The Wall Street Journal joins the (very small) chorus of voices willing to break free from the (very large and awfully loud) chorus of hosannas praising Warren Buffett.
In explaining his charitable motivations this week, Mr. Buffett also went out of his way to say that he is “not an enthusiast for dynastic wealth.” This is fair enough, and is also one of Mr. Buffett’s arguments for so vocally defending federal death tax rates of 50% or more. But we can’t help but point out that Mr. Buffett’s gift will itself be shielded from Uncle Sam because it is going to a foundation. So in practice he is in favor of death taxes only for those whose estates are too small to hide in foundation tax shelters.
We’d also note that the foundations he is donating to may well become “dynasties” in their own right. In addition to his Gates Foundation gift, Mr. Buffett also said he will give major donations well north of $1 billion each to separate foundations run by his three children and another in the name of his late wife. These gifts, too, will be shielded from taxation and will allow his heirs to wield power and influence long after the 75-year-old has gone to his just reward. With their tax-sheltered assets, modern foundations have no expiration date and have become hugely important players in policy debates, the culture and even politics.
Of course, we totally agree with Warren Buffett that love is the greatest advantage a parent can give a child. But a billion dollar foundation is probably a pretty close second.
Mr. Buffett’s Gift [Wall Street Journal]
Quit your whining!
If the man was concerned purely with the financial well-being of his heirs he’d simply leave them the money. I doubt that control of a $1 billion foundation yields quite the same personal financial benefits as $500 million in cash.
“So in practice he is in favor of death taxes only for those whose estates are too small to hide in foundation tax shelters.”
This statement makes no sense. There is no law that says those with smaller estates (although still sufficiently large to be subject to the estate tax) cannot leave a portion or the entirety of their estate to a charitable foundation.
It makes perfect sense. People with smaller fortunes cannot endow their own foundation from scratch which is what is needed to be able to deliver lasting value to your family. This, and other reason, is why Carnegie lives on and the Albert Swearengen Foundation is nowhere to be seen.
I hate this debate because of how many insanely stupid people there are chiming in. Not just from the left, either.
Mike: $1B foundation can actually be more than 2x as valuable as 500M cash, since you can invest the foundation’s assets tax free, and the foundations expenses are pre-tax and count against the requirements to spend 5% of assets to keep tax free status.
The major problem is that the lefties supporting this aren’t smart enough or wily enough to figure out how you can exploit the rules of foundations. Amateurs. Though it does explain why they’re still poor and left wing!
And triumph, you’re an idiot for not thinking about the effects of transaction costs on efficiency and sustainability. You typically need at least $30M to make a foundation self sustaining, thanks to all of the annual professional expenses. Just like how tax shelters (and not just Bips and Flips) need large asset bases to make the tax benefits outweigh the costs of setting up the structure (and pay off the lawyers for the fradulent opinions… did I say that?).
Long live the Gulf Stream Leftists! No one shall question their motives!
I think BB is missing Mike’s point.
A $500m trust would pretty easily generate $10-12m / year in after-tax earnings for its beneficiaries. Despite historical abuses in this area, I doubt any foundation is going to pay its director that much, at least not without being dogged by the IRS.