Seeking Alpha

donmcint's  Instablog

Send Message
Donald McIntyre started his career on Wall Street in 1992 working as an Investment Consultant for UBS Securities. From 1995 to 1999 he worked as a Financial Consultant for Smith Barney and after that started, a financial portal for Latin America. As founder of he... More
My company:
My blog:
  • Buffett's Tax Indifference Theory Is Wrong

    Buffett's comments that higher taxes are indifferent when deciding to invest in a business opportunity is wrong.

    If you have a business opportunity that has a certain risk and a return potential of $10 the different levels in taxation play a role in the decision whether to invest or not.

    In a 30% tax environment your net return is $7 and you would balance that with the risk to decide what to do.

    In an extreme scenario, say 60% tax environment, your return would be $4 compared with the same risk of failure.

    Obviously if the risk reward balance is not satisfactory you wouldn't invest in the 60% tax environment.

    I think Buffett doesn't see tax variation as a deterrent to business because he is analyzing a smaller increase from 30% to 33% or 35% and, as he always uses a margin of safety of 20% to 30% that might buffer any risk return imbalance.

    In the macroeconomic context it is clear how tax variations modify economic activity including consumption and investment due to this calculation.

    I an Economy with higher tax burdens entrepreneurship and business innovation and investment tend to decrease.

    Dec 04 7:14 PM | Link | Comment!
Full index of posts »
Latest Followers
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.