Warren Buffett and the Death Tax

buffett

I’ve finally finished Alice Shroeder’s HUGE biography on Warren Buffett, The Snowball, and before posting a full review and comparing it to the also fantastic Buffett: The Making of an American Capitalist, I wanted to discuss a very interesting topic near the end of the book.

The Estate Tax (AKA, The Death Tax)

This is basically a gift tax that is imposed on someone when they die and want to pass off their wealth to their heirs. I can already hear many of you raising your voices, “Why should I have to pay to keep the money I made in my family? Don’t my children deserve it?”

And that’s the whole debate about this tax. Some people think there should be no tax—that people should be able to pass their wealth down to the next generation without being “punished” for it. On the other side of the coin, there are people that think the tax should stick (and should even be higher!). What may surprise you is who is on each one of these sides.

Keep the Tax

Warren Buffett wants the death tax to stay: he doesn’t believe in dynastic wealth—that is, one shouldn’t be able to just pass along all their wealth down to their heirs without being taxed. Why? Let’s go to the book for the answer:

If the estate tax were eliminated, he said, somebody else would have to make up the difference, since the same amount of money would still be required to pay for running the government.

Not only that, less than two percent of Americans actually pay the tax—most of it is paid by the really rich—as the book says, the “colossally rich.” And as for that “somebody else” that would have to make up the difference? It would be the regular tax payers like you and me that don’t make tons and tons of money. And to Buffett, that’s not cool.

This has made Warren Buffett very unpopular in his social circle. He hangs out with these “colossally rich” people all the time, so he’s basically taking stabs at their checkbooks.

But making up the tax shortfall isn’t his only reason. The other thing that pisses him off is that this small group of people has a very powerful lobby and that’s why the elimination of the tax is even being discussed. Buffett calls this “government by the wealthy, for the wealthy.” To Warren, this is against the American way of giving everyone an equal, fair shot.

Against the tax

This one becomes pretty clear now: if you own a private Jet and seven homes all over the world, you probably don’t like this tax. And they have a point—why should they have to pay a tax to pass along their wealth when they earned all that money? Isn’t it theirs to do as they please?

At first, those were the questions I had. After all, this is America and we don’t want anyone taking anything that we earned away from us, right? Well, at issue is a philosophical debate over that term I dropped a while back: dynastic wealth.

Dynastic Wealth

What this basically means is that rich families get richer and richer, while the rest of the country simply trudges along. But wait, isn’t that the American way? That anyone can “make it” if they work hard enough? And if they do, they get to decide however they want how to handle those riches?

Sure, but let’s get back to Buffett about this because what he has to say turns the tables on this whole idea of what we think this country is all about:

Dynastic wealth turns a meritocracy upside down. In effect it says that the people who should allocate resources of this country should be the descendants of those who excelled in amassing resources long ago.

I don’t like anything where the bottom twenty percent keep getting a poorer and poorer deal.

We’ve all heard this kind of talk, and when it comes from one of the richest people in the world, it’s easy to scoff. But if you know anything about Warren Buffett, you know that he truly believes this. That’s what makes the man so refreshing and interesting: here is a rich guy who only cares about money as a way to grade himself.

Pro Sports

One more thing before I close out of here, since I like to follow sports so much: This topic gets me thinking back to a line that pro sports athletes use all the time after signing a huge contract: “I gotta feed my kids. And now I can feed my kids’ kids, and their kids too.”

I think back to Warren’s comment and I pictures the descendants of this athlete with the monster contract just sitting around living off the millions he made long ago. Is that what he wants for them?

Your take

I’m curious to hear other people’s take on this. I know a lot of really rich people give a lot of money to charities and use their money to help out the disadvantaged, but do you think these people should still pay the death tax? Should it be higher?

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