Warren Buffett on the Estate Tax

[chomerics]

His testimony to congress. . .

http://www.cnbc.com/id/21791804

hank you, Mr. Chairman. Mr. Chairman, Senators, I appreciate the opportunity to express a few views on the estate tax.

I will limit my remarks to three points.

The first relates to the intellectual dishonesty employed by those who use the phrase 'death tax.' This term is clever, it is Orwellian, and it is, if you'll pardon the expression, dead wrong.

More than 2.4 million Americans will die this year. About 12,000 of them will leave an estate that will be taxed when the exemption goes to $3 million, as Senator Grassley mentioned. It will be 9600 estimated and it's been 19,000 when the exemption was (lower.)

That means that 99-and-a-half percent of estates will be tax-free. You would have to attend 200 funerals to be at one at which the decedent's estate owed a tax. Indeed, far more people who die receive a large tax benefit. I don't think that's generally understood. Namely, a stepped up basis on appreciated assets.

If people insist on renaming the estate tax, it would be more appropriately labeled the 'death present.'

The second point I would like to make is that in a country that prides itself on equality of opportunity, it is becoming anything but that, as the gap between the super rich and the middle class widens in dramatic fashion.

Here are a few figures on the Forbes 400. Other people save their Playboy magazines, I save the Forbes 400 magazine.

Twenty years ago, 1987, it took $220 million dollars to make the list. Now it takes $1.3 billion, about a six-for-one increase. The total wealth of the list in 1987 was then $220 billion. Now it's $1.54 trillion, exactly a seven-for-one increase.

Tax law changes have benefited this group, including me, in a huge way. During that same period, the average American went exactly nowhere on the economic front. His income went from a median $26,061 to $48,201, almost exactly the increase of the CPI during the 20 years.

He's been on a treadmill while the super rich have been on a spaceship.

Dynastic wealth, the enemy of a meritocracy, is on the rise. Equality of opportunity has been on the decline. A progressive and meaningful estate tax is needed to curb the movement of a democracy toward a plutocracy.

Finally, I have a suggestion. Estate taxes now raise about $24 billion. It's one of the lowest percentages, incidentally, of total taxes in the history of the tax system.

As mentioned, that $24 billion will come from about 12,000 estates. Indeed, half of that sum will come from only about 1500 estates. The beneficiaries of each of those estates will receive millions, in many cases tens of millions or more. One point you never hear from proponents of estate tax elimination is whom they would get the $24 billion from if they didn't get it from the 12,000 large estates.

They just say, 'Free us.' They don't say who to further shackle.

Here's a suggestion: Keep the estate tax and its $24 billion, reshape it if you will, but keep the estate tax and its $24 billion. Then take a look at the bottom fifth of America. There are 23 million households in the United States with $20,000 or less of income. Many are paying payroll taxes that now total 15.3 percent. That 15.3 percent alone is more than the rate on dividends or capital gains and more than the rate on carried interest.

Let's give those 23 million households a $1000 annual credit. Every dollar of such a credit would affect real change in the lives of the 50-million-plus people residing in the 23 million households. Yet the cost of this would be less than getting rid of the tax on the 12,000 estates.

50-million people would be helped in a material way. The beneficiaries of the 12,000 estates would still receive what looks like a fortune to almost all Americans.

Leona Helmsley's dog, trouble, reportedly is inheriting $12 million. If Mrs. Helmsley's estate is in the 45% tax bracket, Trouble could instead receive $22 million if the estate tax is removed.

Alternatively, just from Trouble's share of the Helmsley estate tax, 10,000 families making less than $20,000 annually could receive $1000 each to make their lives a bit better. Even though Trouble probably heard Leona say, quote, 'Only the little people pay taxes,' end-quote, I don't think he would mind the estate paying $10 million in order for him to get his $12 million.

We need to raise about 20 percent of GDP to fund the programs the American people want from the national government. Further shifting of this requirement away from the super rich is not the way to go.

Damn, even Warren Buffett is saying that the estate tax needs to be in place, I wonder how the righties will spin this one. . .

[iheartskins]

Hold the phone--so one really, really rich guy believes in the estate tax, that means that the anyone affiliated with the GOP has to defend his words?

Why?

Nix the partisan hackery chom. The testimony is interesting in itself--no need to insert the "how righties will spin this one" -- which is obviously inserted only as a means of getting a rise out of your audience. That's close to trolling, as I'm sure you know.

Had you opened the thread with, "I wonder how those that are against the estate tax will react to this", no problem.

Do you want to have a conversation about this issue or do you want to start a flame war? Which of the above opening lines you pick will, as you know, dictate the outcome of the thread.

I think we're getting tired of flame wars--but conversation's always interesting. And when you're in conversation, not attack mode, you bring a lot to the table.

Last point--I know you're not the only one who does this--and I'm in the process of making a concerted effort to try and reduce the wars and move us all toward conversation.

*

Finally, one note on the speech--

Using "Trouble" as an example of the rationale for maintaining estate taxes is just as much of a manipulation of argument as using "death" tax to describe estate taxes. Perhaps a little hypocritical on Buffet's part.

[Burgold]

You have to respect that aspect of Bill Gates or Warren Bufffett.

[A Walton]

Warren Buffett is my idol.

[PleaseBlitz]

Warren Buffett is my idol.

Mine too.

He's a tad biased though, he's already decided to give his estate away. Which is another reason he's my idol.

[DjTj]

Using "Trouble" as an example of the rationale for maintaining estate taxes is just as much of a manipulation of argument as using "death" tax to describe estate taxes. Perhaps a little hypocritical on Buffet's part.

I think it was a pretty well-developed example, and since he provides actual numbers, it provides much more than a political slogan like the "death tax." Maybe it's on the same level as the family farm example, but it's much better than "death tax" because at least we can argue the numbers and whether they apply more broadly than he says.

I think that a $12 million inheritance for a dog is definitely something that should be taxed. The marginal effect of higher estate tax rates is probably much lower than many other taxes because it's something that you either plan for you don't; there isn't a lot of behavior that will change if the tax rate moves up or down a few percentage points.

[JohnLockesGhost]

What does it mean that Warren Buffet, a rich dude, favors the estate tax and JLG, a poor dude, doesn't?

[DjTj]

What does it mean that Warren Buffet, a rich dude, favors the estate tax and JLG, a poor dude, doesn't?

That economic self-interest is an inaccurate model for human behavior?

[iheartskins]

I think it was a pretty well-developed example, and since he provides actual numbers, it provides much more than a political slogan like the "death tax." Maybe it's on the same level as the family farm example, but it's much better than "death tax" because at least we can argue the numbers and whether they apply more broadly than he says.

I think that a $12 million inheritance for a dog is definitely something that should be taxed. The marginal effect of higher estate tax rates is probably much lower than many other taxes because it's something that you either plan for you don't; there isn't a lot of behavior that will change if the tax rate moves up or down a few percentage points.

Walking into this discussion, and trying to argue against the estate tax is pretty difficult--generally you are defending the richest segment of society, and I understand that.

And I understand the policy argument behind estate taxes--we don't want to create a country with a permanent upper-class that only gets richer. There has to be mobility in society. I get all of that.

I understand a lot of the policy behind transaction taxation, that if a transfer has taken place, it's generally a taxable event. I understand that too.

What fundamentally frustrates me is the fact that all of that money has already been taxed once (or several times) when it was earned or otherwise. It just doesn't seem right that the government should have the power to come in and tax that money again when a parent passes money along to their kids (whether its $100 or $100,000,000), particularly when the rates are as high as they are.

EDIT: Fixed key typo.

[TrumanB]

His testimony to congress. . .

http://www.cnbc.com/id/21791804

Damn, even Warren Buffett is saying that the estate tax needs to be in place, I wonder how the righties will spin this one. . .

I hate to break it to you, but it's not only the "righties" that are against the DEATH tax (there are a lot of wealthy libs out there). You're just too biased to see through that cloud.

[Kilmer17]

My response to Warren Buffett.

My family has had a farm in Ranson West Virginia since the early 1800s. I had family on both sides of the Civil War (that part was VA at the time) and there were small battles on the land. When my great grandfather died, he left the farm to his 7 children in equal parts. 6 of them did not want to farm, so they sold their shares back to my great Uncle Ray and payed taxes on the profit. My Uncle Ray ran the farm (about 200 acres) until his death last year at 95 years old. While the rest of Jefferson County boomed to become a suburb of NOVA and DC, the farm remained a working small farm.

When he died, he left the farm to his suriving two sisters (my two great aunts, neither of whom have ever married). They live on their Govt pensions in a house that they bought and paid for half a century ago.

The Govt has now stepped in and said that the farm is worth 8 million dollars. Even at 3 million protected, they are faced with paying an estate tax on 5 million, which comes to a little more than 2 million. Of course they dont have that kind of money, and there is nobody standing by to buy the farm if they put it up for sale.

So in the end, my families farm will be taken by the govt in lieu of taxes.

Or BEST CASE SCENARIO, my two aunts somehow come up with the money (sell the house etc) and pay the taxes. In which case, each would own 1/2. And when they pass away (1 is 97, the other 92), what then happens? You guessed it, Uncle Greedy comes back and gets to tax it all over again.

Either way, in the end, a farm that has been in my family for 6 generations will be lost. Not because the family chose to sell it, but because Uncle Sam decided to tax the death of my relatives.

I have better idea. How about dreamers like Buffett and Gates donate their money to the Govt rather than charity. They obviously think Govt is qualified to collect and disperse it. So I think it's time that he shuts his piehole and lets his actions speak for him.

[Cskin]

What fundamentally frustrates me is the fact that all of that money has already been taxed once (or several times) when it was earned or otherwise. It just doesn't seem right that the government should have the power to come in and tax that money again when a parent passes money along to their kids (whether its $100 or $100,000,000), particularly when the rates are as high as they are.

Yeah.. and the govt. ****roaches don't see it that way. They just see this rather large wealth and think... "hummm... 40% of that would look nicely in the entitlement coffers..... so we can then give it to programs and people who don't deserve it or rarely have to qualify for it."

Not only is therer an issue of whether taxing income is constitutional, despite the amendment and it's oddities, but where on earth does it say that income earned and saved shall be taxed again upon a income earner's death?

Treason..... build the gallows.

[DjTj]

What fundamentally frustrates me is the fact that all of that money has already been taxed once (or several times) when it was earned or otherwise. It just doesn't seem right that the government should have the power to come in and tax that money again when a parent passes money along to their kids (whether its $100 or $100,000,000), particularly when the rates are as high as they are.

All money is taxed multiple times, so I always think the "double taxation" argument is a red herring. I think you have to ask yourself what your philosophy on taxation is ... I believe that the government should seek to raise the required amount of revenue in a manner that has the least impact on the free market. I think the estate tax, by leveling the playing field for each generation and having a relatively small impact on consumer behavior, is maybe one of the best taxes we have - much better than the income tax or the capital gains tax.

Also, if a parent leaves $100 to their kid it won't be taxed. There is an exemption up to a few million dollars, which is supposed to account for the vast majority of the sob stories, except Kilmer's of course.

The Govt has now stepped in and said that the farm is worth 8 million dollars. Even at 3 million protected, they are faced with paying an estate tax on 5 million, which comes to a little more than 2 million. Of course they dont have that kind of money, and there is nobody standing by to buy the farm if they put it up for sale.

Maybe this is just a general question about property assessment, but can the government really tell you that your property is worth $8 million when you can't possibly sell for that amount? If you actually sell the property for $5 million, they would have to tax you at $5 million, right? I'm no tax lawyer, but it seems to me that if the government is assessing your property at a value way above what you could actually get for it, you would have a pretty good case in court.

And generally, my answer to the family farm example is: Why the heck does your family have a farm? Are you in the farming business? If so, why don't place the farm in a corporate entity that won't get transferred in an estate? If not, why not sell your farm to someone that is actually in the farming business? If you just want a nice place to live, why not sell off part of the property and only keep $2 million worth?

I understand there's some sentimental value, but we can't base all our laws around sentimental values ... your aunts want to live on a farm and my aunts want Medicare - everyone has a sob story.

I have better idea. How about dreamers like Buffett and Gates donate their money to the Govt rather than charity. They obviously think Govt is qualified to collect and disperse it. So I think it's time that he shuts his piehole and lets his actions speak for him.

I think that what Buffet would like to see is for all rich people to donate. The high estate tax rate is not necessarily for filling government coffers but also to encourage the rich to donate to charity rather than to their heirs. When he talks about helping 10,000 families making $20,000 or less, I don't think he necessarily implies that the government must disburse the money; obviously he has decided with his money that private charities do the job better.

[laurent]

Either way, in the end, a farm that has been in my family for 6 generations will be lost. Not because the family chose to sell it, but because Uncle Sam decided to tax the death of my relatives.

I have better idea. How about dreamers like Buffett and Gates donate their money to the Govt rather than charity. They obviously think Govt is qualified to collect and disperse it. So I think it's time that he shuts his piehole and lets his actions speak for him.

I may one day be in a similar situation. My parents own a 100 acre waterfront farm on the Eastern Shore that's their pride and joy. There's a good chance that when the day comes when they pass that my brothers and I will not be in a position to pay the estate tax.

While I'm in agreement with Warren Buffet on why the estate tax shouldn't be eliminated I also think that there need to be exceptions for precisely the scenario you have outlined.

An exemption for non-commercial property and farms could be an option.

[Kilmer17]

Purely sentimenal at this point. And if the family decided to sell it in the future, I would absolutely expect to pay the appropriate tax on it.

As for the value, without selling it, the Govt gets to determine what it's worth. The family has gotten second appraisals etc, but nothing has changed.

The land is worth 8 mill if it were sold to developers in a few years, but nothing is moving right now. And nowhere close to that number.

Lots could have been done years ago to protect it (trusts etc) but it wasnt. Which opens another can of worms. If 2 peices of land are the same, why are they taxed different because of a trust? Just another loophole.

Not a sob story in my case, just a sad one. My Aunts paid taxes on the sale of this land to my uncle 50 years ago (appx), and now have to pay taxes on it again.

Just doesnt seem right.

[81artmonk]

Isn't this just a "punish the rich" Tax??

Regardless of who it is, why does the government need to get money from someone or something that they have already gotten money from?? They were taxed on the estate, home, cars, money while alive, and now that they are dead and have left those things to loved ones, the government is going to tax them again. I don't understand how or why this is appropriate?

There shouldn't be a tax at all for the event of death and transfer of estate.

[iheartskins]

All money is taxed multiple times, so I always think the "double taxation" argument is a red herring. I think you have to ask yourself what your philosophy on taxation is ... I believe that the government should seek to raise the required amount of revenue in a manner that has the least impact on the free market. I think the estate tax, by leveling the playing field for each generation and having a relatively small impact on consumer behavior, is maybe one of the best taxes we have - much better than the income tax or the capital gains tax.

I wasn't really advocating the corporate double taxation issue. It's the issue of whether an intra-family transfer should qualify as a taxable event.

Intra-family transfers at death should be treated differently, and we've already made the decision that transfers between spouses are tax-free. So now, you're going to argue that the spouse exception is intra-generational, right, and therefore without the scope of the policy behind estate taxation.

What if the transfer is to a sibling instead of to a spouse? But now, the counterargument is that the spouse relationship is different than the sibling relationship and should be treated different under estate tax law (which it is already under estate law, see, e.g., the elective share of the estate law in NY). So, I guess the argument isn't just about generations, it's also about the specificity of the relationship?

Well, doesn't that encourage sham marriages? Probably not, you'd argue, because of the social stain it would leave.

It just doesn't seem right to me. And I understand that "feel" shouldn't be a grounds for making laws, but that "feel", I think, reflects an underlying problem with the estate tax that I'm insufficiently articulating.

Also, if a parent leaves $100 to their kid it won't be taxed. There is an exemption up to a few million dollars, which is supposed to account for the vast majority of the sob stories, except Kilmer's of course.

Right, I know. I'm well aware of the $3 million threshold--who knows, I may have my own sob story that you can disdainfully dismiss.

[PeterMP]

Maybe this is just a general question about property assessment, but can the government really tell you that your property is worth $8 million when you can't possibly sell for that amount? If you actually sell the property for $5 million, they would have to tax you at $5 million, right? I'm no tax lawyer, but it seems to me that if the government is assessing your property at a value way above what you could actually get for it, you would have a pretty good case in court.

I don't know how things apply to real estate tax, but I know in NJ w/ property taxes that arguement gets you no where. It isn't uncommon for politicians instead of raising taxes to "reasses" properties, the new assesment comes out higher, and the person has to pay more taxes. I know more than one person that has tried the, 'If you think my property is woth that much I'll sell it to you.' approach and don't know anybody that was successful for.

[PeterMP]

The biggest problem w/ the estate tax is that it is pretty easy to avoid most of it, if the person has the education, the ability, and the desire to do so. My in-laws, and I don't know how much money they have, but they live comfortably, are essentially completely healthy, have heredity to suggest that will live for along time, (my wife';s grandfather is in his 90's (he had three siblings all of whom lived into their 90's)), and they are only in their early 60's, and they've already started to gift the max allowed to us every year. I don't know for a fact, but I would guess they are doing the samething w/ her brother.

I had a discussion w/ my father in law over this because I am uncomfortable taking such large gifts, and he told me they did the samething w/ his parents (by the way, his parents owned a farm). They got everything out of his parents names before they died. We've taken the money and dropped it into CD's and mutual funds w/ the understanding that if they run out of money we will "gift" it back.

Essentially, it is a tax on people that aren't creative/smart enough to get rid of their money before they die, that die suddenly, or that want to pay the tax. IMO, stupid/noncreative people don't need more taxes.

[portisizzle]

If you want to destroy the backbone of this economy...the small independent business owner...then by all means listen to the ultra rich Warren Buffett and apply the death tax widely.

Businesses would not have the capital to survive the death of a family member and will of course be liquidated to pay the tax. Consider the number of employees that work for small business that would lose their jobs.

Of course Warren Buffet wants this tax to go through. SO does every public corporation in business that competes with small business. What an innovative way to eliminate their competition.

Say hello to the WalMart - Lowes - Home Depot economy TIMES 100......

[iheartskins]

Essentially, it is a tax on people that aren't creative/smart enough to get rid of their money before they die, that die suddenly, or that want to pay the tax. IMO, stupid/noncreative people don't need more taxes.

Sort of--the maximum annual gift you can give out without paying gift tax is, I think, around $11,000 (maybe slightly more because of a recent change in law).

So if you have an estate of $10,000,000, it's going to take a lot of years and a lot of beneficiaries to pay the $7,000,000 down.

[portisizzle]

Sort of--the maximum annual gift you can give out without paying gift tax is, I think, around $11,000 (maybe slightly more because of a recent change in law).

So if you have an estate of $10,000,000, it's going to take a lot of years and a lot of beneficiaries to pay the $7,000,000 down.

They are called Limited Liability Corporations.....Family Limited Partnerships.

[iheartskins]

They are called Limited Liability Corporations.....Family Limited Partnerships.

no such thing as a limited liability corporation, there are limited liability companies and limited partnerships though. Those these types of entities are used for all kinds of purposes...

What are you talking about specifically? Foundations, 501©(3) organizations?

[portisizzle]

no such thing as a limited liability corporation, there are limited liability companies and limited partnerships though. Those these types of entities are used for all kinds of purposes...

What are you talking about specifically? Foundations, 501©(3) organizations?

http://www.rjmintz.com/appch5.html

Over the past five years, the Family Limited Partnership (FLP) has risen from obscurity, as a little known tax loophole, into the preeminent vehicle for asset protection and estate planning. A recent article in Forbes extolling the benefits of the FLP—headlined "Cut Your Estate Taxes in Half"—claimed that individuals were successfully using this technique to discount the value of their estate by up to 90 percent

[portisizzle]

no such thing as a limited liability corporation,

Company, sorry.