I Don’t Understand What Warren Buffett is Talking About

27 Nov 2012 /
Warren Buffett speaking to a group of students...

Warren Buffett

In an op-ed for the New York Times, Warren Buffett argues that higher taxes won’t keep the super-rich from trying to make money:

Suppose that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.”

Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.

Really, Warren? It’s an investment, right? It’s not a sure thing. It’s not a giveaway. I’m being asked to put money at risk. That’s the difference between an investment and a savings account.

So the number one thing that I want to understand before making the investment is what kind of a net return can I expect — worst case, best case, most likely case. Then I can decide if I’m being adequately compensated for the risk that I’m taking on.

And by net return, I mean after taxes, after commissions, after everything. How much money will I actually get to keep? And if I don’t think I’m being adequately compensated for the risk, then yeah, I’ll leave the money in my savings account.

Assuming a tax rate of, say, 35 percent, why does it not make sense to say, “I would take that risk for an expected return of $X, but not for an expected return of 35 percent less than $X?”

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