we be paying attention to what Warren Buffett is doing rather than his Obama fan-boy tax increase comments?

Consider. One strategy employed by some companies is to launch stock buyback programs rather than paying out dividends. Employing this strategy delays immediate tax payouts.

This summer, Seeking Alpha explained the tax advantages of such programs and how the programs work:
With the Bush-era tax cuts possibly ending this year, now is the time to start preparing for an eventual rise in investment tax rates. Currently, the long-term capital gains and stock dividend tax rates are capped at 15%, but all investors -- especially those in the upper income tax brackets -- should prepare now for higher rates...
One avoid taxes is to invest in companies that buy back stock instead of paying out huge dividends. Instead of paying taxes on those dividends every year, investors instead delay any tax payments until years down the road when or if they ever sell the stock. The investor can control when he or she pays the taxes.
Instead of getting that dividend payment, the investor obtains a larger share of the companies earnings with every net share bought by the company. These buybacks can add up over time to 10%, 20%, or even more gains in earnings per share -- all without the investor having to pay any taxes in the process.
Got that? Find companies that are using their cash to buyback stock instead of paying dividends. It's  a nice tax dodge against the increase in taxes that Warren Buffet has been advocating. So who is launching such programs? This announcement was just released this morning:
 Berkshire Hathaway has purchased 9,200 of its Class A shares at $131,000 per share from the estate of a long-time shareholder. The Board of Directors authorized this purchase coincident with raising the price limit for repurchases to 120% of book value. Berkshire may purchase additional shares in the market or through direct offerings at no more than 120% of book value.
Berkshire is Warren Buffett's public investment vehicle and that buyback was for $1.2 billion.

There is nothing wrong with loopholes to lower taxes due. Ludwig von Mises called loopholes the method by which capitalism breathes,

Buffett has been doing buybacks for a long time and has encouraged other companies that he is a shareholder in to do the same, but you have to wonder about a guy that is advocating higher taxes on income and then employs methods so that he will avoid paying those taxes any time in the near future.


  1. No need to wonder. He's a limousine liberal. For him, as long as the majority of people are paying more taxes he can feel as if he's done his part. The best that the rest of us can do is to hire his accountant.

  2. Here's another thing about Warren "do as I say, not as I do" Buffett - he thinks the rich should have their taxes increased because government needs the money, but he is leaving most of his vast fortune to The Gates Foundation, not the U.S. Treasury. There isn't a phony meter powerful enough to measure this guys hypocrisy.