Warren Buffett, known for his straightforward wisdom and pragmatic approach to investing, surprised many during the 2024 Berkshire Hathaway (BRK.A) (BRK.B) shareholders meeting when he addressed the topic of taxes: "Almost everybody I know pays a lot more attention to not paying taxes, and I think they should," he remarked.
Buffett’s philosophy on taxes, much like his approach to investing, is grounded in long-term thinking and a sense of responsibility and patriotism.
The Taxman and Berkshire Hathaway
Buffett’s acknowledgment that Berkshire Hathaway willingly pays a 21% federal tax rate on its gains from Apple highlights an unconventional stance among business leaders. For Buffett, taxes are not merely a cost to be minimized but a reflection of a broader societal obligation. While many companies aggressively seek ways to reduce their tax liabilities, Berkshire’s approach emphasizes transparency and compliance. And Buffett isn't just saying this: Berkshire Hathaway paid a whopping $26.8 billion in taxes in 2024.
This philosophy is deeply tied to Buffett’s worldview: the federal government, as he explained, “owns a part of the earnings of the business we make.” By framing taxes as a partnership with the government rather than a penalty, Buffett exemplifies his belief in the importance of contributing to the systems that support economic growth and stability.
A Historical Perspective
Buffett’s comments also offered a historical lens on tax rates. He noted that the current 21% federal corporate tax rate is significantly lower than the 35% rate of recent years and a far cry from the 52% rate he faced earlier in his career. Despite these fluctuations, Buffett’s investment strategy has remained resilient. This adaptability stems from his focus on businesses’ intrinsic value rather than short-term financial maneuvers.
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Unlike many who view higher taxes as a deterrent to investment, Buffett’s long-term perspective allows him to navigate changes in tax policy without compromising his principles. His focus on quality investments and the compounding of returns ensures that Berkshire continues to thrive, regardless of tax rates.
Taxes and the Buffett Philosophy
Buffett’s approach to taxes aligns seamlessly with his broader investment philosophy. Just as he prioritizes buying businesses with enduring value over chasing short-term gains, he views taxes as an inevitable and necessary part of doing business. His remarks also reflect a level-headed understanding of the role that government plays in the economy.
“The federal government owns a part of the earnings,” Buffett said, emphasizing that while the government claims a share of profits, it does not own the underlying assets. This distinction highlights his belief in the balance between private enterprise and public responsibility.
Lessons for Investors
Buffett’s perspective on taxes offers several key takeaways for investors:
- Don’t Obsess Over Tax Avoidance: While minimizing taxes can be part of an investment strategy, it should not overshadow the primary goal of building long-term wealth.
- Focus on Fundamentals: Just as Buffett evaluates businesses based on their intrinsic value, investors should prioritize quality and sustainability over short-term tax savings.
- Adapt to Policy Changes: Tax rates fluctuate, but successful investing requires adaptability and a focus on the bigger picture.
Conclusion
Warren Buffett’s candid remarks on taxes serve as a reminder of his unique perspective as both an investor and a business leader. For him, taxes are a necessary cost of participating in a thriving economy, not an obstacle to be feared or resented.
His willingness to embrace taxes as part of the investment process reflects a pragmatic and principled approach, one that has contributed to the enduring success of Berkshire Hathaway. As he has demonstrated time and again, true wealth is built on a foundation of patience, discipline, and a commitment to doing what’s right — not just for shareholders, but for society as a whole.
On the date of publication, Caleb Naysmith did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
