Sunday, July 09, 2006

Buffet’s Estate Tax Hypocrisy

The United States’ estate tax was enacted in 1916, just three years after the federal income tax. However, it has never been an important source of income accounting for less than 3 percent of federal tax collections and it has been found to be a strong disincentive to entrepreneurship. A 1994 concluded that the estate tax at that time had the impact of doubling the top income tax rate on entrepreneurs.

Warren Buffett has gotten a lot of ink by railing against the repeal of the estate tax claiming that the wealth of billionaires such as himself should not avoid taxation upon the person’s death. His recent gift of roughly $44 billion to a foundation run by Bill Gates is evidence of his dedication to the public good. Of course, he fails to point out that his wealth now will effectively never be taxed. His earnings, unlike the accumulation of wealth by many business owners, has never been taxed. By giving the money to charity, that money is tax-exempt forever, and all the money earned by that money is tax-exempt, and most of the purchases made with that money will be exempt from sales tax.

Mr. Buffett said repealing the estate tax "would be a terrible mistake," the equivalent of "choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics."

Hypocrisy is not new to Mr. Buffet. He has been a high tax advocate for many years at the same time that his salary and benefits go untaxed regardless of the rate (Zero times 70% is equal to zero times 35%). His corporation, Berkshire-Hathaway, covers most of his expenses from flying to Seattle to play chess with Gates to other day-to-day expenses.

The estate tax should be repealed not because it benefits the rich. To the extent that the estate tax discourages entrepreneurship, encourages over-consumption by the living, and promotes tax avoidance schemes by the wealthy, it hurts the U.S. economy.


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