Warren Buffett Argues for Taxes at Death

Nov. 14, 2007 — -- It is trite, but true, as Ben Franklin put it: "Nothing is certain but death and taxes."What's not so certain is whether the government should put the two together.

Taxing death (or the amount an individual has left at the time of death) is commonly referred to as the estate tax. Its detractors call it the "death tax." But no matter what you call it, it raises the federal government more than $24 billion each year.

With an estimated $52 billion -- give or take -- and at No. 2 on this year's Forbes list of the 400 richest Americans, Warren Buffett stands to pay more in estate taxes when he dies than just about anybody but Bill Gates (who's in the $59 billion range).

Buffett's Plea to Uphold Estate Tax

But today on Capitol Hill, Buffett, a financier and philanthropist, made an impassioned plea for senators not to touch the estate tax, asking them not to cut his own postmortem taxes.

While wholesale tax reform may be a ways off on Capitol Hill, Republican senators may try to force a vote on repealing the estate tax later this week as the Senate considers the farm bill. Opponents of the estate tax often point to its effect on families left financially struggling after estate taxes are paid.

Republicans probably lack the 60 votes they would need to pass an estate tax repeal.

Buffett said that is a good thing. He pointed out that more than 99 percent of Americans will be exempt from the estate tax.

"You would have to be at 200 funerals to be at one that has the tax. In fact most people get a tax benefit when they die," he argued. "If people were insistent on renaming the estate tax, it would more properly be called the death present," Buffett remarked to senators on the Finance Committee, a body that authors tax law.

An Ethical Debate Embedded in Tax Law

So more than a practical issue for most voters, the estate tax is an ethical issue -- should children get to keep all the wealth of their parents or just half?

Buffett pointed to growing divides between the expanding class of super rich (of which he is a charter member) and the rest of the country -- common people -- whose salary he said has just barely kept up with inflation.

He pointed to reports that Leona Helmsley's dog is set to inherit something in the neighborhood of $12 million while 20 million Americans make less than $20,000 per year.

"Tax law increases have benefited [the super rich] group in a huge way. During that same period, the average American went exactly nowhere on the economic chart. He's been on a treadmill while the super rich have been on a space ship," Buffett said, adding that what has made America great is the idea that merit can lead to success in this country.

"You don't get to be the quarterback on the University of Nebraska football team just because your father was the quarterback," Buffett said. "The resources of society I don't think should pass along as a dynasty of wealth." Buffett ceded that "my kids are going to have more opportunities than other kids. There's no way around it."

Levels of Affluency

But not all the rich are super rich.

While Buffett owns a grain container manufacturer in Indiana he told senators he has never even visited, Eugene Sukup owns a competing grain manufacturing company, based in Iowa, that he built from the ground up.

Sukup, a backer of the Finance Committee's ranking Republican member and estate tax opponent, Charles Grassley, told senators that if something is not done, his sons will have to fork over approximately $15 million to the government when he dies. They'll have to sell the business, Sukup guessed, to someone like Buffett and as many as 350 people could lose their jobs in Iowa.

Buffett said he has not eliminated any jobs at the grain container company he owns in Indiana.

But all that is besides the point for Sukup, who guessed his estate, including the family business, would be valued at $70 million. He's rich, but not Buffett rich.

"I built this company, my sons help me build it and my grandsons want to help me carry it on....Isn't this the type of business we are supposed to support in this country?" Sukup asked.

Arguing Against an IRS 'Headache'

Among the four witnesses who testified at today's hearing, however, Buffett was outnumbered. An estate planning lawyer told senators the convoluted structure of the tax is giving him and his clients a headache. Conrad Teitel told the committee it is difficult to plan for the "millionaire next door," who may or may not be susceptible to the tax depending on the year.

Estates up to $2 million are exempt currently. Next year, estates up to $3 million are exempt. In 2010, the tax goes away for one year. And then in 2011, the tax reemerges and only $1 million is exempt from the tax.

Another witness, Dean Rhoads, a Republican state senator from Nevada who is also a rancher, told senators his family had to sell part of their ranch, which used to be owned by Bing Crosby, when his father-in-law died. As a result, he said the family is still paying off the $300,000 in estate taxes and has not been able to make capital improvements to the land.

He guessed the land value of the ranch to be about $2.5 million and his children and grandchildren would be hit by the estate tax again when he died.

Rhoads was taken to task by another rich man: the third richest senator, actually, and the beneficiary of a lot of family money. Sen. Jay Rockefeller, D-W.Va., who will also presumably have to pay the estate tax, told Rhoads that the average person in West Virginia only makes $26,000.

"There are a whole class of people out there who don't buy Bing Crosby's ranch and they're just struggling to make it. My heart did not bleed very much when you said that," Rockefeller told the rancher.