"I'll tell you why I like the cigarette business. It cost a penny to make.
Sell it for a dollar. It's addictive. And there's a fantastic brand loyalty."
--Warren Buffett
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USA TODAY' April 13, 1993
Buffett buys a 5% chunk of UST
By Dan Dorfman
Super investor Warren Buffett isn't a smoker - but he's apparently been
smitten by a tobacco company.
USA TODAY has learned that Berkshire Hathaway, the multibillion-dollar
diversified company run by Buffett, has taken a sizable stake - perhaps
close to 5% - of UST, formerly U.S. Tobacco. UST, a leading maker of
smokeless tobacco (Skoal, Copenhagen) is one of the nation's most
profitable companies.
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NY Times, June 26, 2006
Buffett Always Planned to Give Away His Billions
By JEREMY W. PETERS
Warren Buffett, the billionaire investor and executive, said today that he
never seriously considered doing anything with his $44 billion fortune
except giving it all away.
"I'm not an enthusiast for dynastic wealth, particularly when 6 billion
others have much poorer hands than we do in life," Mr. Buffett said at the
New York Public Library, where he was appearing with Bill and Melinda
Gates, the only Americans richer than he is.
Mr. Buffett said on Sunday that he would give away 85 percent of his
fortune about $37.4 billion worth of stock in Berkshire Hathaway, the
company he runs to five charitable foundations, with the greatest share,
about $31 billion, going to the Bill and Melinda Gates Foundation, which is
dedicated to improving health and education, especially in poor nations.
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Ferdinand Lundberg, "The Rich and the Super-Rich":
While the largest foundations and flotillas of foundation: have been
mentioned, size is not alone important. Smaller foundations act as conduits
and control points, useful in sorts of secret business affairs and
especially in tax evasion. Nearly every large corporation and many of the
large now have their own foundations. And small foundations often suddenly
flower into huge growths.
Among other things, as [Congressman Wright] Patman found, foundations can
become tax-free receptacles for capital gains. An individual or corporation
may have an investment it wishes to liquidate but which stands to incur a
huge capital gain on large long-term appreciation. Payment of a capital
gains tax may be avoided by turning the investment over to a foundation (no
gift tax) and then having the foundation sell the investment (no capital
gains tax). The foundation may now lend the entire liquid sum back to the
donor at a nominal interest rate (no law requires that the foundations seek
maximum earnings), or it may with the untaxed money obtain a controlling
block of stock in some company the original donor wishes to control. With
this control he can raise or lower the company's] dividend rate, obtain
power over its possibly large cash and management and perhaps even obtain
for himself further low-interest loans.
With low-interest loans received, a donor can make lucrative investments.
He could, for example, with a loan which he paid 1 percent, itself tax
deductible, go out buy tax-free local government bonds paying him a
tax-exempt 3 percent.
Let us suppose that an original investment of $10 million was now valued at
$100 million. If it were sold it would incur a capital gains tax of
approximately $22.5 million. But if were all given to a foundation the
foundation could sell and pay no gains tax. Now if the foundation lends the
whole sum back to the donor at 1 percent he pays it $1 million a year. And
if he makes $3 million on a tax-free investment in government bonds he
keeps $2 million annually, tax free. But if he had sold the original amount
he would have had only $77.5 million after-tax capital which, invested at 5
percent, would have brought him $3,875,000. After payment of about
$2,712,500 (or 70 percent) income tax, he would have remaining $1,162,500
annually or almost a half less than by the first procedure. It was clearly
financially advantageous to filter the money through the "charitable"
foundation.
If he so desires he can in fifty years build the original sum in his
personal name back, all tax free. After fifty years he or his family can
possess, in fee simple, $100 million in free new assets and also control
the disposition of the original $100 million in the foundation, which may
satisfy legal requirements by using its small income to assist crippled
newsboys or homeless dogs.
