Buffett: Tax my kin, please
One of the world's richest men will have an opportunity to revive his campaign to preserve the estate tax at a Senate committee hearing on Wednesday.
NEW YORK (CNNMoney.com) -- Warren Buffett has said it before and he's likely to say it again to Congress on Wednesday: He thinks the heirs of the wealthy should be taxed on their inheritance.
Buffett, one of the world's richest men and now its biggest philanthropist, has been an outspoken critic of efforts to repeal the estate tax and is scheduled to testify at a Senate Finance Committee hearing on how current law affects estate tax planning.
Estates worth up to $2 million this year and next will be exempt from federal estate tax, and portions of an estate above that amount would be taxed at 45 percent.
By 2009, the exemption level rises to $3.5 million, and by 2010 the estate tax will be repealed for one year.
Unless Congress changes the law, the tax will be reinstated in 2011, with an exemption level of $1 million and a top rate of 55 percent.
Those who support repeal say, among other things, that the estate tax is an unfair burden on family businesses and farms, the heirs to which may be forced to sell pieces of the business just to pay the estate tax bill.
Those who oppose repeal say it would be too costly for the government to give up the tax revenue and that there are already allowances for family businesses. They also argue that without an estate tax, the heirs of the wealthy are given an unfair advantage over everyone.
"Without the estate tax, you in effect will have an aristocracy of wealth, which means you pass down the ability to command the resources of the nation based on heredity rather than merit," Buffett told the New York Times in 2001. "[Repeal would be like] choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics."
Buffett also joined a campaign in 2001 to preserve the estate tax alongside 119 other wealthy Americans, including George Soros and Bill Gates' father, William H. Gates, Sr..
Buffett has said 99 percent of his net worth, which Forbes recently estimated to be $52 billion, is in his company, Berkshire Hathaway (Charts). But recently he took a big step toward reducing his very taxable estate and making good on his promise not to leave the bulk of his fortune to his kids.
In 2006, he announced he would give away 85 percent of his Berkshire Class B (Charts) stock over a set period of time to five charitable foundations. The value of the pledge at the time of the announcement was $37 billion but it is worth more now because his B shares have risen in value by over 20 percent. To date it's the largest philanthropic pledge ever made.
By pledging so much money, Buffett also sent the message, intentional or not, that he'd rather give his money to institutions of his choice rather than to Uncle Sam. For every dollar Buffett gives away, "45 percent of it is essentially a contribution from the U.S. government," since that's how much his estate would otherwise be taxed, said Steve Hartnett, associate director of education at the American Academy of Estate Planning Attorneys.
Typically, fewer than 2 percent of deaths result in estates sizeable enough to be subject to the estate tax. In 2006, for example, less than 1 percent resulted in taxable estates.
It's estimated that the estate tax will raise roughly $355 billion over the next 10 years under current law, according to the Tax Policy Center.
A number of compromise proposals have been introduced that could lessen the estate tax but still raise some revenue, although much less than projected under current law.
One such proposal from Senate Finance Committee Chairman Max Baucus (D-Mont.) would freeze the exemption level at $3.5 million and impose a top rate of 35 percent. Under that scenario, the estate tax would raise an estimated $115 billion.
Another proposal from Sen. Jon Kyle (R-Arizona) would exempt the first $5 million of an estate, up from the current $2 million exemption. It would tax the amount between $5 million and $30 million at 15 percent and anything above $30 million at 30 percent. That proposal is estimated to raise $62 billion over 10 years.
While the debate over the estate tax has taken a backseat to other tax matters, such as reform of the Alternative Minimum Tax, Baucus has said he will try to mark up estate tax legislation in the spring of 2008, according to the National Journal publication "Congress Daily."