Wednesday, November 14, 2007

Buffett duplicity on the death tax?

Grover Norquist (who is hardly nonpartisan) has a very interesting piece nonetheless on the estate tax whose repeal billionaire Warren Buffett very publicly decries. It makes for great theater when a billionaire supports something that would apparently hit him hard financially.

To fully understand the depth of Buffett’s cynicism and self-interest, let’s take a look at how one might avoid paying the death tax. If you’re a wealthy person and want to steer clear of this tax, you have three options: Set up complicated trust arrangements, which mostly serve to enrich lawyers and merely delay and shift a tax that must eventually be paid; arrange for your estate to make tax-deductible contributions to charitable organizations; or plow your wealth into life insurance before you die. By law, when your heirs are paid the life-insurance disbursement, it’s tax-free.

It doesn’t take a genius to see how certain industries could make a tidy profit off these death-tax escape hatches. In fact, some of the most ardent opponents of permanent death-tax repeal are (surprise, surprise) estate lawyers (who set up the trusts), charities (who fear their spigots of money turning off), and the life-insurance lobby (which does all it can to preserve its tax loopholes).

Buffett has major investments in companies that sell life insurance. The death tax has helped make him rich while it has made other families poor. What’s sad and ironic is that it takes families with the resources of the Buffetts (and the Hiltons and the Kardashians) to set up the trusts and life-insurance schemes that are necessary to avoid paying the death tax.


Additionally the death tax causes significant disruption because to pay it a going concern, e.g., a family business, may have to sell itself simply to pay the tax.

Buffett railed against the "dynastic accumulation of wealth" in his Senate testimony today. If he's really that worried about it then advocate a tax that kicks in above $100 million which should exempt all but the ultra wealthy.

The most compelling argument against the death tax that no one has ever rebut to my satisfaction is:

"Why should the death of a loved one ever be a taxable event?"

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