Wednesday, December 08, 2010

A short note on Warren Buffett and the estate tax 

Far be it from me to say that the "sage of Omaha" is disingenuous, but Warren Buffett's support for a big estate tax is well-aligned with the interests of his company, Berkshire Hathaway. Without the estate tax, the big-dollar life insurance business loses much of its raison d'etre.

That said, Buffett has long said that he will leave most of his money to charity and his kids "just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing." Whatever that means. So perhaps Buffett has invested according to his political conviction, rather than shaped his political conviction to the circumstances of his investments. For most people who align their investing and public policy gum-flapping, each motive is a little bit chicken, a little bit egg.


By Anonymous E Hines, at Wed Dec 08, 07:52:00 AM:

What Buffett wants to do with his estate is his business, and in the present case even laudable (his goal vis-a-vis charity and his kids seems clear enough to me). However, he has no more right to impose his goal, or his view of legitimacy, on the rest of us than does any other man. This isn't Austria, yet....

Eric Hines  

By Anonymous Anonymous, at Wed Dec 08, 09:12:00 AM:

Anon Attorney here. Warren Buffett's "awe shucks" midwestern, salt-of-the-earth, persona is a carefully cultivated PR campaign, but has not reflected the reality of his investment operations for 30 years. It is particularly out of synch for the past few years, during which Berkshire companies have taken approximately $30B in taxpayer money.  

By Anonymous Ignoramus, at Wed Dec 08, 10:18:00 AM:

Warren is a “playa” and a truly weird guy.

Warren made the basis of his fortune by going long back in the 1970s using Other People’s Money that he got through Berkshire Hathaway’s insurance operations.
The 1970s were a weird time for investing. I heard an apochraphyal tail of some investor lamenting how cheap stocks were on the fundamentals but that his teenage daughter still needed braces. Oil wildcatters figured out that Big Oil Companies were trading for a fraction of the value of their proven reserves – the Hostile Takeover was born.

Easy to see now with hindsight. Had we not had the Reagan boom, but instead had Carter II, I can envision scenarios where Berkshire Hathaway got into trouble and Warren got taken away in “bracelets.”  

By Blogger ruralcounsel, at Wed Dec 08, 10:22:00 AM:

Indeed, Buffett would probably be rather upset if his personal charitable plans were thwarted by statutory interference.

It seems odd that some give credence to a $50b net worth taxpayer (let us assume he makes 15% ROI on that every year, or about $7.5b) on what to do to $250k and up taxpayers via tax policy. Surely the marginal utility of wealth is quite different across that broad swath of taxpayers. Buffett could care less about that last $500k he makes, but that could be pretty important to someone who only has $500k or $1m of AGI.

I just don't see how his opinion should carry any weight, except to people in a comparable income bracket. And there isn't anything stopping him from making excess payments to the USTreas, except his own hypocrisy.  

By Blogger Cardinalpark, at Wed Dec 08, 10:22:00 AM:

He is indeed sagacious. He supports the estate tax to benefit BRK's insurance businesses, and avoids it personally via(which helps people avoid it) the Gates Foundation.  

By Blogger Progressively Defensive, at Wed Dec 08, 12:15:00 PM:

Here it is folks; when the bah-bah-bah is over there is a feudalistic aspect to the passing on of wealth from generation to generation that is unjust ... it is unjust. That said, liberty ought to be respected and if we don't respect it we must respect reality, all these rich people will leave to a place they can pass on wealth anyway.

An inheritance is like winning the lottery ... we ought to tax it as income to the heirs which is kind of what we do. And it might be higher than other income taxes but it is wealth without work, too; and as we all know so much gets passed on in so many ways anyway: education, lifestyle, social networking, gifts, etc.

There is a balance to be struck here and I think the USA does it well. Interestingly, Sweden has 0% inheritance tax. So, beat it if you don't like the USA's way (or you can stay and vote to change it, of course).  

By Blogger Progressively Defensive, at Wed Dec 08, 12:21:00 PM:

Warren Buffett seems like a wonderful man; I like him although I disagree with him about politics and economics. I think some who have written here have gone way off in fantasy land to impugn him. I don't think his views have anything to do with buying businesses or whatever else.

For example, the OPM slight is absurd ... it is legal to use OPM in many instances, and I expect his, and go bankrupt doing it. It requires fraud to do something illegal.

It's perfectly ethical to advocate for high inheritance tax; far less so to advocate for none.  

By Anonymous Ignoramus, at Wed Dec 08, 02:13:00 PM:

OK, I'll bite.

"the OPM slight is absurd ... it is legal to use OPM in many instances, and I expect his, and go bankrupt doing it. It requires fraud to do something illegal."

Sam Insull (utilities in the 1930s) and Charlie Keating (S&Ls and real estate in the 1980s) would tell you different. These are extreme examples, I'll grant, but that was my point. Buffet is a talent at what he does -- maybe even a genius -- but he took a big, long-dated bet using OPM back in the 1970s. Had it gone wrong -- which could well have happened had the 1970s turned into something more like the 1930s, we might have been looking for a scapegoat when Berkshire Hathaway failed. In which case, Buffett might have learned just how elastic our criminal laws can sometimes be (just ask former NY AG Eliot Spitzer ... or Wikileaks founder Julian Assange).

Insurance -- the way that Buffet and AIG's Hank Greenberg have played it -- can be a pretty interesting game, I'm sure. People give you a lot of money and you don't have to give it back for a long time ... maybe never ... go play!

I think Buffet's like the Hyman Roth character in Godfather 2 -- he think's he's going to live forever. Like many other billionaires late in life, Buffet has come to discover his inner-redistributionist ... "I'm aboard, pull up the ladder!"  

By Anonymous Ignoramus, at Wed Dec 08, 02:24:00 PM:

OK, I'll bite again.

"It's perfectly ethical to advocate for high inheritance tax; far less so to advocate for none."

Blow me.

I come at taxation 100% from the belief that it should all be about raising public revenue in the most optimal and effective way. To me that means trying to avoid distorting private market activities when you raise revenue. That means trying to raise it "locally" whenever possible so as to best link sources to uses with accountability. You can never do this perfectly, but it doesn't mean you can't try.

PD says the opposite, and cloaks it in his purported better ethics. Obama does too, saying "it's the right thing to do." Maybe they're better people than I am. I suspect however that it's more about using the tax code to promote their desired ends.

The estate tax is a particular example of a bad tax. It doesn't raise that much revenue. It has resulted in lots of "distortions." Avoiding it employs too many well-paid third parties who do nothing socially useful.

The truly rich mostly work their way around the estate tax. "Old money" has a competitive advantage at this. Am I wrong?

The estate tax often breaks-up family businesses -- especially the ones that have been built with hard work, at risk and with sacrifice. (See the movie Secretariat for an example.) As a result we have far too many rich brats who live off inherited diversified portfolios who go into soft careers and far too few who take on the demands of enterprise ... and we're all poorer for it. Am I wrong?  

By Anonymous E Hines, at Wed Dec 08, 05:49:00 PM:

I come at taxation from the knowledge that it's not the government's money to begin with, and so not collecting it is a costless event for the government. If the government is worried about deficits and national debt, it can cut spending.

How many liberals even can say, "Cut spending?" How many have proven it by actually saying that?

This is not to say that there aren't legitimate national needs that want taxes in order to satisfy them. But the first criterion must be how leave the maximum amount of the people's money in their own hands. The second criterion must be to prove the legitimacy of the spending. The third criterion must be to keep the spending within existing revenues. The fourth criterion must be to reduce federal revenues.  

By Anonymous Anonymous, at Wed Dec 08, 09:07:00 PM:

That is not to say that there aren't legitimate national needs that want taxes in order to satisfy them.

You mean like paying for the two wars we fought for the past 7 years? Oh wait, that's right, the previous administration lowered taxes JGTRRA after we went to war in Afghanistan and Iraq.
Heh. So much for legitimate national need....  

By Blogger Dawnfire82, at Wed Dec 08, 09:25:00 PM:

"there is a feudalistic aspect to the passing on of wealth from generation to generation that is unjust ... it is unjust."

This is horrific, and betrays an utter misunderstanding of feudalism. If I, God willing, make my fortune... if I *earn* large quantities of money... you're telling me that it is "unjust" to leave it to my cherished, beloved descendants? Money that I *earned* under the laws of the land?

First, that has fuck all to do with feudalism, which was a decentralized and rather haphazard political system built out of ascending levels of personal fealty and had little to do with wealth. See Fiefs and Vassals, by Susan Reynolds, etc.

Secondly, you've taken a basic, instinctive desire of humans, the desire to better one's children's (or grandchildren's lives) through one's own labor, and declared it to be unethical. By fiat. And why? To justify the seizure of fortunes by the state.

Seems to me like a desire to thieve other peoples money, justified post facto by an unholy marriage of historical ignorance and class envy. There is nothing ethical or just about this.

Moreover, this policy culls out concentrations of capital in the populace that could otherwise be used for new endeavors and purchases when other people (without such concentrations) cannot. It was re-instituted by Franklin Roosevelt *specifically* to soak the rich and "redistribute" their wealth in the form of Keynsian stimulus. And we've see how well *that* works. We might as well piss the money down a hole and burn it, except that wouldn't cause inflation.

So it's shitty policy anyway. Especially since, as has been mentioned already, the truly wealthy simply avoid it, so the only people who are really harmed by it are the freshly successful. This merely entrenches "old money" and ensures that "new money" cannot join them.

A truly misguided, even asininely redistributive policy.  

By Anonymous E Hines, at Thu Dec 09, 07:54:00 AM:

You mean like paying for the two wars we fought for the past 7 years? ... So much for legitimate national need....

So, what? You're saying there are no legitimate national needs for taxes? If so, we should stop taxing altogether--including estate taxes.

Eric Hines  

By Blogger ruralcounsel, at Tue Dec 14, 11:11:00 AM:

Now we can get in to the whole debate about "legitimacy" of governmental spending.

My view is that if the activity is beyond the strict Constitutional limits of governmental authority, then it isn't legitimate. Regardless how nice it would be, how many people it would help, how many bureaucrats it would employ, etc.. The U.S. Government has stepped well over that boundary some time ago...so if the State is having trouble finding enough revenue for legitiamate spending, maybe it ought to stop the illegitimate spending first.

I didn't see a lot of angst from the Congress when it passed Obamacare, with regard for realistic cost projections and the real cost of this un-Constitutional government spending program. They were quite happy to hide behind the smoke and mirrors unicorn and rainbows inputs and bullshit model results of the GAO. We've created a whole host of unaffordable social infrastructure programs that were originally justified with laughably inaccurate low ball cost estimates that are now bankrupting us but deemed "untouchable".

Don't anchor your desires for increased taxes on the need for legitimate national spending, unless you want to open a whole other can of worms.  

By Blogger ruralcounsel, at Tue Dec 14, 11:27:00 AM:

I'd like to endorse Dawnfire82's thoughts on the "fuedal" argument by Progressively Defensive.

Fuedalism's greatest fault was demarcating property interests and ways to accumulate property by bloodline, locking out large segments of society from being allowed to participate. That isn't the case at all here.

How is it that keeping the results of your labor and investments for the benefit of your devisees or heirs is in any way shape or form "unjust"? That is just someone's subjective opinion couched in morality terms. And by what moral right does anyone, individually or collectively, lay claim to that? Sounds like petty class envy to me.

If there is a true negative societal impact of massive wealth accumulation, then the taxation brackets need to reflect what we mean by "massive"...not just a bunch of ignoramus congress people's WAG. And we need to get rid of the estate planning techniques that allow these families to continue to control large blocks of wealth, bypassing the estate tax. I can argue that the Buffett's, Mellon's, Rockefeller's, Kennedy's, and such in the billionaire club may qualify for shaving the family fortune. Particularly when they jump into politics. I don't see that some guy owning a chain of True Value Hardware stores worth 40 million does, to give a totally hypothetical example.  

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