Warren Buffett is wrong.

(Or how smart people say dumb things)

In response to the recent media reports about Warren Buffett saying that the government should tax the wealthy more, I have argued recently that Warren is just plain wrong. Usually this is met with a chronological outline of how smart Mr. Buffett is, how successful he is at making money in the investment industry, and what a philanthropist he is. Like any of this would make Warren incapable of being wrong.

Even more than that, I think Mr. Buffett’s own actions prove he does not even believe what he is saying and maybe his recent statement has more to do with aiding his friend President Obama’s political position than solving the country’s economic problems.

Warren committed in 2008 to donate the majority of his fortune to charities, primarily some $30 billion to the Bill Gates Foundation. But why did he do this? If he truly believes the federal government can spend his money better than he can, why not just sign it over to Washington? Why take all that money away from our benevolent government just to give it to some private charitable foundation?

Let just pretend that Mr. Buffett had his way and over the last 30 years the government had taxed Warren an extra 30 billion dollars. Do you think he would have given up his corporate jet? Or stopped buying his tailored suits or not purchased his mansion in California? Or would he just not have an extra $30 billion to give to the Bill Gates Foundation.

And do you think the world would be a better place with the Bill Gates Foundation spending the 30 billion dollar gift or with Washington spending 30 billion of seized tax money. We can see what Warren thinks he gave the money to Gates. Washington would have burned through the fruits of Mr. Buffett’s life’s work in about 12 minutes. Apparently Warren thinks the Gates Foundation would use the money a little more effectively.

The other really amazing thing is that as good at investing as Warren is, he apparently is not terribly good at math. His tax plan as outlined in his NY Times op-ed article primarily consists of raising taxes on those making over one million dollars a year. The total taxable income in 2009 for everyone making over one million dollars a year was about 727 billion. If the ultra rich were taxed an extra 50% surcharge this would only raise $363 billion, not close to the 1.6 trillion dollar projected 2011 deficit or the 14 trillion dollar federal debt. And this extra government income would only be if the ultra rich did not change their investment strategy. Make American tax system punish investments in this country and the money will go somewhere else. Warren said recently he does not think high taxes would change anyone’s investment strategy “I have never seen anyone walk away from a good investment just because of the tax implication” he stated. That may be true but how high do the taxes have to go before it is no longer a “good investment”.

Increases in government income to pay for the past spending orgy only leads to new government spending that will require even more government income. The solution Mr. Buffett is not more taxes, it is less spending. The solution is not to discourage investment but to encourage it.

I think for now, I will believe what Mr. Buffett does, not what he says. Actions do speak louder than words and sometimes, really smart people say really dumb things.