Warren Buffet is worshiped by many investors. Personally, I respect his ability, follow some of his principles, but remain nevertheless skeptical. I’ve criticized him for his support of the Obama presidency, saying it was the most costly decision he ever made. But it turns out I’m wrong, if those who say that he profited from the bailouts, stimuli and generally easy government money that has been handed out, saving the butts of banks in which he had invested (see e.g., Barry Ritholtz). At Forbes, Drew Mason castigates Buffet aptly over his comments about gold which have apparently led many to forgo precious metals as a hedge against currency inflation, thus allowing government to rob the people through the devaluation of their savings.
But the most damning article that I’ve ever read against Buffet appeared yesterday at the American Thinker. In it, Christopher Chantrill accuses Buffet of being a robber baron. The life insurance lobby is apparently vying to have Congress reinstate inheritance taxes in the US. That’s because life insurance is exempt from taxes at death, and so people with larger inheritances must protect their heirs by taking out expensive life insurance policies. Chantrill shows how a mega-billionnaire like Buffet feeds upon the small business owners and other little people who manage to put together a nice little fortune through risk, sweat and sacrifice–at their death Buffet buys up their business which the heirs must sell to pay the death tax, or before they die, he rakes in the big bucks through expensive life insurance policies. It should be criminal, but instead, it is the government which enforces this robbery.
In Canada we don’t have death taxes. No, the law here states that immediately upon death the estate must pay the full amount on RRSP (retirement) savings accounts and retained earnings in any companies that the deceased may have built up. “Retained earnings” refers to the increased book value/equity that the business owner has in his business. Let’s say you started a business from nothing 50 years ago and today it is worth $10,000,000 and you own a 100% stake in that business. Your retained earnings could be as much as $10,000,000 and you would have to pay all the tax all at once the day you die (only a spouse, as with the RRSP, may inherit it without paying the tax). This has the same evil effect on business in Canada as does the death tax in the US. I know because someone close to me is forced to pay for a large life insurance policy because when he and his wife have finally both died, all the taxes on the retained earnings are immediately due, and the heirs, his children, would have to shut down the family business to pay the taxes, putting 30 people out of work; his life insurance policy thus is to pay these taxes so that the company can remain intact. This is a great thing to fear if you are working in a second generation family company, but to be welcomed, if you like Buffet, are selling life insurance.
If that is what it takes to invest like Warren Buffet, then please count me out. I think righteous investors should steer clear of investments which prey upon hard working business people in collusion with state power. That just doesn’t seem righteous at all.