Buffett on estate taxes

[Martha]

....that makes me feel NO BETTER at all!

OK, we will tax you now while you are still alive.

I support the estate tax. Already we have a big problem in the US with declining class mobility. I think of it as the Paris Hilton tax.

 

[ERD50]

Why are these redistribution of wealth comments always country specific? Aren't we all 'brothers and sisters' worldwide? Do artificial borders mean anything to our collective conscience?

What is the average 'wealth' worldwide? I don't know the number, probably needs to be adjusted for purchasing power, but I wonder how supportive of wealth redistribution some people would be if it meant taking their life savings and redistributing it equally to the entire world.

Again, I don't know the numbers, but something tells me that any FIRE'd person in the USA has far more wealth than the average person in the world - add in all those people starving in Africa, etc.

Aren't we all 'Paris Hilton's' compared to millions (billions?) of people in the world? Shouldn't we ALL have our wealth re-distributed? If not, these comments always strike me as 'holier than thou'.

-ERD50

 

[Hamlet]

My version of the estate tax would have it exempt 5 million (indexed to inflation), and tax the rest at the highest income tax bracket (I believe the current rate is 35%).

My problem with removing the estate tax is that I prefer it to all the other forms of taxation we are faced with. I'd rather have a lower income tax than no estate tax.

 

[ERD50]

Hamlet, I have less of a problem with it at ~ 35%. One of the issues I have is the 50% rate. And my biggest problem with that is that it fosters non-compliance - loopholes, expensive strategies, etc. Which defeats the entire purpose of it. The very rich can afford the expensive planning to circumvent it, the moderately wealthy cannot. Actually turns the whole thing on it's head.

Stupid taxes.

-ERD50

 

[al_bundy]

And how much of Warren Buffet's estate is going to go to the government as estate tax. Has Warren outlined that yet?

not much after he wrote that $30 BILLION check to Bill Gates and his foundation

 

[RetireeRobert]

Are you a politician? You sure sound like one.

No. I doubt I could win an election as dog catcher.

 

[kcowan]

not much after he wrote that $30 BILLION check to Bill Gates and his foundation

He did not write any cheque. He pledged up to $30 B but only advances funds when the cause needs the cash. At the rate that his wealth continues to grow, he may never have to touch the principal. (Although the principal is pledged, and he just continues to manage it as a trust..)

 

[Hamlet]

Yeah, I think 50% is too much, even for a Buffet-like fortune. I think my estate tax plan would be simple and a good compromise.

Write your Congressman

Hamlet, I have less of a problem with it at ~ 35%. One of the issues I have is the 50% rate. And my biggest problem with that is that it fosters non-compliance - loopholes, expensive strategies, etc. Which defeats the entire purpose of it. The very rich can afford the expensive planning to circumvent it, the moderately wealthy cannot. Actually turns the whole thing on it's head.

Stupid taxes.

-ERD50

 

[kcowan]

Remember that equities are deemed disposed on death so the capital gains tax will have to be paid as well. Even at the 45% current estate tax, and the reduced 15% cap gains, the marginal tax rate on any gains would be over 53%. There are also some state estate taxes. And I believe they have not been getting reduced.

I think the main thing would be to set the exemption at a high level. After all, a $5 million exemption would be a drop in the bucket for Buffet and Gates.

 

[RetireeRobert]

Remember that equities are deemed disposed on death so the capital gains tax will have to be paid as well. Even at the 45% current estate tax, and the reduced 15% cap gains, the marginal tax rate on any gains would be over 53%.

I didn't know that. What happened to the "step up in cost basis" rule on inherited property for heirs?

 

[RetireeRobert]

I didn't know that. What happened to the "step up in cost basis" rule on inherited property for heirs?

Wait a second---just noticed you are in BC Canada, kcowan. Maybe difference of tax rules in this case between Canada and US.

 

[Martha]

Why are these redistribution of wealth comments always country specific? Aren't we all 'brothers and sisters' worldwide? Do artificial borders mean anything to our collective conscience?

What is the average 'wealth' worldwide? I don't know the number, probably needs to be adjusted for purchasing power, but I wonder how supportive of wealth redistribution some people would be if it meant taking their life savings and redistributing it equally to the entire world.

Again, I don't know the numbers, but something tells me that any FIRE'd person in the USA has far more wealth than the average person in the world - add in all those people starving in Africa, etc.

Aren't we all 'Paris Hilton's' compared to millions (billions?) of people in the world? Shouldn't we ALL have our wealth re-distributed? If not, these comments always strike me as 'holier than thou'.

-ERD50

Well, we don't have a world government, we can only influence our own. So I support an estate tax.

And you have to draw lines. That is reality. But I do support foreign aid, provided it isn't all ripped off by those in power. Also, we don't confiscate entire estates, we have large exemptions and only tax a portion of the estate. So wealth still can be perpetuated.

Yes, I am selfish too. I retired early rather than working to support my extended family, friends, country and world. I even suffer some guilt over that. But I still support an estate tax which most assuredly my estate will pay. Unless I give it all away to charity. Then there will not be an estate tax.

 

[youbet]

my biggest problem with that is that it fosters non-compliance - loopholes, expensive strategies, etc. -ERD50

This is my problem with estate taxes as well. Anytime you have a major industry (estate planning in this case) thriving off a tax code meant and written to encourage loopholes and complicated, expensive work-arounds, you know there is unfairness biased against the smaller players.

If estate taxes are good, why are there so many ways to circumvent them if you hire and pay professional circumventers?

 

[Martha]

No different than from other taxes.

 

[ERD50]

Well, we don't have a world government, we can only influence our own. So I support an estate tax.

And you have to draw lines. That is reality.

I do understand that - it is a reality, but excuse me if it still sounds just a bit 'convenient' < some added clarity as a post does not always convey 'tone': I don't mean that in a 'snippy' way, just a 'hmmm, something to think about' way - OK?>.

I keep hearing people say things like 'Why should Paris Hilton have all that wealth - all she did was be lucky enough to be born a Hilton?'. Weren't most of us 'lucky enough to be born in a country where there was at least a reasonable chance for success if you worked at it?'.

But I do support foreign aid, provided it isn't all ripped off by those in power.

Some people may feel that the social programs in the US are a 'rip off'. I'm still undecided on that, but I do think there are a lot of unintended consequences, and that overall, they *might* be doing more harm than good? Certainly, individual cases can be dragged out for either side, but I wonder about the overall, long term benefit.

Yes, I am selfish too. I retired early rather than working to support my extended family, friends, country and world. I even suffer some guilt over that. But I still support an estate tax which most assuredly my estate will pay. Unless I give it all away to charity. Then there will not be an estate tax.

I understand that also. I'm in the same boat, I could certainly do more for others, and there is some guilt there. But I guess that's why I tend to be in favor of making it a personal decision, I'm not sure I should legislate my feelings on others.

Just being pragmatic, I do think that if we are going to have an estate tax , that it should be with a fairly high exemption to allow for personal circumstances (passing on a business, care for a disabled child - what does a lifetime of care cost?, etc), and at a fairly low rate. If you are going to say that trusts can be set up to accomplish some of this, isn't that where all the loopholes come from? A high exemption and a low rate would help avoid loopholes and increase compliance.

-ERD50

 

[ERD50]

No different than from other taxes.

Sales Tax? -ERD50

 

[Martha]

Oh yes. Think about online purchases. And businesses are always trying to find sales tax exemptions. Our state's sales tax law is sprinkled with special interest exemptions.

 

[ERD50]

Oh yes. Think about online purchases. And businesses are always trying to find sales tax exemptions. Our state's sales tax law is sprinkled with special interest exemptions.

Apples and oranges, IMO. The reason some on-line purchases do not get reported is because it is a state-by-state tax, not a Federal tax. And if the company has a business presence in my state, I get hit with the tax, itis automatic - no way around it.

All taxes are subject to influence by special interests. But more to the point - are expensive strategies utilized by the super-wealthy more often to avoid estate taxes or to avoid sales taxes? Well, I can't remember anyone offering me a free dinner to explain their system for assuring me that I could pay less in sales tax, and therefore have more money to pass to my heirs.

And certainly, that is mostly due to sales taxes being single digits, verses the 50% (above the exclusion) that is the estate tax. Which is my point - lower % equals higher compliance, Fairer to the moderately wealthy (and the poor) if people pay ALL of a smaller %, rather than some paying near zero of a larger %.

-ERD50

 

[youbet]

I do think that if we are going to have an estate tax , that it should be with a fairly high exemption to allow for personal circumstances (passing on a business, care for a disabled child - what does a lifetime of care cost?, etc), and at a fairly low rate. If you are going to say that trusts can be set up to accomplish some of this, isn't that where all the loopholes come from? A high exemption and a low rate would help avoid loopholes and increase compliance.

-ERD50

Hmmmmm...... But would this be fair for the professional "circumventers?"

Say I want to pass a legacy to my grandson with cerebral palsey. Is it fair for me to be able to do so without it passing through the government to redistribute as they wish, with perhaps my grandson benefitting in some way? Or, if there is a loophole, would it be fair to the professional "circumventers" for me to be able to take advantage of that loophole without paying them big bux (at the expense of my disabled grandson) to pay for their next Hummer?

As Martha said "no different from other taxes."

Everyone has to get a fair piece of the pie here you know!

 

[al_bundy]

He did not write any cheque. He pledged up to $30 B but only advances funds when the cause needs the cash. At the rate that his wealth continues to grow, he may never have to touch the principal. (Although the principal is pledged, and he just continues to manage it as a trust..)

and how much of that trust is going to estate taxes?

 

[ERD50]

The hypocrisy of Warren Buffett is - why didn't he just leave all his money to the gov't if he thinks estate taxes are a good thing?

So it is good for everyone else with a > $1M estate, but he would rather direct how his money is used, and name his children as administrators?

Which begs the next question: If Warren thinks private charities do a better job with the money than the gov't, why shouldn't we ALL direct more money to private charities, and eliminate some govt social programs?

2 plus 2 just ain't adding up to four.

I wish I could remember the source, but I heard an interview with a rep from a private charity - they were 'complaining' about the 'competition' they were getting from a gov't program. They said when the charity worked with the people, they had strategies in place to make some real, long term progress. Then the govt came in and just threw heaps of money at the problem, with no real long term strategy. But, then donations dropped off, because people saw that the govt was throwing all this money around.

Now, I don't know if that is representative or not, but something tells me that it is.

-ERD50

PS: Be interesting if the govt allowed a Credit for cash charitable contributions (rather than deduction) for up to, say, 50% of your taxes?

 

[Hamlet]

I don't speak for Buffett, but I imagine that his preferred use of estate money would be: Private Charity > Government > Useless heir

The estate tax creates an incentive to give money to charity instead of leaving massive amounts to children who's only qualification for managing that wealth is coming out of the right womb.

Frankly, I think he's right. It is foolish for a billionaire to leave that money to their children. The children are unlikely to make good use of that money, unless the billionaire is very good at driving home the values that created that wealth. The old saying "shirtsleeves to shirtsleeves in three generations" has a strong basis.

The hypocrisy of Warren Buffett is - why didn't he just leave all his money to the gov't if he thinks estate taxes are a good thing?

So it is good for everyone else with a > $1M estate, but he would rather direct how his money is used, and name his children as administrators?

Which begs the next question: If Warren thinks private charities do a better job with the money than the gov't, why shouldn't we ALL direct more money to private charities, and eliminate some govt social programs?

 

[youbet]

Which begs the next question: If Warren thinks private charities do a better job with the money than the gov't, why shouldn't we ALL direct more money to private charities, and eliminate some govt social programs?

The answer for that one isn't too complicated. There is no way to ensure that the increased spending by the private charities would be coordinated with the reduction in spending by the govt social programs. Particularly if you want to maintain the relative independence of the private charities and not have the government meddling excessively.

I think we should all direct more money to private charities. But I don't want to see private charities directed by the government to ensure equitable coverage, any more than they already are. So, social programs will continue to be necessary if we are to be able to say we have safety nets for all.

But, make no mistake, I'm a big supporter of private charity.

 

[youbet]

The hypocrisy of Warren Buffett is - why didn't he just leave all his money to the gov't if he thinks estate taxes are a good thing?

So it is good for everyone else with a > $1M estate, but he would rather direct how his money is used, and name his children as administrators?

I agree with that.

Warren verbally supports estate taxes then uses the resources of his vast empire to avoid paying them and maintain private control.

He's a brillant guy..... but this time his end run is surprisingly obvious.

 

[ERD50]

I don't speak for Buffett, but I imagine that his preferred use of estate money would be: Private Charity > Government > Useless heir

The estate tax creates an incentive to give money to charity instead of leaving massive amounts to children who's only qualification for managing that wealth is coming out of the right womb.

Frankly, I think he's right. It is foolish for a billionaire to leave that money to their children. The children are unlikely to make good use of that money, unless the billionaire is very good at driving home the values that created that wealth. The old saying "shirtsleeves to shirtsleeves in three generations" has a strong basis.

I agree with your observations, however...

I just feel uncomfortable with the idea that I (in the form of the govt) should tell the person that earned the money, how best to distribute it. If they earned it legally, paid all the legal taxes in the process, I just think it should (for the most part), end there.

I think it's the 'good for the goose, good for the gander' principle. I don't want someone telling me what to do with my money, why should I be able to tell them, just because they were better at accumulating than I? Sounds like 'sour grapes' to me.

As far as the '3 generations' comment - that is often true. So why not just let nature take it's course? If the billionaire DID drive home strong values, maybe that money has a good home?

I don't buy the 'encourages charitable giving' line. If I don't give to charity, the heirs keep half the money, half goes to estate taxes. If I do give to charity, it ALL goes to charity, heirs keep nothing. All that says is the donor thinks that the charity is a better home for the money than a 50-50 split between govt/heirs. I think that says a lot about what people think of the govt.

-ERD50