Munger warns that reducing tax liabilities can become a poor objective when it starts to dominate the underlying economic decision. A transaction may appear attractive because it lowers taxes while still exposing the investor or business to excessive costs, complexity or risk.

The broader point is that taxes should usually be treated as one factor among several rather than as the sole measure of a good decision. Focusing too narrowly on avoiding tax can encourage people to overlook whether an investment, acquisition or financial structure makes sense on its own merits.

More generally, the quote reflects Munger’s concern about incentives distorting judgement. A legitimate goal can become harmful when pursued beyond reasonable limits. The practical lesson is to assess the full consequences of a decision, including risk, return, liquidity and legal complexity, rather than allowing the desire for tax efficiency to override more important considerations.