Warren Buffett And His Shareholders Paid 21 Miles in Taxes
Imagine piling 32 billion dollars in a stack of newly printed $100 bills.
How high would it reach?
Warren Buffett knows the answer: it’s 21 miles high – or three times the level commercial airlines usually fly at.
He took the time to figure that out, because 32 billion USD is how much Berkshire Hathaway has paid in taxes over a decade.
Why is that important?
Taxes and philanthropy are a theme in Warren Buffett’s shareholder letter for 2022.
I’ll tell you why in this blog post.
The Shareholders Can Be Proud
Warren Buffett says that everyone who is a shareholder in Berkshire Hathaway can honestly say that “they gave at the office.”
If there were just 1,000 other taxpayers that paid that much, the other 131 million taxpayers in the United States would not have to pay any taxes at all.
Why are taxes a big subject in this year’s shareholder letter?
By illustrating so graphically what the shareholders are indirectly contributing to by paying taxes through Berkshire, Buffett makes a few points:
The Deficit is a Big Deal
One important point is that the fiscal deficit is too huge, and it has become a threat that can destabilize the American economy. (Well, he doesn’t exactly say anything about threats, because he is a softspoken and diplomatic man.)
Over the past decade, the US Treasury received $32 trillion in taxes, but it spent just under $44 trillion.
Buffett doesn’t go into detail – he doesn’t scold any individuals, companies or politicians – but he simply emphasizes that a “huge and entrenched fiscal deficit has consequences.”
He also explains that he and Charlie Munger, as shareholders, mainly focus on the companies, not the macro policy… but that this “attribute is far from perfect.”
Coming from Warren Buffett’s careful mouth, these are serious words.
There Would Be No Berkshire Success Without the Success of America
He points out that he’s proud that Berkshire Hathaway pays such a large part of the tax bill and that he hopes to pay more taxes in the future.
That statement would probably make many people clear their throats, but Warren Buffett has yet another point, and he makes it clear.
Berkshire is like the ivy growing up a tree.
Berkshire Hathaway has only done well for so many years because they’ve profited from the success of America.
“We owe it to America,” he says, referring to Berkshire’s tax bill.
Why? Because the dynamism of the United States has contributed to Berkshire’s success.
“We count on the American tailwind,” he writes in the letter to shareholders for 2022, which was published at the end of February. You can read it right here.
Here are some of his other points from this year’s letter to shareholders:
Foolish Stock Market Prices Made His Success
The stock market has made it possible for Berkshire Hathaway to buy wonderful companies at wonderful prices.
As Buffett says:
“It’s crucial to understand that stocks often trade at truly foolish prices, both high and low. ‘Efficient’ markets exist only in textbooks. In truth, marketable stocks and bonds are baffling, their behavior usually understandable only in retrospect.”
His Success Depended on a Few Well-chosen Stocks
He singles out Coca-Cola and American Express as some of the few investments where he has done well, and he explains that without those, Berkshire Hathaway would have achieved mediocre results.
“Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years,” he writes.
Berkshire invested $1.3 billion in Coke in the 1990s that turned into $25 billion (year-end 2022) plus dividends.
AmEx was also a $1.3 billion investment, and it grew to $22 billion (year-end).
“The weeds wither away in insignificance as the flowers bloom. Over time, it takes just a few winners to work wonders.”
This, of course, also applies to you as a private investor. Learn to pick the winners and let them run. To find out more, read my free e-book Free Yourself. You can download it right here.