It's probably more accurate to say charities will make it.
Buffett has pledged to gradually give 85% of his Berkshire stock to five foundations. A dominant five-sixths of the shares will go to the world's largest philanthropic organization, the $30 billion Bill & Melinda Gates Foundation, whose principals are close friends of Buffett's (a connection that began in 1991, when a mutual friend introduced Buffett and Bill Gates).
Berkshire has a market cap of ~200B, buffet owns around ~45 billion of their stock so his actual investment was 5 * (45/200) = 1.125B. It's reasonable to think he might be swayed by 2.5% to 5% of his net worth, but his personal investment is not all that significant (for him).
We "forget" that Buffet makes a lot of money from the inheritance tax. How?
A lot of Buffet's money comes from insurance companies that sell life insurance intended to pay the inheritance tax. No tax, no need for that insurance....
What a guy. He advocates a tax that he won't pay and that results in money in his pocket....
The estate tax isn't a disgrace, it only even kicks in on estates greater than a few million. I'll repeat that -- if your estate is less than a few million, the estate tax doesn't affect you. If your estate is more than a few million, the first few are still exempt.
Used to be people respected earning your own living, now all people seem to respect is compound interest.
Here's something I only recently became aware of that may change your opinion on the estate tax.
I have three children, ages 3, 2 and six months. If I were to die tomorrow, the cost of raising those kids and sending them to college would be something like $3.5M. So, I have a life insurance policy, as any responsible parent does.
But under the current law, the proceeds of my life insurance policy are subject to the estate tax.
Sure, if you're paining a hypothetical about a 24-year-old Ivy League graduate who just received news that his parents have passed and that he has inherited a $3M estate, it doesn't sound too bad if part of that inheritance is taxed.
But now imagine a toddler who just lost two parents and needs to be fed, clothed, sheltered and educated for the next 20 years... it's different.
If I recall correctly, the status-quo-ante estate tax is 55% of everything over $1M. So a $3.5M estate would be $2.125M after taxes. (Note that the Obama Administration is willing to support a $3.5M exemption, but that’s not enough for the Republicans.)
I did a quick check at vanguard.com, and mutual funds that deal in intermediate-term bonds are yielding in the 6.5% to 7.5% range. So whoever gets guardianship of your kids would be able to feed, house, and educate them from an income stream of over $130K per year (presumably that income would be subject to capital gains tax).
I am sure that your untimely death would cause great suffering for your children, but I really don’t see them suffering in a financial sense.
Ok, so there's a case that's pretty important and probably deserves an exemption under the law. Or, maybe not, if you think 3.5 million is enough, you already have all the exemption you need. I could see something pushing it a little higher in cases of early death and a life insurance payout.
That makes sense.
You know what doesn't make sense, though? Complaining about a "death tax" on the one hand while complaining about the budget deficit at the same time, yet maintaining that you're the political party of hard work, bootstrapping, blah blah. If you care about the latter two, don't spend your time going to the mat for Paris Hilton. If you consult some charts about income distribution in this country, you can conclude that the vaaaaaaaaast majority of the revenue collected under this tax comes from very large estates where the children would be set for life with 10% of it, and they're doing very very well with 3.5Mil + 45% of the rest.
Exceptional cases may be worthy of exceptions under the law, but that doesn't change whether the law makes sense in the general case.
As of January 1st, 2011, the estate tax kicks in at $1,000,000. (The law on the books actually kicks in at $10,000, but there's a temporary credit in place.) The actual rate and exemption has varied widely from year to year. This year there's no estate tax, but in 2009 there was a $3.5MM exemption.
Much of the money you have on hand when you die has already been taxed in one form or another. (If it hasn't, your death should trigger the much lower capital gains tax - that's how it works in Canada, for example.) If you've been working hard to ensure your wife and children don't want for anything in life, why in hell should the government take half of what you've earned and already paid taxes on?
I don't understand your bit about compound interest. The people in this community who are affected by the estate tax don't get there through compound interest, they get there through entrepreneurship and job creation. If you want to propose that the estate tax only affects passive income, I'd certainly be in favor.
"If you've been working hard to ensure your wife and children don't want for anything in life, why in hell should the government take half of what you've earned and already paid taxes on?"
To avoid the creation of an aristocratic class.
The founding fathers had this specific aim in mind. Details here:
[Thomas] Jefferson cited Adam Smith, the hero of free market
capitalists everywhere, as the source of his conviction that (as
Smith wrote, and Jefferson closely echoed in his own words), "A
power to dispose of estates for ever is manifestly absurd. The
earth and the fulness of it belongs to every generation, and the
preceding one can have no right to bind it up from posterity. Such
extension of property is quite unnatural." Smith said: "There is
no point more difficult to account for than the right we conceive
men to have to dispose of their goods after death."
The states left no doubt that in taking this step they were giving
expression to a basic and widely shared philosophical belief that
equality of citizenship was impossible in a nation where
inequality of wealth remained the rule. North Carolina's 1784
statute explained that by keeping large estates together for
succeeding generations, the old system had served "only to raise
the wealth and importance of particular families and individuals,
giving them an unequal and undue influence in a republic" and
promoting "contention and injustice." Abolishing aristocratic
forms of inheritance would by contrast "tend to promote that
equality of property which is of the spirit and principle of a
genuine republic."
In capitalist societies this is less of a problem. Wealthy families generally dissipate their wealth in a few generations, not through taxes or charity, but through consumption, error and incompetence.
Trust babies destroy family fortunes more efficiently than estate taxes.
You know some die hard capitalists would argue that all of your wealth should be taken away at death. That way, the wealth of an individual can only come from what you build and create during your life. Not that I think it is the correct or fair way of thinking, its seems just so wrong when death was unforeseeable.
Ok, so basically I'm right about the few million part. Attempts to say it could be otherwise, but isn't, notwithstanding.
And if your wife and children inherit 3.5 million tax free and half of everything else, they will be fine. I'm more sympathetic to the wife argument, if she was spending time with the kids instead of developing a career - the children have presumably had a good education, they should be able to make their own money if 3.5 million isn't enough.
RE: compound interest, if you don't understand that, then you really do not understand inherited wealth.
true, it is the states that get you. I paid Ohio $28k in estate taxes on an amount well under a million dollars, the majority of that being equity in a house that is very hard to sell.
If all the wealth is dynastic and concentrated at the top, there goes the American dream of social mobility. The estate tax is a brake on that process.
Buffett has pledged to gradually give 85% of his Berkshire stock to five foundations. A dominant five-sixths of the shares will go to the world's largest philanthropic organization, the $30 billion Bill & Melinda Gates Foundation, whose principals are close friends of Buffett's (a connection that began in 1991, when a mutual friend introduced Buffett and Bill Gates).
http://money.cnn.com/2006/06/25/magazines/fortune/charity1.f...