Warren Buffett, the so-called “Oracle of Omaha,” is a wealthy guy who likes the death tax, and is scheduled to testify on this topic before the Senate Finance Committee today. Buffett opposes the elimination of the death tax.
Under current law, the death tax is being phased out. The current top tax rate is 45%, with an exemption level of $2 million. That exemption level is scheduled to rise to $3.5 million in 2009, and the entire tax is repealed in 2010. Unfortunately, repeal is not permanent, and the death tax would rise again in 2011, with a top rate of 55% (60% for some estates) and a $1 million exemption level.
As noted in a CNN/Money.com article, Buffett told the New York Times in 2001: “Without the estate tax, you in effect will have an aristocracy of wealth, which means you pass down the ability to command the resources of the nation based on heredity rather than merit. [Repeal would be like] choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics.”
Apparently, Mr. Buffett misses the dynamism of the U.S. economy. That is, people move up and down the income scales. He also seems to think that the economic pie is only so big; that the U.S. economy cannot grow and create more wealth; and that wealth accumulation has nothing to do with increased investment. And finally, his declaration would seem to indicate that Buffett believes we are all better off if government gets its hands on more resources, rather than leaving those resources in the private sector.
Sometimes even rich guys don’t actually understand how the economy works.
But then again, consider the following that CNN/Money reported:
“Buffett has said 99 percent of his net worth, which Forbes recently estimated to be $52 billion, is in his company, Berkshire Hathaway (Charts). But recently he took a big step toward reducing his very taxable estate and making good on his promise not to leave the bulk of his fortune to his kids.
“In 2006, he announced he would give away 85 percent of his Berkshire Class B (Charts) stock over a set period of time to five charitable foundations. The value of the pledge at the time of the announcement was $37 billion but it is worth more now because his B shares have risen in value by over 20 percent. To date it's the largest philanthropic pledge ever made.
“By pledging so much money, Buffett also sent the message, intentional or not, that he'd rather give his money to institutions of his choice rather than to Uncle Sam. For every dollar Buffett gives away, ‘45 percent of it is essentially a contribution from the U.S. government,’ since that's how much his estate would otherwise be taxed, said Steve Hartnett, associate director of education at the American Academy of Estate Planning Attorneys.”
Hmmm? Apparently, the government should not get its hands on Buffett’s resources. So much for consistent, principled thinking and action on the issue of the death tax.
To sum up, the death tax should be permanently repealed because it is grossly unfair that after paying a lifetime of taxes, the government shows up at death to take a big chunk of one’s total assets. And the economics are just plain ugly. Resources are lost on assorted estate tax planning activities. The death tax discourages investment, and places the well being and survival of many family businesses in peril. The death tax is all about envy in the end, which always makes for bad economic policy.