Warren Buffett Can't Count

I know it's hard to believe that the "Sage of Omaha" is mathematically challenged, particularly when many people have an image of him sitting at his kitchen table late at night poring over the giant stack of financial records of some huge corporation so he can decide whether he should spend a few billion to buy its stock or just write a check to the government to pay his "guilt tax."

We'll get to his math problem in a moment, but for now let's give him some well deserved credit for one correct calculation he made.

He correctly figured out a few years ago that people could spend their money more intelligently than the government could spend it. He had no use for his excess dough personally. After all, after twenty million or so, what could he spend it on that he didn't already have? The fun is in acquiring the money anyway.

So he knew he wasn't going to give it to the government to waste or pass around to their friends and he was too lazy or disinterested to pore over the books of charities to see which ones were more worthy than the others, so he passed it all along to Bill Gates to give away. I guess he figured that Bill Gates could spend it more wisely than the government even if he himself couldn't. He was correct about that.

I'm still puzzled about a few things though. If Buffett really thinks, as he claims, that he doesn't pay enough in taxes, why did he hire all those CPAs to find all the loopholes that allowed him to pay at the lower rate? I mean, couldn't he just have bought a copy of Turbo Tax, loaded it onto his laptop, entered what he earned, skipped all the deductions and paid the figure that appeared on the "Amount you owe" line at the bottom of the page? I'm confident that he wouldn't get a letter from the IRS threatening him for not taking all his rightful deductions.

The other way he could have paid more taxes was to just pony up the money that Berkshire Hathaway admits they owe from tax years 2002-2004.  Instead his company has been fighting with the IRS ever since then to avoid doing that. Toss in the taxes they are quibbling over concerning "issues" with tax years 2005-2009 and he could make some headway towards his goal. Remind me again why so many people think he is so bright.

Which brings us to his "fuzzy math" problem.

According to one paper Buffett recently said that "he paid only $6.9 million in taxes last year -- just 17.4 percent of his earnings, compared to an income tax rate of about 36 percent paid by his employees." (Perhaps they used Turbo Tax software.) With that admission he went to the top of the Barack Obama admiration list and got a chance to get everlasting fame as the only dope ever to get a tax named after him as his life's legacy.

Regardless, it seems he can't do the math because he didn't take into account that he already paid taxes on the money he used to invest with. The corporate rate is 35% on that money and he paid 15% in capital gains taxes when he earned a profit on those already taxed funds. So his rate is north of 40% in total depending on the calculations of what money goes where.

I'm not an accountant or tax expert so I'm sure someone will challenge the numbers just cited with their own facts and figures but I do know a few things for certain. One is that the same money shouldn't be taxed twice and the second is that we shouldn't need accountants and tax experts to pay our taxes.

Buffett may not know how to count, but Barack Obama does. At least he knows what he can count on. Buffett is a willing recruit in Obama's class war and it's one of the few things the President can count on.

Be sure to watch the new video on the right by Michael Tanner on the Buffett Tax.