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  • Warren Buffett’s Death Tax Hypocrisy

    In many respects, Dan L. Duncan was the embodiment of the American dream, the self-made man incarnate. He transformed $10,000 and two propane trucks into a natural gas empire and a personal net worth of $9 billion—making him the richest person in Houston, and the 74th wealthiest individual in the world.

    Even though Duncan died last March, his story provides the “only in America” narrative that seems to be lacking in this brave new era of big government and dwindling faith in the individual.

    And yet, incredibly, Duncan was recently profiled in The New York Times, not for his entrepreneurial spirit, but his ability to avoid paying taxes—by dying. In fact, the Times managed to parlay Duncan’s story into a none-too-subtle hustle for passage of the death tax. In an amazing uncomfortable piece of prose, the article actually makes the point that, because Duncan died when he did, his “four children and four grandchildren stand to collect billions that in any other year would have gone to the Treasury.”

    The Times’ subtext is clear: Had Duncan had the decency to die three months earlier, the state would have received its rightful tithe. Sure, such insinuation ignores the fact that Duncan’s heirs don’t get away tax-free. In fact, enormous amounts of tax, including capital gains tax on all the assets they receive, is almost as much, if not equal to, the amount they would have paid under the death tax. But why let facts drag down the sexier narrative of capitalist greed?

    The article also includes a quote from Chuck Collins, an “income inequity” specialist and pro-death tax advocate who has worked with Warren Buffett as well as Bill Gates to advance the death tax agenda: “The ultra-wealthy in this country will still be able to pass on enormous wealth to the next generation.” After all, argues Collins, the death tax is merely “a recycling program for economic opportunity.”

    It’s misleading, however, to cite Buffett’s support for the death tax as evidence that the “oracle from Omaha” is some rare breed of enlightened capitalist who has no problem with giving a huge chunk of his fortune back to the state.

    Buffett’s support for the death tax is hardly altruistic. Dick Patten, executive director of the American Family Business Institute, writes: “In the process of building his company, Berkshire Hathaway, Mr. Buffett benefited tremendously from death tax. In fact, the tax is critical to two of the three legs that make up Mr. Buffett’s financial stool.”

    There’s absolutely nothing wrong with that; just because the death tax is poor public policy doesn’t mean that entrepreneurs shouldn’t be able to take advantage of the opportunities it presents. What is problematic, however, is when death-tax advocates cite Warren Buffett’s support for the death tax as evidence vindicating their crusade against income inequality.

    Buffett doesn’t worry about the death tax’s effect on the deficit or income inequality; he cares about the fact that, as Grover Norquist pointed out, if “the death tax goes away for good, so does much of Buffett’s wealth. He’s doing everything he can to make sure the death tax comes back in full force.”

    Besides, Buffett is already planning to transfer a large majority of his considerable wealth to a charitable foundation (The Bill and Melinda Gates Fund) upon his death, thereby ensuring Treasury never gets a hold of his fortune. Buffett also plans to give a portion of his remaining fortune to other foundations run by his three children—a savvy method of avoiding the death tax while ensuring his heirs’ financial well-being. Not a bad set-up and one that must make it pretty easy to assume the public role of mogul-cum-martyr.

    All and all, the death tax has treated Warren Buffett pretty well—no wonder he is so excited about its potential resurrection.

    As for Collins’ defense of the death tax, it’s hard to even know where to begin. He trots out the tired “ultra-wealthy” adjective, which is clearly intended to be, if not pejorative, at least less-than-flattering—men like Duncan aren’t simply successful, they are something else, therefore making it acceptable to subject them to higher tax rates. And because these “ultra-wealthy elites” will still be able to pass on “enormous wealth,” they shouldn’t care that they are being treated unfairly.

    Of course, the definition of enormous wealth is subjective anyway. One suspects that, were Collins ever to achieve the levels of prosperity earned by Duncan, his view on the amount of that wealth that should revert to the federal government might change.

    The most troubling aspect of the left’s entire approach toward not only the death tax, but taxes in general, is surmised in Collins’ assertion that the death tax is, at its core, “a recycling program for economic opportunity”—and the implicit suggestion that such a program justifies income redistribution. It’s not Duncan’s money; it’s the Treasury’s to take back and spread around the rest of society as the federal government sees fit.

    Its awkward treatment of Duncan aside, the Times’ piece serves primarily to remind readers that the left’s obsession with income distribution and class warfare continues to obscure the truth about the death tax: it slows economic growth, destroys jobs, and suppresses wages because it is a tax on capital and entrepreneurship.

    In order to ensure that this nation continues to produce success stories like that of Dan Duncan, it’s time for Congress to permanently repeal the death tax.

    Cross-posted at Human Events.

    Posted in Economics [slideshow_deploy]

    10 Responses to Warren Buffett’s Death Tax Hypocrisy

    1. Kyle, Maryland says:

      Good article, Ryan, but you I don't understand point you make — how Buffett has "benefited tremendously" from the death tax — what are the "2 stool legs" you mention?

      Also, how does much of Buffett's wealth go away if the death tax go away for good?

      I and possibly other loyal readers are missing the connnection here and appreciate additional insight you can provide.

      Thanks

    2. Brad, Sandpoint ID says:

      I found this – not sure how much of his wealth was built this way, but it is a sound business model with an extant death tax in place. Not saying it's moral, as I think it clearly is not, but it is legal! Go figure.

      Warren Buffet has become the second richest man in the world BECAUSE of the death tax. His business model at Berkshire Hathaway is to find businesses that the founder has died and the family doesn’t have the money to pay the death taxes. What he’ll do is buy into the otherwise completely viable business and reap the rewards.

      Asking Buffet if the death tax is a good idea is like asking the fox if they need to lock up the henhouse. This is all public knowledge but the news story fails to mention it because it doesn’t match their agenda.

    3. Steve P., San Jose, says:

      Hi Ryan,

      Echoing Kyle, I also failed to understand how Buffett benefitted from the death tax. As I read the article, that was the first thing that went through my mind. If there is a way to benefit from it, I'd like to know so I could take advantage of it if the death tax is restored.

      Thanks for any follow-up you can give.

    4. Steve, NH says:

      Kyle:

      The way that Buffet benefits from the death tax is to buy properties at fire sale

      prices. In the case of Dairy Queen, the heirs of this company had to pay Uncle Sap the death tax immediately. The trouble is, they did not have enough cash on hand. All of their equity was tied up in the business. The trouble is, the IRS wanted their money right then and there, there isn't a payment plan. The only way to pay the tax was to sell the business and guess who was there, like a vulture, waiting for this opportunity? You guessed it. This SOB payed them what I am sure was a low ball price so they could pay off the knee cap breakers. If it wasn't for this unfair tax, they could have kept DQ. Now DQ is part of Berkshire

      Hathaway.I hate this bastard's guts because of this. Talk about underhanded!

    5. Matt, Orlando says:

      Yes Ryan, that was a very good article except for the part that Kyle points out. I too was wondering how The Oracle of Omaha makes money on people's deaths with the death tax. Please expound.

      Thanks,

      Matt

    6. Ryan says:

      Hi Everyone,

      As Dick Patten from Human Events wrote in his piece "Warren Buffett Benefited From Death Tax":

      Buffet has made substantial investments in major corporations that he believes will appreciate; second, he operates a huge casualty and life insurance business which provides massive reserves of cheap capital to support his other two investing activities; and third, he purchases family owned businesses at fire sale prices. The last two practices are directly dependent on the death tax, and it’s unlikely that Mr. Buffett would be the world’s second richest man without it.

      The life insurance companies that give Mr. Buffett such a large reserve of capital to draw on are heavily dependent on the death tax. As an industry, life insurance companies make $12 billion a year off of the tax and have fought tooth and nail to keep it in place. What’s the connection? Because life insurance policies are tax free, they have long been the most commonly used loophole to avoid paying the death

      A family business owner or farmer takes out a large life insurance policy which his sinks tens or hundreds of thousands of dollars into each year. When he finally passes away, the life insurance pays out his policy to his family—tax free. In short, the business owner pays a huge sum of money over a long period to the insurance company to avoid paying an even larger sum of money to the federal government all at once. The only group this tax avoidance scheme really helps is life insurance company owners like Mr. Buffett.

      Many business owners loath these payments, which they see as basically protection money, but they often have no choice but to pay up. They’d rather pay the financial thugs in the insurance industry than see their business torched by the much more dangerous thugs at the IRS. The vast sums they send to the insurance industry stunts the growth of their businesses—which is one of the major reasons repealing the death tax would create 240,000 new U.S. jobs every year.

      Even as Mr. Buffett’s insurance companies are 'protecting' family businesses from the IRS, he is buying companies that are forced to sell themselves to pay the death tax. Mr. Buffett’s ability to buy family businesses at bargain basement prices depends on families being desperate to sell—and nothing produces family businesses desperate to sell quickly like a 55% bill from the IRS on all of the businesses’ assets.

      Mr. Buffett has bought numerous companies who were forced to sell because of the death tax including: Dairy Queen, Jordan’s, Justin Industries, Star Furniture, Borsheim, Ben Bridge Jewelers, U.S. Liability, NetJets, R.C. Wiley, Flight Safety and Nebraska Furniture Mart.

      These investments are the financial equivalent of a vulture scavenging a corpse. Berkshire Hathaway is benefiting directly from the misfortune of others."

      Hope that clarifies things….Thank you all for your feedback.

      R

    7. Ryan says:

      Friends,

      Kyle's question is quite valid, and I'm to provide an answer. As Dick Patten of Human Events noted (http://www.humanevents.com/article.php?id=15951):

      The “Oracle of Omaha’s” wealth has come from making wise investments in three different business activities. First, he’s made substantial investments in major corporations that he believes will appreciate; second, he operates a huge casualty and life insurance business which provides massive reserves of cheap capital to support his other two investing activities; and third, he purchases family owned businesses at fire sale prices. The last two practices are directly dependent on the death tax, and it’s unlikely that Mr. Buffett would be the world’s second richest man without it.

      The life insurance companies that give Mr. Buffett such a large reserve of capital to draw on are heavily dependent on the death tax. As an industry, life insurance companies make $12 billion a year off of the tax and have fought tooth and nail to keep it in place. What’s the connection? Because life insurance policies are tax free, they have long been the most commonly used loophole to avoid paying the death tax.

      A family business owner or farmer takes out a large life insurance policy which his sinks tens or hundreds of thousands of dollars into each year. When he finally passes away, the life insurance pays out his policy to his family—tax free. In short, the business owner pays a huge sum of money over a long period to the insurance company to avoid paying an even larger sum of money to the federal government all at once. The only group this tax avoidance scheme really helps is life insurance company owners like Mr. Buffett.

      Many business owners loath these payments, which they see as basically protection money, but they often have no choice but to pay up. They’d rather pay the financial thugs in the insurance industry than see their business torched by the much more dangerous thugs at the IRS. The vast sums they send to the insurance industry stunts the growth of their businesses—which is one of the major reasons repealing the death tax would create 240,000 new U.S. jobs every year.

      Even as Mr. Buffett’s insurance companies are “protecting” family businesses from the IRS, he is buying companies that are forced to sell themselves to pay the death tax. Mr. Buffett’s ability to buy family businesses at bargain basement prices depends on families being desperate to sell—and nothing produces family businesses desperate to sell quickly like a 55% bill from the IRS on all of the businesses’ assets.

      Mr. Buffett has bought numerous companies who were forced to sell because of the death tax including: Dairy Queen, Jordan’s, Justin Industries, Star Furniture, Borsheim, Ben Bridge Jewelers, U.S. Liability, NetJets, R.C. Wiley, Flight Safety and Nebraska Furniture Mart.

      These investments are the financial equivalent of a vulture scavenging a corpse. Berkshire Hathaway is benefiting directly from the misfortune of others…"

      I hope that clarifies the issue!

      Ryan

    8. Wayne, CA says:

      Birkshire Hathaway is very big into insurance companies. They sell hugh amounts of life insurance to pay the death taxes. Old rich people who need multimillion dollar insurance polices pay $100,000 plus in premiums annually.

      A very profitable business, just ask Mr Buffet.

    9. Kyle, Maryland says:

      p.s. – - Ryan, you should ask Heritage to add a "subscribe" or "notify" feature for when replies or new comments are made to a particular post. This is Very common on most blogs, but seems the only way to do this via Heritage blog is by the RSS feed. This is a very Poor olution because if I comment on 10 different posts that means I need to add a new RSS feed each time.

      You guys have made good improvements with the new site, but this is a very basic feature (ie "Subscribe/Notify of Comments") that would be much appreciated by myself and others I'm sure.

      Kyle

    10. Rusty, ND says:

      What an eye-opener this article [and the subsequent explanation of how WB gorges himself financially off the corpses of other folks hard work] is!

      I had presumed that it was a 'redistribution of wealth' mentality that was behind the calls for stealing the fruits of other folks labor…now I find that the financial jackals have found a way to profit also.

      Didn't this country used to reward individual effort and initiative?

    11. Kyle, Maryland says:

      Ryan and fellow commenters:

      Thank you for the additional insights as to how Buffett benefits from the Death Tax. It is all quite clear to me now.

      Knowing these things, I will also say that I have just lost a TREMENDOUS amount of respect for Buffett. I always had trouble with him espousing higher taxes for the wealthy, but to see that he has taken advantage of so many family businesses such as Dairy Queen, Jordan’s, Justin Industries, Star Furniture, Borsheim, Ben Bridge Jewelers, U.S. Liability, NetJets, R.C. Wiley, Flight Safety and Nebraska Furniture Mart is just APPALLING and DISHEARTENING.

      Buffett is not all that he seems, it seems.

      Keep up the good fight, folks!

      Kyle

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