Warren Buffett’s Wealth: A Taxing Thought Experiment
As the US presidential election approaches, one candidate’s proposal to tax unrealized capital gains of the ultra-wealthy has sparked debate. This idea would require individuals with assets exceeding $100 million to pay a 25% tax on their unrealized gains, regardless of whether they’ve sold their assets. To illustrate the potential impact, let’s consider Warren Buffett’s wealth.
Assuming Buffett had paid such a tax on his unrealized gains since 1965, his 392,633 Berkshire Hathaway shares would be worth a mere $15.6 billion today, instead of the $271 billion they’re currently valued at. This means the government would have gained $5.7 billion in taxes, but Buffett’s charitable endeavors would have suffered, and he might have lost control of Berkshire Hathaway.
The proposal raises several questions. How would the tax be applied to privately held companies without a market price? What about individuals with illiquid assets or limited cash? Would the state refund taxes paid if asset values decreased? The idea seems impractical and could stifle entrepreneurship and investment.
In reality, the proposal is unlikely to become law, but it highlights the growing trend of fiscal dominance, where large budget deficits and sovereign debt are becoming the norm. As investors, we must adapt to this new landscape, where inflation and currency devaluation may become the preferred means of debt reduction. In such an environment, productive assets and tax-efficient strategies will become increasingly important.
Our investment approach remains focused on long-term value creation, and we’re always on the lookout for opportunities to capitalize on market volatility. Recently, we’ve taken advantage of fluctuations to adjust our portfolio, including a new position in Brookfield Corporation, which we believe has strong growth potential in the infrastructure and AI sectors.
As we navigate these uncertain times, it’s essential to maintain a disciplined investment approach, prioritize tax efficiency, and stay vigilant for opportunities to grow our wealth.
Leave a Reply