Paul L. Caron

Wednesday, November 12, 2008

Warren Buffett: Estate Tax Hypocrite?

Edward A. Zelinsky (Cardozo):  Warren Buffett and the Estate Tax (Oxford University Press Blog):

Among his other observations, Buffett has correctly noted the dangers to a democracy of inherited wealth as well as the moral obligation of those who have done particularly well in American society to give back to that society. ...  These concerns have led Buffett to support retention of the federal estate tax and to express dismay that his federal income tax bracket is lower than his secretary’s. ...

All of this leaves me perplexed by the way Buffett is contributing the bulk of his assets to the Bill and Melinda Gates Foundation. Buffett has received excellent legal advice to guarantee that his contributions will not generate federal tax. This provokes the question: Why?

Buffett could give his fortune to the Gates Foundation in a manner which generates federal tax. This would leave less for the foundation but more for the federal fisc. Indeed, Bill Gates, like Warren Buffett, advocates retaining the federal estate tax. He too could leave his assets to his foundation in a fashion which would share part of those assets with Uncle Sam

 It seems strange for prominent and outspoken advocates of the federal estate tax to dispose of their assets in a manner meticulously designed to avoid the federal estate tax. ...  The same skilled lawyers who arranged for Buffett’s fortune to go the Gates Foundation tax-free could instead arrange for Buffett’s assets to go to this foundation on a taxable basis. The resulting payment to the federal Treasury would demonstrate that the sage of Omaha is willing to put his money where he says his heart is.

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This is spot on.

He could have left his estate to the Federal Government too and it would be non taxable correct?

He does not practice what he preaches.

Posted by: bob | Nov 15, 2008 9:25:14 AM

Buffet's kids won't be hurting for money. Mine will. I have worked all of my life to build a business worth about $1,000,000 and he wants the governmetn to confiscate half of it. Arrogant git ain't he?

Besides, it is not money that I value so much as liberty and the government just isn't in that line of work anymore.

Posted by: Ben Franklin | Nov 15, 2008 3:13:31 AM

Here's the hypocrisy: Buffet thinks he knows a better way to dispose of his wealth than to give a large portion of it to the federal government. I, too, know of a better way to dispose of my estate, and that's to give it to my son. Buffet trusts his own judgment but would use his considerable power to deny my son some of the financial advantages I can give him. You can see how that would enrage a father.

Posted by: Frisco Mike | Nov 14, 2008 10:12:10 PM

Disclaimer: I am a Buffet fan and own a small amount of BRK.b stock.
That said, in addition to giving nearly $40B to the Gates foundation, Warren also gave about $1B to each of his children's [Howard, his son and Susie?, his daughter] foundations, where they can be employed for life at $100k per year as administrators. So he has circumvented the law to a great extent.

When someone shows me that the Kennedy family ever paid 1 cent in inheritance, then I might consider supporting it. Otherwise, it is a dodge for the really rich and the tax law profession.

Posted by: Fast Eddie | Nov 14, 2008 10:06:59 AM

Warren Buffet holds a news conference indicating that upon his death that the transfer of his wealth and political influence to his heirs is terrible for democracy.He then and goes and adopts a new child called a foundation which not only gets the money and influence but does so while he is still alive and avoids huge taxes.How dare you criticize him,after all its his money to do with as he pleases!

Posted by: david wilson | Nov 14, 2008 9:06:00 AM

So, Warren Buffet makes his millions and gets to decide what is done with them after he passes? Works for me.

And he wants to promote Government action that will stop other people from deciding how their money will be distributed after they die, because Buffet doesn't like other people's choices?

Yeah, not hypocritical in the slightest. I mean, he's doing what he wants with his money; so he should be able to stop everyone else from doing what they want with their money.

It's only fair, or something like fair; possible a new definition of fair that requires some extra education to understand?

If I give my money away, I'm now entitled to steal your money and give it away as well. It's the only "fair" solution if my understanding of the new definiton of "fair" is correct.

Posted by: Gekkobear | Nov 14, 2008 8:55:01 AM

If Buffet is right, and principled, about his concerns about inherited wealth, he would pass none to his progeny, who given their background ought to do well enough anyway.

Instead, he pays expensive layers to evade taxes on the transfer of capital to a charity. Why not save the money on lawyers and pay the government instead? Buffet's actions betray the principles he espouses.

As a five figure wage earner, I'm tired of hearing really wealthy ppl say I should pay more in taxes while they pay lawyers to keep themselves in my own tax bracket. ( Buffet, Kennedy, Theresa Heinz Kerry, John Edwards, et al. )

For Buffet like the others, it's not about democracy or principals, it's about "I got mine." A healthy middle class means being able to retain the products of your labors.

Posted by: gryffin | Nov 14, 2008 7:19:56 AM

So, Buffett opposes excessive concentration of wealth, but he's putting the bulk of his fortune under the control of the world's richest man.

Posted by: Tom T. | Nov 14, 2008 5:17:09 AM

Buffet is most definitely a hypocrite. If he believes that asset-wealthy tycoons like himself have accumulated too much wealth and should pay more he could

a) pay more voluntarily (as suggested here)
b) suggest reforms that would end favorable treatment to
Tycoons like he and Gates.

Here are some ways our system is rigged to help tycoons:

Consider a very successful person who earns $200k in wages. He/she pays taxes on those wages. This person is also extremely generous so they give $100k to charity. The government then refunds most of the taxes they had paid on that $100k.

Now consider a tycoon like Buffet, with a lot of income coming from stock appreciation.
Let's say this aspiring tycoon has earned $100k in wages and also has $90k in unrealized gains on his company's stock. It originally cost him $10k and is now worth $100k. This tycoon also decides to donate $100k to charity. He donates the appreciated stock (that they have never paid a dime of capital gains taxes on) and then gets a full income tax deduction, which effectively makes his $100k in wage income tax free.

So, the successful wage warner has $100k in net earnings after donations and has paid income taxes on those earnings.

The aspiring tycoon has $100k in net earnings and has paid ZERO taxes. This is why people like secretaries pay more taxes than Buffet.

This story gets even worse when the wage earner and the tycoon die. For the wage earner, anything they've earned and saved and paid income taxes on that is in excess of the exclusion is subject to estate tax and taxes again,

The successful tycoon gives their heirs appreciated stock that has never been taxed, and only the original cost (e.g. in the original example 10k rather than $100k) counts toward the estate. The heirs then get to record the current market value ($100k) as their new basis. In effect, the assets get passed with cap gains tax never getting collected and in many cases zero or minimal estate taxes being collected. Now if the bequest is so large that even the original purchase value of the gift would trigger estate taxes- no problem.

Simply donate appreciated shares to a personal foundation, getting estate tax deductions (if the stock has gone up by a factor of 10, then $1 of donation offsets the tax on $10 of bequests). The best part is that the foundation can then employ the tycoon's family and friends and continue to buy the family political influence and
prestige. The best part is that only 5pct of the foundation's assets need to be distributed each year, so if you invest well it becomes a perpetual vehicle.

Our current system us rigged to favor one particular class of wealthy: those whose wealth is largely comprised of appreciated and untaxed assets. Buffet and Gates are beneficiaries of our current system where cap gains are taxed preferentially toincome, gifts of stock evade cap gains taxes while providing full income tax deductions, appreciated stock can be gifted to heirs tax free (no cap gains tax nor estate tax on the appreciation), and charitable foundations ensure enduring influence and employment.

In both Gates and Buffet's defense, they are not planning on leaving billions to their heirs and Buffet didn't want to use a personal foundation as his primary legacy- instead he's given to Gates'. Buffet is not a hypocrite when he says he is against passing massive inherited wealth.

What makes him a hypocrite is his support for our current system, which is rigged to benefit tycoons like himself at the expense of wage earners and "secretaries".

My suggestions:

As under Reagan's '86 reforms, tax cap gains at the same rate as income. Two asset bubbles in the past 10 years are enough.

Change the rules so that charitable contributions only generate deductions for tax actually paid on the donation (or require that cap gains tax be assessed on all appreciated shares/property at the time of donation).

Eliminate the estate tax ( or set a very high exclusion) but ensure that all capital gains are assessed on appreciated assets at death (exclusions for primary residence and sole proprietorship business assets could be excluded),

Require charitable foundations and endowments to disburse 25pct of assets rather than 5pct annually, or alternatively allow charitable deductions for large gifts only over time as the gift is actually disbursed rather than when received and invested (say, for gifts over $1mm, a deduction is allowed based upon the ratio of the charities new gifts to disbursements in that year).

Buffet is smart enough to know that the system helps him. When he argues for higher income taxes because "his secretary pays more than he" that is pure obfuscation. He knows the way to cure that is to change the rules on gifts of appreciated stock (and raise capital gains taxes). As he fails to mention the real solution to his secretary's problem AND has declined to pay more voluntarily, we can conclude that what Buffet really wants is for other people to pay more taxes, especially wealthy wage earners. Tycoons must remain a protected class.

Posted by: LegalTender | Nov 14, 2008 3:59:06 AM

This argument presupposes that the purpose of the Estate Tax is to "give back" or in some other way benefit the general public.

The real purpose of the Estate Tax is to create jobs for the "Financial Planning" industry.

There is a enormous section of the financial services industry that does nothing but "estate planning." This is a euphemism for avoiding the Estate Tax.

Most of these "Estate Planners" are lawyers and contribute huge sums to political campaigns.

If the Estate Tax were ended there would be mass unemployment. Imagine having vast marauding hordes of unemployed lawyers and seminar presenters" roving the streets and neighborhoods of every American city pitifully trying to hand out tattered pamphlets warning against a now defunct threat.

It could be worse then the "Night of the Living Homeless."

That's why our politicians are working tirelessly to keep the Estate Tax. It is for our own good and, oh yeah, it's for the children.

Posted by: John D | Nov 13, 2008 10:04:30 PM

Just what are the "dangers of inherited wealth"? The little bit I and my siblings inherited from our parents' savings (after estate tax took 1/4) went toward paying off our mortgages, which has made us much more able to weather economic hardships.

Posted by: Mom | Nov 13, 2008 9:48:37 PM

I have a lot of respect for Mr Buffet. I think his investment philosophy has been well proven over the years. I also uderstand the concern about the concentration of wealth.

What frusterates me is that people in his economic bracket have the means to beat the tax system and will most likely suffer much less from the Democrat's tax plans than will most of the people who think the Democrats will "Spread the Wealth" The middle class will pay.

Posted by: David | Nov 13, 2008 8:15:15 PM

You miss another part. In the past a large number of the companies he bought were sold to manage the upcoming estate transfer. People had to sell their private companies to some one in order to cover the estate tax - so Warren gets to buy good solid companies that otherwise wouldn't be up for sale.

Posted by: Steve D | Nov 13, 2008 7:02:16 PM

bendover is correct. Charitable trusts are investment vehicles that make distributions determined by its trustees. Distributions can be in the form of grants, gifts, salaries, bonuses, and in-kind. Buffet and others have set their heirs, friends, and political allies (see Bill Moyers, the Trust Champeen) up as permanent trustees or officers of a variety of trusts. They can earn multiple incomes and pay the personal income tax at a lower rate than the 50% federal estate tax that Buffet endorses. Plus.... and this is the real benefit, the trustees can assign the use of the trust's assets for any purpose they so designate. Need a Lear Jet? No problem. The Trust will pay for it as long as you use it for Trust "business". Need a mansion to conduct the trust's business and pay $1 in rent for occupancy? No problem. Want to produce a television show to project a political agenda (Bill Moyers Journal & NOW)? Why PBS would be tickled to buy and broadcast your show as long as it's not for a commercial purpose and the proceeds of any revenue from sales goes to your favorite political action committee. No problem.

Posted by: Prospector | Nov 13, 2008 6:53:32 PM

Mister Snitch you are a complete moron . . . go read the estate tax code . . . A person who dies with less than $2 million in assets - DOES NOT GET TAXED . . . next time try and come up with a better argument . . .

For the rest of you idiots, go read some actual facts . . . Buffett has stated that it is potentially bad for society if people were able to inherit huge amounts of wealth b/c people like Paris Hilton will sit on their ass and do nothing . . . the Estate Tax system is set up partly to prevent this, but is also set up for people to donate to charities without being taxed . . . Trust me, Buffet's estate will be taxed - what he is doing in donating to charities to avoid estate tax, every other American can do if they choose, his argument to for higher estate taxes is prevent e.g. Paris Hilton from inheriting huge amounts of money and doing nothing b/c wasting life . . .

Posted by: Open Minded | Nov 13, 2008 6:51:13 PM

1. He doesn't like inherited wealth. Okay fine.
2. He wants people to "give back." Okay fine.

Now, those by themselves don't make him a hypocrite yet....

3. "These concerns have led Buffett to support retention of the federal estate tax and to express dismay that his federal income tax bracket is lower than his secretary’s."

This obviously implies that rich people should be paying more in taxes. Not avoiding them through charitable foundations or using capital gains instead of salary to lower one's tax burdens.

Johnny has a great point about how the kids somehow always get cushy high-paying jobs and perks at these foundations. Has Buffet made stipulations against this happening?

Posted by: Aaron | Nov 13, 2008 5:44:25 PM

Buffett may be giving the bulk of his wealth to charity, but he is leaving his children more money than most people will ever see.

Posted by: twright | Nov 13, 2008 5:34:18 PM

The article notes that Buffett "express[es] dismay that his federal income tax bracket is lower than his secretary’s," without pointing out that Buffett's income subject to tax is determined my none other than ....Buffett! He is an "employee" of an entity that he effectively controls, so he determines his own "salary." Something tells me his secretary doesn't have that option. Buffett has devoted his entire life to the avoidance of paying taxes, particularly income taxes. His company pays no dividends, and never has, so no taxes on dividends. His biggest operation is GEICO, as well as other insurance operations, so by using "reserves" for estimated future losses he avoids the corporate income tax. All of his wealth is in the form of capital gains which are only taxed when the gain is recognized, which will be never in his case because the capital gains will never be part of his or anyone else's estate. All of this makes him, of course, a hero of the left.

Posted by: jimhanavan | Nov 13, 2008 5:32:20 PM

Fact one: Buffet thinks people should give more to the Federal Government.

Fact two: Buffet avoids Federal taxation.

Conclusion: Buffet is an ass.

Posted by: James | Nov 13, 2008 4:25:32 PM

Buffett has said, for quite some time, that the estate tax should kick in at a level of about $1,000,000 to $2,000,000 and be 100%. Mr. Buffett could have given his estate to the Federal Government but he decided to give it to the Gates Foundation. So as is often the case with liberals, Mr. Buffett is saying that the rest of you should pay high tax rates, but not him. Of course Mr. Buffett is a smart guy and he knows that sending his estate to the feds is the same as throwing it down a rat hole. That's okay for you and me...but not for him.

Posted by: Clay | Nov 13, 2008 4:18:18 PM

Buffet (correctly) argues that inherited wealth is a problem for a democracy.


Perhaps he believes that the 4 billion people in the world living on less than $2/day have greater needs than just about anyone in the US.

Perhaps I understand my own needs better than he does and he can go f*ck himself? Perhaps it's not my job to feed the rest of the world?

The hypocrites here would be any Republican who believes in self responsibility and hard work then gives money to his/her children and grandchildren

Believing in self-responsibility and hard work is not inconsistent with making charitable donations, even if said donations are to one's family.

Posted by: Jordan | Nov 13, 2008 4:10:04 PM

These concerns have led Buffett to support retention of the federal estate tax and to express dismay that his federal income tax bracket is lower than his secretary’s.

I wonder, would Buffett be willing to calculate the difference if he was in his secretary's bracket and then pay that difference not out of his income but out of his assets? Putting aside the issue of double taxation, the reason why rich folks don't mind higher income tax rates is that they are already rich. While their incomes are substantial, their incomes are much smaller relative to their net worth than those of the middle and lower classes. Buffett's wealth is not in his income but in his accumulated assets.

Start taxing assets and wealthy liberals will howl.

Posted by: Bozoer Rebbe | Nov 13, 2008 3:54:36 PM

He's arguing for a change to our tax code to tax charitable donations? That seems like a bad idea.

Posted by: Jon | Nov 13, 2008 2:29:24 PM

Perhaps it is time to eliminate the charitable and tax except status of NGO's and other perpetual non profit organizations altogether. They do not provide society any benefit greater than for profit organizations. Exxon is more useful to society everyday than Harvard. Wal-Mart enables a substantial segment of society to live better than they might otherwise be able to. The reason for their continuing tax exemptions is no longer valid.

Posted by: cubanbob | Nov 13, 2008 2:28:33 PM

Somehow, I don't see why accumulating jillions in a charitable foundation designed to do one's bidding for forever is so superior to just accumulating it for one's self. So the Gates foundation can own California instead of Gates owning California. At least one's heirs will have the good graces to quickly squander the fortune and put it back into the hands of a free market. When the foundation gets to be large enough and powerful enough, it will attract the attention of liberals who will find a way to bring it under their control and use it to promote their causes. Look at the Ford foundation as a great example.

Posted by: willis | Nov 13, 2008 2:09:58 PM

Mr. Buffet likely supports the estate/death tax because it enables his holding company to purchase medium and large sized family businesses at distressed prices. A family business could easily be bankrupted by a tax bill triggered by the death of the owner. The heirs of those owners can sell and avoid the tax, which has been a great way for Berkshire Hathaway to expand over the years.

Posted by: zmw | Nov 13, 2008 2:04:15 PM

So many foolish comments here that it's hard to know where to start, but let's give it a try.

John Thacker-Berkshire's insurance subsidiaries don't include any life insurance companies so no benefit to his company from continuation of the estate tax.

MB Kitchen-You call yourself a free market libertarian, yet think it's perfectly fine to say how Buffet should use his money "a much better way to give back to America...". Even if you ignore that fact that Berkshire Hathaway already invest several billion dollars each year in their operating businesses as you say you want, I was under the impression that libertarians believed that individuals should make such decisions for themselves. Invest you own money in start ups if you think it's such a great thing.

Several commenters here have mentioned the problem of vast amounts of money held by unaccountable tax free foundations. The fact is that Buffet has criticized the behavior of foundations in the past and has attempted to avoid this problem by requiring that the Gates Foundation spend all of his money within 10 years of his estate being settled. He has also tried to get around the problem of his bequest being spent by the kind of foundation bureaucrats that run the old line organizations by putting the spending decision in the hands of two individuals he knows and trusts.

As to his comment about paying a lower income tax rate than that of his secretary, that obviously does not refer to estate taxation, but rather to the 15% maximum tax rate on dividends and long term capital gains.

Bendover raises an excellent point when he points out that foundations can (and in the case of private foundations often do) serve as a way for the wealthy to provide generous salaries to their offspring while taking a charitable donation for the money that pays them. Buffet is guilty of this in that the foundations that he has funded for his children to run pay the kids salaries.

In general, I think Buffet is hardly a saint, but is trying to use 99% of the vast wealth he has created through honest means to help the greater society as best as is possible. I'm not sure that the risk of inherited wealth to the larger society is nearly as great as he claims, but I'm guessing that he has seen enough of trust fund babies and how they live their lives to think that he would be doing his unborn great-grandchildren no help by letting them enter life with billions of dollars at their disposal. The Hilton sisters or the grandchildren of Joseph Kennedy are not the kind of legacy that an extremely successful person would want.

Posted by: PaulB | Nov 13, 2008 1:27:03 PM

The real question is why Buffet gets so much credit for advocating higher earned income tax rates on the wealthy (i.e., "I pay lower rates than my secretary") when such class-baiting ensures that taxation on his dominant form of income (capital gains) remains low.

I would love to hear what higher rate he thinks capital gains should be taxed at, but all I ever here is "let's raise rates I don't pay."

Posted by: Mark M. | Nov 13, 2008 12:54:16 PM

In the book "1984" George Orwell wrote that a ruling class remains in power if it has the ability to choose its successor. Right now, Buffet and Gates (and Kennedy and Kerry) are the ruling class. Allowing them to pass on their wealth, either to their kids or to their chosen charities, enables them to choose the next ruling class. If a guy has more than $10 million in his estate, confiscate it. It's bad enough having the rich wield so much power in their lifetimes; letting them pass on this power after they're dead is ridiculous.

Posted by: john brown | Nov 13, 2008 12:50:44 PM

Irish Gal -

A guy who works hard an wants to give $75,000 to his kids can do so without tax liability as that amount is way, way below the threshold for estate tax. I don't agree with the estate tax at all, but let's argue from facts.

I think this notion of inherited wealth being a danger to democracy is silliness. The truth is, most families dilute their wealth within a few generations through growth and incompetence. Look no further than the Vanderbilts to see how even the largest fortune ever seen can disappear within three generations.

Posted by: dcc | Nov 13, 2008 12:45:46 PM

Foundations run by elitist, eurosocialist, one-worlders are more dangerous to democracy than inherited wealth.

Posted by: voirdire | Nov 13, 2008 12:33:47 PM

In the book "1984" George Orwell wrote that a ruling class remains in power if it has the ability to choose its successor. Right now, Buffet and Gates (and Kennedy and Kerry) are the ruling class. Allowing them to pass on their wealth, either to their kids or to their chosen charities, enables them to choose the next ruling class. If a guy has more than $10 million in his estate, confiscate it. It's bad enough having the rich wield so much power in their lifetimes; letting them pass on this power after they're dead is ridiculous.

Posted by: john brown | Nov 13, 2008 12:33:25 PM

SO UNFAIR! I will be facing estate tax when my mother dies. And I am going to need her money to care for her two completely disabled adult children for the rest of their lives.

Buffett and Gates are both kicking me in the teeth by pontificating about how the estate tax should be retained. My mother should not have to pay but there is no loophole for her to avoid it, as the estate tax does not have an exemption for those leaving severely disabled children.

You are probably thinking that we should just let the disabled heirs go on medicaid. But in our family we believe in taking care of our own.

My mother does not have the kind of wealth a Buffett or a Gates has, but she does have enough to take care of her two disabled children. But because of the estate tax, she will actually have to outlive them to do it. She is in very poor health, so this will not happen. The estate tax will wipe out our family business and will wipe out our ability for our family to take care of our own.

The estate tax is unfair and needs to be repealed. Clearly, when Buffett decides to evade the ENTIRE tax, it can't be a good and fair tax.

Posted by: Facing Certain Ruin | Nov 13, 2008 12:29:18 PM

I beg you to read Mark Steyn's article on the subject:


"By filing for probate in New York rather than the United Kingdom, Linda McCartney avoided the 40 per cent death duties levied by Her Majesty's Government. That way, her family gets all 100 per cent - and 100 per cent of Linda McCartney's estate isn't to be sneezed at.

For purposes of comparison, Bob Geldof's original Live Aid concert in 1985 raised £50 million. Lady McCartney's estate was estimated at around £150 million. In other words, had she paid her 40 per cent death duties, the British Treasury would have raised more money than Sir Bob did with Bananarama and all the gang at Wembley Stadium that day".

Posted by: richard | Nov 13, 2008 12:00:52 PM

PrestoPundit took the words right out of my mouth.

it is worth repeating:

A permanent aristocracy of far left mega-wealthy non-profits (immune from taxation) has proven far worse for America than any prior inheritance class...Forever doing damage to our civilization.

Posted by: quasimodo | Nov 13, 2008 11:58:23 AM

A permanent aristocracy of far left mega-wealthy non-profits (immune from taxation) has proven far worse for America than any prior inheritance class.

Family dynasties come and go -- hard left non-profits are forever. Forever doing damage to out civilization

Posted by: PrestoPundit | Nov 13, 2008 11:48:46 AM

I think its fine for Buffet to do whatever he wants to with his money.

I do wish he would stop encouraging the politicians to steal mine.

Posted by: taxpayer | Nov 13, 2008 11:48:31 AM

What is needed is to close or narrow the foundation loophole...the practible application of "Charitable" is, in many instances, not at all what the tax-paying public imagines it to be. Also, if the investments generated taxable income to the donor during his lifetime, wouldn't the transfer to a charitable foundation do away with the tax on that income more or less forever?

Posted by: pachuco | Nov 13, 2008 11:47:04 AM

"Buffet has lobbied against the accumulation of wealth in individual hands..."

Isn't Buffet's net worth around $50 billion?

Posted by: | Nov 13, 2008 11:40:25 AM

An earlier poster said: "the IRS has a form for donations." What is the IRS form number?

I've never been able to find it and I know a lot of hypocrites who could use a supply.

Posted by: Snowman | Nov 13, 2008 11:39:51 AM

No man should be obligated to pay any monies to any one or any entity earned by the sweat of his own brow.

Start with that paradigm and go from there.

Posted by: Dan | Nov 13, 2008 11:35:34 AM

Buffet unfortunately has once again turned on the public PR to look like a saint when he is anything but. He talks about giving away his wealth because of the "damage" it does to children and their drive to succeed but his kids are loaded by anyone's standards but a billionaire. What is a $100m to a billionaire?

Second, he has a legion of tax lawyers who can structure control over a trust, or have a a voice in who runs the trust, without incurring any taxes.

BTW, if giving to charity is such a wonderful thing, why doesn't he give his stock to the Gates charity now in return for continuing control of the voting rights until his death? He isn't doing anything with his Berkshire stock now, so transfer it now to a charity.

Finally, he has a great line about paying less taxes than his secretary but has anyone seen his tax return for verification? If not, why doesn't he disclose it since he doesn't appear to be embarassed about his wealth at all or afraid to reveal it. I can think of all sorts of scenarios that enable him to avoid virtually all taxes regardless of income (i.e. contributing a few shares of Berkshire stock to charity getting a ridiculously large schedule A deduction).

I applaud his business acumen but question his public policy pronouncments.

Posted by: Jaybo | Nov 13, 2008 11:35:08 AM

Dear Jack,

Please provide proof for this statement:

"Buffet (correctly) argues that inherited wealth is a problem for a democracy."

This quote from Zelinsky's book:

"Among his other observations, Buffett has correctly noted the dangers to a democracy of inherited wealth as well as the moral obligation of those who have done particularly well in American society to give back to that society."

Zelinsky (and by proxy, you) restated Buffett's opinions and presumed them to be fact. This does not make it true.

Also, why does one "...who have done particularly well in American society to give back to that society." have a moral obligation to do so?

In this context I will take "give back" as to mean 'give to the government'. That is not a moral obligation--it is tax law enforced (ultimately) at the end of a gun.

A much better way to "give back" to America (and the world) would be to invest the money in new start-up business and on-going successful business, so they can expand and create more jobs and hire more people.

But what would I know--I'm just a free-market libertarian.

Posted by: MB Kitchen | Nov 13, 2008 11:31:16 AM

"...In Buffett's case, the estate tax is doing exactly what he wants it to do, it incentivized charitable giving and this reduced inherited wealth."

Riiiiiight. Where do you keep your UFO pictures?

Posted by: Da Coyote | Nov 13, 2008 11:11:10 AM

What bothers me more is that these extremely-rich transfer their estates into charitable trusts who then spend massive amounts of money on extremist agenda's. For example, a foundation that would allocate money to Bill Ayers to push radical agenda's on public school students.

That in my mind is much more of a danger to democracy than trust-fund babies who are likely to squander the money spreading the money out to other businesses and jobs.

But that's just me.

Posted by: David | Nov 13, 2008 11:04:14 AM

Warren Buffett is a hypocrite. He states that the estate tax should be the same as now or raised. He has donated the bulk of his money to charity.
Hmmm. If he was a firm believer in the US govt, why not leave the money to the fed's? He cannot give the money to the fed's tax-free (sorry Patti Spencer) because it is not a non-profit.
Hence the reason the buyer of the US Constitution Ross Perot sold has given the document to the Archives on a permanent loan....can't give it away and get a tax break.I would love to know the compensation package the two siblings are getting for running the smaller foundations outside of the Gates Foundation. He doesn't want to bequeath wealth but more than happy for them to earn a large salary. Two-faced when it suits.
Make me tired........

Posted by: Maria | Nov 13, 2008 11:04:02 AM

Buffet has decided that he prefers to do something with his money that is different from giving it to the government. Fine. Then he should advocate that everyone else has that right. The fact that he thinks tax-exempt is a better place for his money that a profit-making entity is besides the point. If having money in the hands of rich people is so bad for society, why is having the money in the hands of non-accountable foundations any better?

Posted by: jon | Nov 13, 2008 11:01:06 AM

It is not an open ended foundation either. It has an end date.

Also announced was the decision to "... spend all of [the Trust's] resources within 50 years after Bill's and Melinda's deaths."[33][34][35][36] This would close the Bill & Melinda Gates Foundation Trust and effectively end the Bill & Melinda Gates Foundation. In the same announcement it was reiterated that Warren Buffett "... has stipulated that the proceeds from the Berkshire Hathaway shares he still owns at death are to be used for philanthropic purposes within 10 years after his estate has been settled."[33]

Posted by: purpleslog | Nov 13, 2008 10:57:07 AM

I believe Derick nailed it. His descendants will hardly feel it versus the individual who worked 80 hour work weeks and sacrificed much to build something that benefits both themselves and others.

I see the transfer of wealth to heirs as logarithmic anyway. I reject the notion that wealth transfer in the context of inheritance is bad. First, the money remains private where it continues to work within the economy providing capital. Second, money passed down like this generally doesn't survive that many generations anyway as capital tends to migrate to those who know how to use it and that is rarely the progeny of one who does. I'm a little tired of the reflexive notion that public and charitable funds are in some way "better" for a country or people.

Posted by: Scott | Nov 13, 2008 10:49:02 AM

Mr. Buffett could also save an enormous amount of time and expense by simply filling out a 1040EZ tax form in April. Maybe the 1040 Short Form might be more appropriate. He could do it himself!!! Without an army of tax lawyers and accountants!!!

Why should an individual who complains that his secretary pays ‘more’ in tax than he go through all the bother of tracking down and justifying a ton of tax deductions. He should simply take the mortgage deduction and education expenses.

After paying his fair share, he should donate to foundations.

Posted by: Boghie | Nov 13, 2008 10:44:51 AM

What Buffet has never explained is why having wealth in his heirs hands is somehow worse than having it in the hands of strangers. The wealth is still there, and someone is going to control it. If he did such a poor job of raising his children and thinks that someone else should have the privilege and responsibility of managing his money after he is dead, fine. But why should other people be forced to make the same choice? Or, rather, be prevented from making the choice that they feel is best.

Non-profits are a huge problem in this country, and they figure to only get worse. Forcing people to choose between giving much of their estate away to either the government or a non-profit is a slow motion train wreck.

Posted by: Jim Thomason | Nov 13, 2008 10:44:17 AM

He is giving enough to his relatives they will never have to work and lots to something else. This is not really the spirit of what he says when he says do away with the tax. What does he care or Gates they both have it both ways. That option isn't open to Farmer Jones estate his kids can't afford it.

Posted by: Robert | Nov 13, 2008 10:40:59 AM

There is a huge difference between making the personal choice of where to leave the bulk of your personal wealth, and having the government make a law about where you HAVE to leave the bulk of your personal wealth.
There is no inconsistency to his words and actions if you only look at whether he's leaving the bulk of his wealth to his heirs. He's not. In that sense, his actions are consistent with his words.
But there is a world of difference if you look at whether he made that choice freely, or whether he had to choose one or two options laid out by the Feds. Some of us would like to keep all options open, not just decide between leaving our wealth to the Feds or a charity.

Posted by: Diggs | Nov 13, 2008 10:35:09 AM

All this "he's no hypocrite because he's giving it to charity" talk is nonsense. As we saw recently with the Annenberg fund, these huge, largely unregulated and unaccountable piles of money can be used for all sorts of malfeasance that don't come within shouting distance of "charitable works". And in many cases, the executives and employees of these funds are the friends and relatives of the fund's creator. Isn't that the sort of thing Mr. Buffett was objecting to? As Derick said, let Mr. Buffett write a fat check to the Bureau of Public Debt so that small businesses won't need to be sold to pay the estate tax when their founders pass. That seems like a worthy, charitable, and patriotic act to me.

Posted by: Mike | Nov 13, 2008 10:32:02 AM

It's a free country and everyone is equal under the law. I fail to see why a successful person is obligated to give back part of what they earned through their efforts and smarts. If Buffet wants to be a sport with his money, fine by me. However he or anyone else has no moral right to obligate me to donate to charity or pay a tax on money that was already taxed to begin with.
Inherited wealth is neither evil or immoral. Why wouldn't wealthy people pass on their wealth to their kin? Why bother to earn the wealth to begin with if at the end its deemed not really yours to do with as you wish? The only obligation of the wealthy to society is the same as that of everyone else:live within the law and let your conscience dictate to what charities and causes you deem worthy.

Posted by: cubanbob | Nov 13, 2008 10:27:01 AM

Has anyone looked into who the administrators of the Gates foundation are? I mean, if I gift $10 million to a foundation like this, and thereby avoid paying 50% or more in estate taxes. What's to prevent the foundation from employing my children as administrators in purpetuity at $500k per year (effective rate of tax approximately 35%)?

Posted by: bendover | Nov 13, 2008 10:26:55 AM

all of the commenters are missing the point of the article. While Buffet worries about the effect on democracy from accumulated wealth to a few, he is doing exactly what he preaches against. All of his wealth (and that of of the Gates' ) is going to "one" charity and it is making decisions on how to spread the wealth. By its very nature it is discriminatory and belies the intent of Buffet. If a portion was taxed and put into the government coofers it would benefit society as a whole.

Posted by: Ron O | Nov 13, 2008 10:23:06 AM

So middle-class Joe has to sell the family business when the Death Tax hits just so billionairs who will always have plenty left to hand down anyway can display their piousness. Message to Buffet: you can voluntarily pay as much tax as you want right now; the IRS has a form for donations. Yet he goes around complaining that he wants to pay more taxes but "can't." Likewise, if they abolish the Death Tax, he can still make out his will anyway he wants, including giving it all to the IRS. But, on the contrary, he's busy finding loopholes around the very laws he's supposedly fighting for.

Posted by: Matthew Harris | Nov 13, 2008 10:21:54 AM

John Thacker understands that Warren Buffett's love of the Estate tax is simply self-interest. Buffett sells life insurance, which is not a great investment for those who have accumulated a lot of wealth except in order to provide their heirs liquidity necessary to pay the estate tax. The absence of the need for excessive life insurance would allow an investor to put more money into the capital or bond markets -- giving the investor better return and pumping more $$$ into the market.

Those foolish enough not to have enough life insurance to pay Uncle Sam when they die will have heirs who will have to sell their business. Sometimes a competitor buys it (and sends redundant employees packing!). Other times, value-seekers like Buffett will buy it, seeing a bargain. Buffett has made a pretty penny buying family-owned businesses forced to sell because of estate tax obligations.

Posted by: T.J. Brown | Nov 13, 2008 10:19:20 AM

I have a great deal of respect for Buffett and others who understand the dangers of inherited wealth. Buffett has never, to my knowledge, stated that the US government is the best and most efficient distributer of wealth nor has he stated that an individual should not be allowed a choice as to where his money goes. Perhaps he believes that the 4 billion people in the world living on less than $2/day have greater needs than just about anyone in the US. The hypocrites here would be any Republican who believes in self responsibility and hard work then gives money to his/her children and grandchildren as well as any Democrats who believe that government's role is to assist all equally and to spread the wealth around and then leave their estate to their children. On the other side, if Buffett's money comes from life insurance, which is a prime means of avoiding estate taxes, there would be a problem here. Perhaps Buffett should also support taxes on life insurance.

Posted by: Eric | Nov 13, 2008 10:17:48 AM

He's an absolute hypocrite. What about the person who worked all their lives and saved $75,000 to give to their children. By the way Warren, what happened to "SHARE THE WEALTH". There is all sorts of fraud in charitable giving. He could give it to the population of the south side of Chicago and they could build places to live that are suitable. Unless of course Obama oversees it, then the money will disappear no questions asked. Slimebag. GET YOUR F'ING HAND OUT OF MY POCKET. YOU CAN KEEP THE CHANGE.

Posted by: Irish Gal | Nov 13, 2008 10:16:12 AM

This is indeed a ridiculous and spurious argument. They teach you to 'reason' in law school? Get your money back. Oh wait, you're one of the PROFESSORS. Good God, it's worse than I thought.

Buffet (correctly) argues that inherited wealth is a problem for a democracy. Therefore he argues in favor of the only means to mitigate it: Estate taxes. He would also tell anyone who cares to ask how wasteful government is. (Any arguments on that score? Good. I'll move along then.)

He is against passing along great wealth, which affects the republic in unfortunate ways. He also knows the government will squander and plunder his vast fortune if it falls into the hands of politicians.

Buffet's solution: He is giving his vast wealth to neither his children (who have made their OWN money) nor the government. This is completely consistent with his stated philosophies and beliefs.

It's just that simple. The worst accusation one could make about Buffet in this regard is that he should be advocating the mandatory charitable giving of estates rather than taxing them (though his own actions are advocacy enough). Probably Buffet is merely too pragmatic to believe anything he says would persuade the government to ever give up lucrative tax revenue, much as he would prefer his own solution be applied. But hypocrisy? There's none to be found... here.

Now let's discuss hypocritical (sauce for the goose), dimwitted law professors whose arguments are given traction on the unfortunate pretext that they share a profession with the planet's most widely-read blogger.

Posted by: Mister Snitch | Nov 13, 2008 10:11:42 AM

F. Scott Fitzgerald reportedly once said "The very rich are different from you and I." When he heard of the remark, Hemingway was said to have sneered "Yes; they have more money."

Buffett and Gates have been afflicted by an intellectual blindness that affects many of the very rich. Tax income at 100% and they'd live better than anyone else on the planet, since without earning another dime they could write checks and live like kings for the rest of their lives. This, and the use of offshore tax shelters, explains the Kennedy's nonchalance toward confiscatory marginal rates.

Buffett's disingenuous remarks about his secretary's tax rate aren't convincing. Try an apples-to-apples comparison, Warren; figure your own tax rate if your income was taxed as wages instead of dividends, and if you paid Social Security taxes, especially under Obama's plans. It's obvious why you choose to receive your income as you do, but you do have the ability to pay yourself a salary instead. Will you?

Offering others' money to the tax man is not altruism.

Posted by: Jack Reacher | Nov 13, 2008 10:10:34 AM

Buffett has built a up great deal of Berkshire over the years by swooping in and buying family businesses at bargain-basement prices when the heirs are desperate for cash to pay their Death Tax bill. Dairy Queen, Borsheim, Justin's, the list goes on. He favors the Death Tax because it's been great for his business. Not really surprising that like most limousine liberals, Buffett thinks the rules for the plebians shouldn't apply to him.

Posted by: Will Collier | Nov 13, 2008 10:07:43 AM

Has this message of not being allowed to inherit "substantial" wealth been extended to Teddy Kennedy and RFK, Jr?

Or are they simply worthy of wealth?

Posted by: Koblog | Nov 13, 2008 10:07:00 AM

Do any of you defending Buffett realize that "charitable organizatons" and NGOs are one of the fastest growing conentration of wealth in the country? That they are taking an increasing political role, and that the executives who run them make outlandish salaries and enjoy perks?

Don't automatically assume "charity" means "good."

Posted by: JMH | Nov 13, 2008 10:03:01 AM

This seems to be more of a strong comment on the efficacy of government spending and programs. Buffet could establish his estate in such a way that a big chunk goes to the federal government. Instead, he chooses to give that money to a private charity.

I think the inconsistency, then, is not that he's avoiding the estate tax; it's that he has associated himself with the party that sees the government as the best vehicle for solving problems, while his actions indicate that he believes private philanthropy is a better way to affect change.

Posted by: T-web | Nov 13, 2008 9:59:23 AM

I have long thought that charitable trusts should be taxed, at the time of creation and on the income received after formation. Particularly the concept of an eleemosynary (sp?) institution that is basically devoted to political actions. After all, they are using public money (forgiven taxes) for their own agenda rather than as determined through our democratic processes.

Posted by: | Nov 13, 2008 9:58:51 AM

I understand what you are getting at in this post but you are only looking at half the equation. If you look at Buffett's investments (for example See's Candies), you will notice that some of them were motivated by tax laws and a general lack of estate planning. That is, some of his investments were because the _sellers_ wanted to avoid estate taxes but keep the business within the family. They sold out to Buffett prior to estate tax triggers, got money or equity in Berkshire, and, if the kids were good managers, they got to keep management jobs. Therefore, my opinion is that part of this has to do with Buffett talking his book.

Posted by: John | Nov 13, 2008 9:57:18 AM

Here's where the lying starts: by giving your fortune to the Foundation, you aren't actually giving it to charity. The Bill and Melinda Gates Foundation is PRIMARILY an investment vehicle. Gates and Buffett maintain control of the assets. Only a tiny percentage goes to actual charity every year.

Their children will be controlling board members. They will decide how the money is spent. If Bill Jr decides to fly around the world on a private jet, charge it to the Foundation. Tax free.

It's a scam -- it's a way to pass on assets without paying taxes. Yes, it incidentally does some good (not much -- witness their misguided efforts to fight malaria in Africa), but that's just a side effect of a tax avoidance vehicle.

Posted by: Johnny | Nov 13, 2008 9:54:35 AM

I want Warren Buffett to release his tax returns before the 1986 tax overhaul and see what his tax bracket was and how much he ended up paying. I guarantee you he avoided paying those taxes too.

Posted by: zefal | Nov 13, 2008 9:53:11 AM

I’ve always believed that Buffett and his ilk were hypocrites. It’s easy to say that you believe that the estate tax should remain where it is when you are in no way impacted by it. The rate could be 75% and he would still be able to pass on more money to his heirs than 99.9% of us. It makes no difference to him, but how about the person who has worked hard and has built a net worth of say $5 million to $10 million. Even with the exemption, the tax has a significant impact on what you pass on to your heirs. Beyond the estate tax, I can’t stand it when Buffett and other high income earners state that they would gladly pay higher taxes but the rates don’t allow them to do so. Really! With all their high powered CPAs at hand and not one has ever said, “Actually Mr. Buffett you can pay more is if you want. Just write a check made payable to the Bureau of Public Debt and they will be happy to cash it.” I doubt neither he nor any of the others who complain they pay too little tax have ever inquired on how they could pay more.

Posted by: Derick | Nov 13, 2008 8:10:46 AM

By the way, Buffett's estate could take advantage of the unlimited charitable deduction by giving a charitable contribution to the U.S. In fact, estate taxes paid do benefit the U.S. So perhaps the hypocrisy test should be determined by whether Buffett's estate does better (in the civic sense) with the Gates Foundation than does the U.S. Currently, the Gates Foundation is credited with doing good work, to a significant extent outside the U.S. Some will disagree, but doesn't the U.S., even under George W, do some good work? The U.S. may do better work under Obama. If Buffett is concerned with the estate tax, he might consider a charitable contribution to a specific part of the U.S. that he feels will do a lot of good. In the end, it is up to Buffett to do as he wishes. I wish him well, as his heart is in a good place.

Posted by: Shag from Brookline | Nov 13, 2008 3:23:40 AM

This writer has missed the boat. Buffet has lobbied against the accumulation of wealth in individual hands - has never said anything against the transfer tax policy alowing the charitable estate and gift tax deduction. And further - it takes no particular skill to get the charitable deduction for your client - just give it to the charity.

Posted by: Patti Spencer | Nov 13, 2008 1:16:30 AM

This argument makes absolutely no sense. How can you choose to give money to a charitable entity on a taxable basis? By committing malpractice?

Posted by: Alex | Nov 12, 2008 7:23:26 PM