Warren Buffett's Hypocrisy and the Estate Tax

Last week, Warren Buffett, one of the world’s wealthiest men, “admitted” he was under-taxed and suggested that the US federal government should increase the tax rate for him and others at his level of income.

Many conservative columnists opined that Buffett should just write the US government a check for whatever “deficit” he feels he owes.

I merely want to point out Buffett's hypocrisy.

When Buffett suggests he is “under-taxed,” he is stating that the government has better uses for his money than he does (through his businesses, charities, or personal spending).  That may be true – or it may not be.  It really depends on the current condition of the world and US economy.  It is not always true that private businesses are more efficient with money than the government…or that private businesses will always be greater job creators than the federal government….(sorry Rick Perry, Sarah Palin, et al)... but it is true much of the time.

But back to Buffett.  OK, fine – he believes the government needs the money more than he or any other private organization does.

So let's take a look at Buffett’s estate planning. 

In the US, when you die, if you are worth more than $5,000,000, nearly 50% of your total net worth is going to go to the US federal government.

Now, don’t stay awake at night and worry about this.  In 2009, about 3 million people died in the US.  Of those 3 million, all of 15,000 owed the estate tax.

That’s right – only about ½ of 1 percent – or 5 out of every 1000 people who died owed estate tax.

Now, Buffett is estimated to be worth about $50 billion.  When he dies, his estate will owe between $20 to $25 billion to the federal government, unless he:

1)      gives it to his spouse (who then has to pay it when she dies) OR

2)      give it to a charity.

So guess what?  Buffett, who said last week he would rather give his money to the government than any other private organization, is giving nearly his entire estate of $50 billion to a charity.

http://money.cnn.com/2006/06/25/magazines/fortune/charity1.fortune/

Action speak louder than words, and Mr. Buffet's actions indicate that he believes the private sector, in this case, private foundations, can make more efficient use of his money than can the government. This, of course, isn’t the first time an extremely wealthy individual has decided he would rather have a private organization use his money rather than the US government.  Obviously, Bill Gates and his wife Melinda of Microsoft fame also made the same choice.  During the 20^th century, the Rockefeller, Ford and Carnegie Foundations are just some of the examples of very wealthy families getting out of paying a good portion of their estate tax by donating a substantial portion of their wealth to charity.

One very strong argument about keeping the estate tax in place (or “death tax” as its opponents like to call it) – is the ability to “force” wealthy individuals to give substantial portions of their wealth to charities. In fact, one study (by the non-partisan Congressional Budget Office) indicated repealing the estate tax would decrease overall charitable contributions by 30%.