Why Warren Buffett Loves the Death Tax

A lot of people are bamboozled into thinking the death tax is a good idea because it is supported by Warren Buffett, one of the wealthiest people in the US. The affable Buffett often makes public statements in favor of the death tax, commenting that rich people like him should be required to pay a steep estate tax rate upon their death as a grateful gesture to a nation that gave them an affluent lifestyle. Buffett has insinuated that heirs of wealth often mismanage it, as if their use of their inheritance is any business of his or of the government.

As Buffett gets ready to testify before Congress about the wonders of the death tax, perhaps we should step back and take a look at how insidiously cynical his position is. Buffett talks a lot about the stock/bond investment leg of his business. But you don’t hear him talk much about the two other legs of his business, without which the investment side would not exist.

Grover Norquist discusses in this article how Buffett pretty much owes his entire fortune to the death tax. Dick Patten notes that one of the less renowned legs of Buffett’s business is “a huge casualty and life insurance business which provides massive reserves of cheap capital to support his other two investing activities.” The third leg of Buffett’s business specializes in the purchase of “family owned businesses at fire sale prices.”

Here’s how the death tax works. The high rollers, for whom the tax was designed, actually end up paying little or no estate taxes because they can afford to take advantage of legal “death-tax escape hatches,” as Norquist calls them. Although Buffett (disingenuously) claims that he engages in no tax shelters, he has made arrangements to ensure that his estate will pay no death tax upon his demise. But the mom and pop businesses out there — like your average family farm — often end up owing enough death taxes after mom and dad pass on that survivors must liquidate the businesses.

These people were never high rollers, but assets (like farmland) have enough value on paper when it is passed to heirs that their estates end up owing as much as 55% in death taxes. When heirs can’t pay these high taxes without liquidating the business, businesses like Buffett’s development arm swoop in and pick up the property at bargain basement prices.

The life insurance business profits from the death tax as well. Not only does it market policies to the wealthy as legal tax shelters, it also markets them to aging people running family businesses as a pre-emptive strike. As Norquist explains, people are encouraged to “plow [their] wealth into life insurance before [they] die. By law, when [their] heirs are paid the life-insurance disbursement, it’s tax-free.”

Of course, for mom and pop businesses to plow their wealth into life insurance, they have to liquidate their businesses, and Buffett’s development business is there to take advantage of this. Two legs of Buffett’s business profit at the same time. Many of these people wouldn’t think about doing this, except that they can see the IRS Grim Reaper standing there ready to collect a massive load of death taxes.

To put it bluntly, Norquist says, “Buffett has a conflict of interest. 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.” While Buffett runs around looking like the paragon of virtue in this matter, it turns out that he’s nothing more than a shameless profiteer sticking it to people that are victims of bad tax policy.

People need to know about Buffett’s selfish game of deception. I agree with Norquist when he says, “It’s wrong, and somebody on the Senate Finance Committee needs to grill him about it.”