Old man Buffett gets a lot of credit for arguing in favor of the estate tax. We’ve never been able to figure that one out, though. He’s already exempted most of his wealth from the tax by donating it to a charity run by his buddy, Bill Gates. And even if you taxed his estate at a rate of 90%, his progeny would still be wealthy. He’s got enough money that he basically doesn’t have to care about taxes.
Not everyone is so fortunate. Although few inheritances are actually subject to the estate tax, millions are spent to avoid it. And a good amount of that is spent in ways that help make Warren Buffett even richer. You see, old Buffett is not exactly a disinterested party in the estate tax debate, and his advocacy of the tax is not exactly a selfless sacrifice. Because he is invested heavily in the insurance industry, he stands to lose a lot of dough if the estate tax every got repealed.
Tim Carney (who is the brother of one of our editors) explains how the insurance industry is lobbying like crazy to preserve the estate tax. Buffett is the industry’s most prominent lobbyist.
Death tax is a lifeline for insurance industry [Washington Examiner]
Posted by lancey , Nov 16, 2007 2:34PM
well you lost all my respect here. you are a moron. if you can't separate his philosophy from a business interest then you are some useless kantian asswipe.
take a vacation and learn how to think shitbrain.
oh yeh. it's old news too.
Posted by Matt , Nov 16, 2007 2:42PM
More than millions being spent trying to avoid it or paying it, isnt there any fundamental morality involved?
If I spend all my life paying all taxes, mostly punitive as per the existing law, why right do others have to that money? It is almost as if every individuals life is a lease from the government - you pay to have it while you are alive and whatever you have achieved lapses back to the government one you die.
How is that supposed to justify freedom of the individual? And if I work hard and legally want to provide for my family (after paying all taxes while I am alive), why should others get an even greater share of it?
Posted by , Nov 16, 2007 2:46PM
moron, kantian asswipe, shitbrain.
Wow, some really well reasoned argument there. But what else can you expect from communists - logic isnt their forte.
Posted by John Carney , Nov 16, 2007 2:56PM
Lancey,
We're just noting that his philosophy and his business interests happen to go hand in hand. I do applaud you for the phrase "Kantian asswipe" however.
Posted by Hegel , Nov 16, 2007 2:57PM
Kantian?
Posted by Majorajam , Nov 16, 2007 2:58PM
How about this for logic: the estate tax is the least inefficient tax on the books. The deadweight loss is circumscribed by the monies very wealthy people pay to evade it and the minor transactions costs of collection. This is orders of magnitude better than income taxes, excise taxes, corporate taxes, tariffs, etc. etc. As for fairness, why are any of these taxes less fair than the estate tax? If you want to repeal the estate tax, either your parents are very very rich and you are looking to be just as rich when they croak, you ride the coat tails of one of these trust fund babies, you are a legislator or lobbyist who wants to be known as delivering the goods for your kickback or you are simply a moron. So Anonymous capitalist, take your pick.
Posted by Dude , Nov 16, 2007 2:58PM
I think he meant "Hobbesian asswipe."
Posted by Waiting for Serendipity 3 to Re Open , Nov 16, 2007 3:02PM
I think it's interesting none of you experts has told us where the estate tax/death tax money goes.
Posted by The Dude Abides , Nov 16, 2007 3:09PM
He did mean Hobbesian.
Posted by Calgary Schmooze , Nov 16, 2007 3:10PM
Into a large papier mache piggy bank? Watch how you fold the bills to ensure they'll slip through the slot in the top.
Posted by jackie treehorn , Nov 16, 2007 3:37PM
i meant kantian
2:46 more capitalist than you will ever understand
Posted by 1-2 , Nov 16, 2007 3:59PM
Here's the thing. Most of the people caught up in the estate tax are forced into it by virtue of ASSETS not WEALTH (ie, money, securities, disposable assets). This is a big problem when it comes to, say, a farmer's family (and no, im not going to pull a Democrat and simply single out one unfortunate person in a vague appeal to pathos...this is an example of a generality). When the head of the family dies (usually the patriarch) the farm may be valued at millions of dollars, which the younger generation is on the hook for. The only option most families have is to literally "sell the farm" to pay the taxes because they don't have the cash on hand to pay. This happens with all sorts of entrepeneurial endeavors and is a drain on the economy and entrepeneureal motivation.
Those are my two cents. Anyone want to challenge me?
1-2 out
Posted by Yo! MG , Nov 16, 2007 4:04PM
I am constantly surprised to see how many journalists keep writing about Buffett's oft-professed views on taxation without doing the slightest bit of background on old WB. Journos just love the whole "here's a sage, rich, old guy of such high moral fiber that he admits that the rich aren't paying enough in taxes." I'm not sure whether these journos run these pieces because they are too stupid, too lazy to think, or intentionally manipulative. (JC and CL - you two are clearly not being lumped in with this crowd. JC's numerous writer brothers are also excluded.)
Bloomberg recently ran yet another of the WB is undertaxed articles, based on another of his speeches. The guy is really beginning to tick me off! He claimed that his receptionist pays a higher tax rate than he does (17%). Of course, the writers dutifully lap this shit up! Ok, journalists, let's think about it for a second. First off, he might know his receptionist's withholding rate, but he doesn't actually know her tax rate. Second, WB famously pays himself just $100k a year - a pittance to a billionaire. WB does happen to own rather a lot of Berkshire stock, and he's owned it a rather long time, so what he does make is long-term capital gains. The point being that a comparison between himself and his receptionist is completely disingenuous, and WB is plenty smart enough to know it. Finally, his assertion that "the rich" should pay more doesn't do much to define "the rich." I've done OK on the Street, but sadly, my bank account is probably much closer to that of WB's assistant than it is to WB. Defining "the rich" as $200k to infinity is stupid. $200k/year people and even $1m/year people don't have much in common with Buffett, Gates, etc., as much as the media and politicians like to overlook this subtle distinction.
If he wants to pay more, he should go ahead and do it. It certainly looks to me like he does plenty to protect himself from taxes (low pay, donations, crappy homes).
I guess what ticks me off most about this guy is that he sits there all sage and grandfatherly and makes these press-pleasing proclamations, and because of his wisdom, folksy ways, and age nobody dares go after him!
And on the death tax - if he thinks the government is such a fine steward of capital, why is he sidestepping the inheritance tax and giving so much to the Gates Foundation?
Tired of WB. Give him Hell, Dealbreaker.
Posted by 1-2 , Nov 16, 2007 4:26PM
As always, i digress to the always eloquent Milton Friedman:
There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.
Posted by , Nov 16, 2007 4:30PM
Most of Berkshire's insurance business is property casualty, not life insurance or savings-oriented products so no benefit from the estate tax. Their investment in Safeco's life insurance biz is tiny, tiny relative to the size of the company. This article is retarded.
Posted by Majorajam , Nov 16, 2007 4:39PM
1-2, people advocating the repeal of the estate tax have been looking for real life examples of just the circumstance u painstakingly outlined for years now to no avail. Not one single family identified fits the bill. Now, these people tend to belong to the voting their pocketbook, rather than pure ninny component of the repeal the estate tax constituency, so we can less likely attribute their lack of success to their having rocks for brains. Something you might want to look into before the next time you throw down.
Yo MG, let's see. You find it objectionable that WB gives his money away to charitable causes and takes a low salary because it effectively gets him out of paying tax. Indeed, it's really hard to believe such amoral activity is legal.
JackieT, this philosopher- I do not think he stands for what you think he stands for. Try googling 'kantian duty'.
Posted by 1-2 , Nov 16, 2007 4:52PM
Majorjam...just to make sure i understand what you're saying, is your argument that no one is penalized the way i outlined?
I'll continue my throwdown after your response.
Posted by TheUnrepentantGunner , Nov 16, 2007 5:04PM
1-2, while you're sentiments are noble, you conveniently forget we've already wasted trillions of dollars.
It reminds me of the poker adage, that it doesn't matter how you got there, all that matters is what decision you make now.
The fact that what we do now will involve a shitburger of some sort (either much higher taxes and/or dramatic spending cuts) is irrelevant. The fact is we have to do something. Lowering taxes is probably not going to work any more than dumping dollar bills out of a helicopter...
Ugly but true.
Posted by 1-2 , Nov 16, 2007 5:15PM
Gunner,
Thanks for the respect. I am truly a noble man.
I dont disagree that our fiscal situation right now is atrocious, but the fact remains the "death" tax brings in a minimal amount of income to the federal coffers. As a supply-sider, i would much rather see the money currently spend on transaction costs go into the production of ANYTHING. The DWL of the tax, and its effect on those wrapped up in it is far greater than the income it produces for the gov't.
I'd rather see spending decrease, tax-reform inacted (reduce the complexity and perverted incentives of the system), and trade barriers reduced...but that's just me.
ko
Posted by TheUnrepentantGunner , Nov 16, 2007 5:26PM
one more technical point to make more directly related to the estate tax
ILIT's definitely help the insurance industry.
Probably the biggest reason is because to properly fund an ILIT, it is much more likely that you will use a Cash policy of some sort, and the strong possibility of a fixed or plain UL policy at that, which usually have tremendous margins for the insurance companies compared to Term and tremendous commissions for the salespeople.
Realistically though, what is overlooked by alot of these people, is most of the time, the idea of a family farm being passed down is all but obselete. Grandpa dies, never had a high income. 2.5 mil is in a farm, the remaining assets are worth maybe 500k for 3 mil total. Assuming Grandpa's wife died first and there weren't previous plans in place, that leaves a tax bill of ~=460k.
The beneficiaries probably dont want to run the farm, and if there are a meaningful number of kids there is no way to assign the farm or business to one person and cash to another. Especially with the meteoric rise of property in 10 years there concentration of illiquid assets more or less mandates the sale anyway, which is probably fine with the kids who now work as Lawyers in DC or accountants in Austin.
The tax isnt really onerous as long as the husband and wife drew up a trust at some point (a good idea anyway if you don't want your kids to blow through the money in 4 months or lose half of it to their trashy spouse), and are even remotely charitably inclined. Anything short of 4 million and you don't even need to get creative with charitable plans.
In short, the details of the tax need to be changed, but mostly the unsavvy right now get truly hurt by this tax
Posted by Yo! MG , Nov 16, 2007 5:26PM
@Majorajam. I certainly didn't say or imply that it's objectionable that WB gives away his money. I'm all for charity. But don't be mistaken, WB wouldn't give his money to the Gates Foundation if he thought the government would use it equally wisely. Moreover, Buffett's gift will be in the form of massively appreciated stock, so he'll avoid paying capital gains on that and then further avoid paying estate tax on that which he donates.
I also don't have a problem with WB paying himself $100k/year. He's rich enough that his wage income is immaterial. I DO have a problem with him publicly and pointedly comparing his ALL INCOME tax rate (predominantly non-Wage) to the WAGE tax rate (withholding) of his receptionist (and frankly the rest of us wage slaves) to argue for higher WAGE taxes for the rest of us.
Posted by Yo! MG , Nov 16, 2007 5:42PM
Gunner - don't disagree at all that our government has essentially bankrupted itself, but generally I wouldn't advocate giving money to a spendthrift any more than I'd suggest giving a fifth to a drunk. Agree with 1-2 that a rational, simple tax policy combined with severe spending cuts is the only possible way out of the hole.
As for the earlier arguments that essentially nobody pays the death tax (except the unsavvy), that may be true now, but that was also true of the AMT 5 years ago. I think most rational objections to the death tax don't revolve so much around the government's unsatiable appetite for more money or the desire to create more Paris Hilton-esque monsters. The rationale for killing the death tax is that it is a tax levied on income previously earned (and previously taxed, several times in the case of cap gains), and as such it is an unjustifiable tax.
Posted by ccs , Nov 16, 2007 6:04PM
what never seems to be discussed in any "tax talk" is the fact that the government spends money like crack fueled lunatics. THAT, is a fact.
rarely is there a discussion about spending less to fix deficits.
as for buffett, he's entitled to his opinion. my opinion?
personally, i've lost a lot of respect for the guy. if he's not careful he risks becoming the next soros-like pontificating buffoon. the biggest problem about plutocrats? we all seem to give a shit what they think when they have nothing left to "achieve" except advancing their pet social policies.
Posted by mullacc , Nov 16, 2007 8:29PM
but the fact remains the "death" tax brings in a minimal amount of income to the federal coffers.
It's not a revenue generator, it's a mechanism for the re-distribution of wealth. It's an attempt to halt the growth of the plutocracy, which is anathema to democracy. It doesn't matter where the money goes or that it's only a sliver of total tax revenue, all that's important is that it's not passed along to the children of the wealthy. I like the idea, but it's silly to argue against its opponents. Either you believe a child has a 'right' to wealth by being lucky enough to have rich parents or you think that wealth should be redistributed back to society when a wealthy citizen dies. It's a bit of a litmus test. I think us Wall Street types tend to undervalue the role US citizenship plays in creating wealth--the estate tax is a tool to address the inherent flaws of capitalism.
And the fake GOP propaganda phrase "death tax" makes me nuts.
Posted by mullacc , Nov 16, 2007 8:45PM
I DO have a problem with him publicly and pointedly comparing his ALL INCOME tax rate (predominantly non-Wage) to the WAGE tax rate (withholding) of his receptionist (and frankly the rest of us wage slaves) to argue for higher WAGE taxes for the rest of us.
Hrm, my take on Buffett's commentary was that he thought it unfair that taxes on assets are much lower than taxes on wages. I don't recall him specifically advocating an increase in payroll tax for the wealthy. But maybe I just missed it.
Posted by Randy , Nov 16, 2007 9:17PM
I just think it hilarious that YoMg criticizes journalists for not doing their homework on Buffett, then criticizes Buffett without doing his own. Clearly Buffett was talking about the regressiveness of payroll taxes. It's no surprise he's right about it, as we all know how unfair our tax system is when a trust fund baby like Theresa Heinz Kerry pays 14%, and some hard working exec with half her income on his W2 pays more in taxes.
Posted by 1-2 , Nov 16, 2007 10:19PM
The question isnt about whether or not a rich person's kid is "entitled" to their family wealth, it is what kind of positive benefits has a redistribution of wealth, merely for the sake of redistrubution ever benefitted society. As a man wiser than myself once said, "an attempt to benefit the poor by taxing the rich is akin to helping the slowest hurdlers by breaking the fastest one's legs." Furthermore, the concept of perpetually flawed is, dare i say, "flawed" from the start. The movement of income between quintiles is greatest in America compared to ANY OTHER COUNTRY. While there will always be the "porr" in any society the fact remains that no other country STILL has the social mobility of 9/10s of their society able tom move out of the lowest quintile and into any other. Why should we tax (ie, take) the creations of the families who create the, innovative companies for the sheer "ideal" of the redistribution of wealth. The rich fall, the poor move; that's all i need.
Challenge.
1-2
Posted by mullacc , Nov 16, 2007 10:59PM
As a man wiser than myself once said, "an attempt to benefit the poor by taxing the rich is akin to helping the slowest hurdlers by breaking the fastest one's legs."
Well, in this case, the hurdler is dead. You're not stopping her from making money, you're just not letting her give it to her kids. If there's a significant estate tax, will people give up the desire to build wealth during their working lives? I bet you'll say yes, but I don't find the conventional economic theory convincing. Clearly it didn't matter to Buffett--he wasn't going to give it to his kids no matter what. He's motivated to build and use his wealth during his lifetime and then see it benefit society when he's gone. His example does a greater service for his children than his money would (and especially since his money would probably be a disincentive for his children to be productive). Is the government the best recipient of this money? Maybe not. Like you, I'd like to see tax funds put to better use, but I think that's a separate question. But if our choices are (1) tax-free inheritance, (2) heavily taxed inheritance benefiting the government or (3) heavily taxed inheritance but with the option to make deductible charitable donations...well, I think (3) is the best at the moment, (2) is the best in theory and (1) is the most problematic and least beneficial to society.
The movement of income between quintiles is greatest in America compared to ANY OTHER COUNTRY.
But is this true despite of, or because of, our tax system? We're a relatively young country--if the system stays as it is, perhaps our growing plutocracy will eventually create the kind of class friction that causes economic problems in Europe.
Posted by SteveInChicago , Nov 18, 2007 12:33PM
I really can't believe that we're having this conversation here. The reason why Buffett lives the way he does and gives the way he does is the larger goal, reducing the effects of malaria and AIDS in the third world. The Gates foundation has been very effective in this goal, and he's done just what he does as an investor, putting his money where he thinks it will get the best return.
The idea that he's somehow doing the whole thing to avoid taxes is crazy. He certainly could change the way that he deducts money and sells stock to reduce the tax bite if he wanted to, but he hasn't.
And 1-2, the reason you won't "pull a Democrat" and identify a single person who has had to break up their farm to pay inheritance tax is because you can't. The American Farm Bureau couldn't find one, Mitch McConnell can't find one, and neither can you. Many Dems have spoken in favor of a family farm exemption, but it has to be a real one for real farmers, not just a tax dodge.
My feeling is that Warren Buffett and Bill Gates both favor this tax because they have seen the destructive effects of gaining vast sums of money without the usual hard work. Any heirs of Warren Buffett and Bill Gates will still live comfortably; their family patriarchs have insured that the money won't ruin them like Paris Hilton.
Posted by The Judge , Nov 18, 2007 9:19PM
OK...I've read all the discussions here. The people for keeping the estate tax have made better arguments. Thus, I rule that they win. Next debate please.
Oh....an aside...will one of you call your hedge fund buddy at BP Capital and ask him/her to please tell Boone Pickens to shut the fuck up about John Kerry's military service please? If Boone had served his country it would be one thing but Boone never did because he avoided it to make money while others served. Boone is embarassing the neo-conservative movement and that Kerry crap is old news anyway.
Posted by , Nov 19, 2007 9:03AM
burp