I’ve finished reading The Snowball, and one of the things that struck me was how Buffett thought about individual destiny, meritocracy, and wealth. For one thing, he is a wealthy person who supports an estate tax for those with very large estates (currently for those greater than $3.5 million). Here’s a glimpse of why:
Wealth is just a bunch of claim checks on the activities of others in the future. You can use that wealth in any way that you want to. You can cash it in or give away. But the idea of passing wealth from generation to generation so that hundreds of your descendants can command the resources of other people simply because they came from the right womb flies in the face of a meritocratic society.
I also connected strongly with a related concept Buffett termed the “Ovarian Lottery”.
I’ve had it so good in this world, you know. The odds were fifty-to-one against me born in the United States in 1930. I won the lottery the day I emerged from the womb by being in the United States instead of in some other country where my chances would have been way different.
Imagine there are two identical twins in the womb, both equally bright and energetic. And the genie says to them, “One of you is going to be born in the United States, and one of you is going to be born in Bangladesh. And if you wind up in Bangladesh, you will pay no taxes. What percentage of your income would you bid to be the one this is born in the United States?” It says something about the fact that society has something to do with your fate and not just your innate qualities. The people who say, “I did it all myself,” and think of themselves as Horatio Alger – believe me, they’d bid more to be in the United States than in Bangladesh. That’s the Ovarian Lottery.
He also made a comment that if born several hundred years earlier, he and Gates probably would have been some other animal’s lunch because they did not see well and could not climb trees well. I’ve had the exact same thought, as my eyesight is really horrible. If was born in the 1700s, I’d probably be considered a cripple.
This led me to a post by a Kiva Fellow working in Uganda. Kiva is the site where you can lend as little as $25 to low-income entrepreneurs.
Any one of these people could be tremendously successful in America (economically speaking). Maybe a CEO of a prominent company, or a hotshot lawyer who wears a two-thousand-dollar suit to work everyday. But they arent. And the only reason for that is because of where they were born.
[…] I won the ovarian lottery. I am a US citizen; got a good education; enjoy great health; and came equipped with a “engineer” gene that allows me to prosper in a manner disproportionate to other people who contribute as much or more to society. I’m in the top 1% of the entire population of the world.
Kiva, to me, is simply a way for those of us who drew the best tickets in the ovarian lottery to help those who drew less fortunate ones.
Something to spread a little humility. You or I may have worked hard, but that’s doesn’t mean we didn’t get a huge head start from winning the Ovarian Lottery. Would you be where you are if you grew up in a country where nobody would even teach you how to read?
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There is more than one principle at stake in the estate tax. It really rankles me that at the end of my life the government can choose to take all I have earned instead of letting me pass it on to my children. This after taking fully half I earn year after year.
My experience has been that the kids that get the good genes multiply their ancestors money and those that get the bads ones prove the old adage that a fool and his money are soon parted. One issue in favor of the estate tax in my mind is that the prospect of a permanent monied class in the United States does give me pause.
Perhaps we could mandate that trust funds can only be perpetuated for one generation so that meritocracy is fully restored.
Post Note: I suspect Warren Buffet and Bill Gates would rise to the top of almost any society that had a meritocracy, primitive or not.
When it comes to estate taxes, Buffet is an idiot. Ignore the fact Buffet has helped his children in a significant way (Andrew Carnegie actually gave nothing to his children), or the concept of property and gifts. How does Buffet’s idea of giving the money to government stop this perceived evil? It has never worked, and we are better off for it.
Also, the greatest way to help humanity is by increasing the standard of living via production (e.g. producing cars, houses, food, clothing, etc.). The ability to produce is wealth; some have more wealth. Humanity can’t survive on donations. Donations come from producers. Even government depends on taxing the producers (e.g. the wealthy).
One of the great ways to avoid the estate tax is life insurance.
Guess what is one Buffet’s core business units?
I love it when wealthy successful people (and average successful people like you or I) are willing to acknowledge the huge advantages we’ve had by being born in the US, and most likely to a loving (if not wealthy) family.
It doesn’t change anything, but it makes me want to puke when people talk about how hard they’ve worked for their success, how they deserve it. Sure, they deserve it, but so do many many others who never had the chance.
Excellent information on the book. Sometimes success comes down to luck and timing. If you were born at the right place, at the right time you are much more likely to achieve the right results.
“How does Buffet’s idea of giving the money to government stop this perceived evil?”
Exactly.
By supporting the estate tax, Buffet is saying that the government is better at allocating resources than those “idiot sons” of the wealthy. Not a chance.
Western thinking so mixes up cause and effect. There are many reasons he’s so wealthy, and judging by how generous he is now he will be very wealthy again. Birth place and time just a big lottery? Chuckle. It just means he doesn’t see the causes and conditions that gave rise to his current state.
Also, Buffet has a huge issue with guilt for being wealthy, and I find it really pathetic. He’s renowned for focusing on making money, but feels bad about having so much. Good grief!
People who compete in athletics don’t feel guilty about an advantage they had at birth. Does Lance Armstrong feel guilty about all those wins? Of course not, and no one expects that he should.
Lastly, this isn’t charity. Charity is a voluntary gift by the donor. An estate tax, what Buffet advocates, is enforced and if you don’t pay expect imprisonment, or to be shot if you resist. Would he be surprised if poverty still exists with a 100% estate tax above $3M?
Buffett will pay very little in estate taxes, because he will be giving it all away. He is not ‘Big Government’ by any means. One of my favorite quotes by Buffett on the subject goes something like this, “Allowing people to pass extreme wealth to their children is much like picking Future Olympians based soley on the fact that their parents competed in past Olympics.” Allowing large amounts of wealth to be passed from generation to generation is a detriment to capitalism. A large estate tax is simply a means to an end, forcing the super-rich to give to charity so to bypass taxes.
Thanks for the Kiva link. That page inspired me to join their group.
What a great concept!
I’d rather have a choice of giving my money to charities of my choosing, then to give it to the government to waste it on GM, CITI or anyother wasteful program. There is so much corruption in the government, its pathetic. That is why there are so many loopholes to get around Estate taxes with the use of Trusts.
What about the fact that all the money ‘leftover’ when I die, has already been taxed? Why does it have to be taxed again? Why do we like to punish success? They tax your wages, you pay property taxes, gas taxes, sales tax, excise tax, cell phone tax….and there a lot more. Then throw in all the “fees” that state governments charge like garbage collection fee, license renewal fees, dog license fees, ect.
The money someone maybe able to accumulate through their lives has been taxed over and over and over, yet when you die, they want to tax it again? anyway, just some thoughts I had on it
@Siggboss — well, having Billions might make anyone feel guilty. That’s the advantage of being only moderately successful, say you have a million or two. Enough for yourself, your family and to give a nice percent to charity. No reason for guilt. But when you have vast wealth and you know that people starve in the world, that would be much worse. I heard some actor once say that with great wealth comes great responsibility.
I agree that a lot of wealth has to do with luck. I have a blog on saving money and how much I have been able to save in the 20 years since I’ve been out of college. But I also had my college paid for by my parents so I started out with no debt. I was also taught financial responsibility at a young age. Where would I be if I had grown up in different circumstances? Who knows?
I’m not sure Buffet feels guilty about his wealth. He clearly feels lucky. I don’t see anything wrong about people who are lucky sharing their wealth with the less fortunate. I think it’s better than the lucky ones feeling entitled to their success only because they are better than everybody else.
It cost money to be the 4th or 5th best country in the world. Pay up.
I’m 23 and just starting out so my perspective may be a little different. However if I could choose where I was born I’m not sure the US would be it. My father…no doubt he would pick the U.S. Me I might go Australia or Europe or Canada. Sad but true. Ask your kids this question and see what they say. I think you would be surprised.
To Chris “Beat Her Down” Brown…move if you don’t like it here. I’m 25 and think the estate tax is just another way for the government to have more dollars to do whatever they please.
I honestly don’t understand why people still listen to him on social economics. He knows how to run a business, so he needs to stick to it. The sad thing is, he’s for these taxes, yet he puts himself ahead of the taxes by giving his entire estate to the Gates Foundation. If taxes are the right answer, why doesn’t he give his entire estate to the deficit of the US Government?
TTF – Nazi’s and commies say garbage like that. If you don’t want to pay estate tax why don’t YOU leave? No. Like it here? Wouldn’t want to be born anywhere else in the world? Even places with very little tax?
I think that is Mr. Buffet’s point.
“TTF – Nazi’s and commies say garbage like that.”
Laughable since you mentioned that you would rather be born abroad. Even more laughable as communism is a political system based on Marxism where estate taxes would be widely accepted due to the communal beliefs of it. One more step down your hole leads to Nazis which economically speaking were liberal because it supported the war effort. So, in both of your examples, you pulled two groups who would very likely support estate taxes, whereas I do not believe in them.
“If you don’t want to pay estate tax why don’t YOU leave?”
One day you’ll understand why…start making a lot a money and have things of value and you’ll understand why it’s ridiculous that you pay taxes on earnings and then get taxed on the principal as well.
“Like it here?”
Of course I do, but that was never brought up prior to now.
“Wouldn’t want to be born anywhere else in the world?”
Didn’t say that I did.
“Even places with very little tax?”
Become more well read on the rest of the world and you’ll find that other first world countries have higher taxes than we do, making me less likely to move there even if I wanted to. I understand paying taxes as a basis to keep the general population better through infrastructure, education, etc. What doesn’t make sense is being taxed just because you made the best of your life instead of some slumming ho like that octuplet mom Nadia who wants government to subsidize her living.
I said above, and I’ll say again, Warren Buffett has become increasingly senile (especially over the last decade) about social issues. If he believed this ovarian lottery BS, he’d make an example of himself by giving everything and living a Mother Theresa life. However, he’s not going to do that because he has creature comforts such as having a (recently deceased) wife of 30-40 years, and the nanny that became his live-in girlfriend because he “loved” his wife but loved his girlfriend more…hmm.
How does Buffet know I’m giving my millions to my children? Since Buffet likes what-ifs he should consider this one: What if I give my millions to a scientists and he finds a way to extend the human life span 1,000%? Or solves the energy problem? Etc. But if I’m forced to give it to the government they’re going to find a solution to these problems? No way. But we don’t live in an imaginary type world. In the real world I should have the freedom to decide what I want done with my money. Oh wait a minute! I forgot. We aren’t living in a free country anymore.
Should John D. Rockefellers great great grandson be able to sit on his butt all day and have women in bikinis feed him grapes just because his great great granddaddy was rich?
With the effects of compound interest there would be a huge amount of wealth in so few hands, it would probably lead to political instability.
I say we pick a number, say 10 or 20 million that you can pass tax free and index it for inflation. My understanding is when the inheritance tax was enacted it wasn’t indexed for inflation and now it is hitting more and more people.
I notice that the estate tax issue is a hot topic. Buffet is proven, and right on.
It is avious that in the US “We are standing on the shoulders of giants”.
Estate tax is very political! Buffett views estate tax as a gift tax, not a “death tax”. If you gift your money to a non-profit, then your gift is not taxed. If you gift it to your family upon death, then there is a tax above a certain point. Remember, if you go out and spend your money right now to buy a car, it’s probably being taxed again too. Tax just happens when money changes hands.
It can also be philosophical as geomark seems to suggest (I’m not 100% sure). Perhaps our ancestors worked very hard simply to give us these advantages. They could have used the money otherwise, but they didn’t. Should their hard work not be rewarded in this manner if that is what they wished?
Interestingly, if you were born in the 1700s, I think you’d have better eyesight. The proliferation of paper and screens means that people today spend far more time looking at things closer to us. This eyestrain certainly contributes to nearsightedness. The incidence and severity of nearsightedness in rural areas is far less than in the city.
While genetics is a factor, environment is a greater factor.
I am surprised at the heated argument over this issue which in the end affects such a tiny percentage of the population. I hope that I personally will have to worry about this some day!
No estate tax in Australia…
I read the post in my inbox and thought that it was very interesting. Here is a man that recognizes how much of his success is not due to how awesome he is, but due to fortuitous circumstances that conspired in his favor. Sure, agency might be part of it, but we are what happened around us, down to what we ‘decide’ to have for breakfast.
This ‘ovarian lottery’, and the decision to be born in the US vs 0 taxes in Bangladesh, sounds a lot like John Rawls’ original position, or Veil of Ignorance. http://en.wikipedia.org/wiki/Original_position If my post is too long to read, I really really recommend taking two minutes to read the wikipedia entry above.
This is secular philosophy and in my opinion a very strong argument for a more humanist and socially aware life. This resonates with a lot of belief systems, from Vedanta to Christianism (Matthew 10:9-10?). For a more recent read than Rawls, I recommend Amartya Sen’s Development as Freedom (bestseller) or his academic articles.
It is truly saddening to see the short term view of many who have posted here. Do you think the world would be better with everything above 3 million being taxed? Yes. Make it 1 million. I bet not even .1% of the world will ever sees even 100k$ in their accounts ever (at least 60% will never have any savings or bank account even). Those who come from families capable of giving their children a sizable inheritance are already privileged in so many ways, from education to contacts, that they should not be doubly privileged to keep the millions that their parents made. This just reinforces a new generation of injustices in opportunity.
I understand the current public opinion against big government, the debunked economic doctrine that ‘the smaller the government the better’ is drilled into us here in the United States. Current bailouts, corruption and inefficiency are hard to swallow too. The alternative might be to force your money from Estate tax to go to approved causes instead of government if you distrust it that much.
Sorry for the long post, but let me propose one last idea for discussion: Is the system that we currently live in a meritocracy? Because a few individuals are able to engage in class mobility, because 1 black man became president, does that mean that the more ‘merit’ you have, the better you will do? Do you truly believe that you, even genetically, if you were born to a family in the ghetto or in Somalia, would have been able to afford a nice computer and internet at home and have the education to write in this forum? What makes you deserve this? 100% your hard work?
“My money” is silly. Sure, you worked hard for it, but the mother barely out of welfare working two jobs and 3 hour daily commutes also works very hard and is barely surviving. Oh, what is it, she chose to have a kid early? Oh, she chose to take drugs? Oh she chose to not study? Give me a break, switch every baby from the ghetto hospital to the rich kids hospital and you will see a marginal difference (yes, nature does matter some), but most originally ghetto kids will come out well, and most originally rich kids will end up in or close to welfare. Until we fix the socio-economic processes behind this, we can at least ameliorate with progressive taxes and welfare. Whoever doesn’t see it, I propose again to go read the Rawls wikipedia entry and think of how well you expect to have turned out if born in the ghetto or Somalia.
The notion of ‘my money’ is only possible because of government. Without government most of us would be dead, primitive societies could not support a lot of individuals. You only have money because society chose to allocate it to your efforts (and the mostly fortuitous events that empower your efforts) and because the government protects it. Money loses all meaning outside of the system that creates it. To think that you are responsible and entitled to ‘your money’ is naive. We can do better. Good Saturday to all.
It should be a heated discussion because it does effect all of us. The estate tax is a tax on a very small minority, and that is exactly what makes it wrong. The founding fathers were scared of this very thing. The tax system is getting so progressive that soon, half the population will not pay income tax, meaning they have no vested interest in how the government uses their money. This is a recipe for disaster. When you have a majority of the population that doesn’t pay taxes they can continue to raise taxes on the minority.
If you actually look at the data, you will see that the people in the highest income brackets actually have a lot of movement downward. The rich do not stay rich for whatever reason (though granted some do.) The estate tax is extremely anti-liberty because the government is coercing someone to use their money a curtain way. It is a jealousy tax and it’s a large amount of money that is lost to the government instead of staying invested in the private sector, where the majority of the inherited money would stay. I don’t think you can determine that donated money does more good than invested money, we need both, and the government shouldn’t be making that decision and then taking you money if you choose to keep it invested.
Not to jump into the debate about the estate tax, but I thought I’d comment on the notion that the money involved has already been taxed:
Quite possibly not. I think most of, for example, Warren Buffett’s money is in Berkshire stock. Since he hasn’t sold that stock, most of it’s value is going to be money that hasn’t been taxed yet, so most of his estate has not had taxes levied against it.
As it now stands, when you die, any unrealized gains in your estate are not taxed as capital gains for your heirs (although they may be subject to estate taxes) and your basis in the property is stepped up. And if I’m not mistaken, next year in the one year when the estate tax goes away (before returning to the original levels in 2011), this stepped up basis goes away, and the original basis in the property will pass on the heirs.
“Should John D. Rockefellers great great grandson be able to sit on his butt all day and have women in bikinis feed him grapes just because his great great granddaddy was rich?”
Yes. IF that is what John D. Rockefeller wanted to happen with HIS money. It was his money after all. It comes down to whether or not you believe a person has the right to determine what happens with his/her own money, which they earned and already paid taxes. I do believe we each have that right. Which means if I want to give it all to charity, or the treasury, then I can. If I want to use my money to ensure a high calibre education for my family, then I can do that. If I want to piss it all away, I can do that, too.
And it doesn’t matter if it’s called a death tax, or a gift tax, or a super happy fun time tax, it doesn’t change what it is – a money grab.
I have a real problem with this tax. Because it comes down to other people deciding what I have to do with something that is clearly my own. It’s none of your business. I fully acknowledge how fortunate I am to be born when and where I was. And there are people more fortunate than myself, but I’m not looking for, nor expecting a handout from them. BTW, I doubt I’ll even have to ever worry about this tax, but I object to it on principle.
Why do you deserve my money more than my offspring? You may argue my children did nothing to earn it, but neither did you or your children, and it’s MY money and it’s already been taxed. I should have the final say.
I don’t see how this is different than someone shoving their religion down my throat, and forcing me to practice it. I should, and do, have the right to choose my own religion, or none at all. It’s about allowing people to make their own choices.
If you want to control how my money is spent after my death, I wonder how long it will be before you demand to control how I spend my money while I’m alive.
Again:
Is the system that we currently live in a meritocracy? Because a few individuals are able to engage in class mobility, because 1 black man became president, does that mean that the more ‘merit’ you have, the better you will do? Do you truly believe that you, even genetically, if you were born to a family in the ghetto or in Somalia, would have been able to afford a nice computer and internet at home and have the education to write in this forum? What makes you deserve this? 100% your hard work?
“My money” is silly. Sure, you worked hard for it, but the mother barely out of welfare working two jobs and 3 hour daily commutes also works very hard and is barely surviving. Oh, what is it, she chose to have a kid early? Oh, she chose to take drugs? Oh she chose to not study? Give me a break, switch every baby from the ghetto hospital to the rich kids hospital and you will see a marginal difference (yes, nature does matter some), but most originally ghetto kids will come out well, and most originally rich kids will end up in or close to welfare. Until we fix the socio-economic processes behind this, we can at least ameliorate with progressive taxes and welfare. Whoever doesn’t see it, I propose again to go read the Rawls wikipedia entry and think of how well you expect to have turned out if born in the ghetto or Somalia.
The notion of ‘my money’ is only possible because of government. Without government most of us would be dead, primitive societies could not support a lot of individuals. You only have money because society chose to allocate it to your efforts (and the mostly fortuitous events that empower your efforts) and because the government protects it. Money loses all meaning outside of the system that creates it (think Hobbes). To think that you are responsible and entitled to ‘your money’ is naive. We can do better.
The idea that we only have money because the government says we do is complete BS. Our money is worth something because we say it is, not the government that prints it. A private company could theoretically print it’s own currency (this has been done), and if enough people saw value in it and started using it, it would become real money, an exchange median, so we wouldn’t have to trade pigs. It has nothing to do with it being printed by government except that this is the current system we are under. Government is not the reason we are wealthy, but they do help us keep the wealth we obtain in terms of protecting our property rights, which is one of the government’s most important jobs, and one that it tends to not do well rather often.
I think technology will even the global playing field and that smart people will find a way to prosper regardless of where they are. And immigration is always an option.
In regard to the estate tax, I think there should be one. The main reason is that people who amass vast quantities of wealth should give something back to the government. The government helped produce a hospitable environment for the creation of wealth.
I think a good compromise is assessing estates for the capital gains tax on a mark to market basis. In other words even though the heirs don’t actually sell the assets they have to pay a tax on receiving them as if they sold them. The rate is much lower than the current estate taxes and it’s probably going to be easier to do it at that point than trying to compute the gains many years later… A $1 or $2 million exemption could be built in so that the government doesn’t have to waste resources on valuing small estates.
PLA, your repetition of your opinion does not make it fact.
I read it the first time. I was no more convinced the second time.
I was not born in USA but chose to migrate here because I had been highly educated in another country and had skills in demand in USA.
My old country is ruled by politicians who are more corrupt than those in USA.
I could have migrated to Canada or Australia too and am not sure if my choice was the best for me. It sure was a random choice like buying a lottery ticket.
The whole universe and evolution is based on random selection.
Those who survive claim to be the fittest and others just wither away or flourish in future if environment changes to something more suitable to them.
I never thought a discussion on estate tax would interest me so much! Since I probably don’t have much to worry about, I never really thought about it much, but would like to add these points:
Poverty is always inherited, whether we like it or not. Many people who immigrated to this country came from unfortunate circumstances and most were not educated, and couldn’t offer a great lifestyle to their children. However, just by coming here, they did change the opportunities available for their children. How can you place a value on that?
If I amassed a large fortune, I would feel like a complete heel not leaving my kids well provided for. At the same time, I think we all have a moral obligation to give to others less fortunate. If every wealthy person could be counted on to contribute to needy people in the world, in addition to leaving their family comfortable, I don’t think estate tax would be necessary. Unfortunately, there’s lots of people who would just leave their money to their own and forget about others. And would you want to say “it’s my money” faced with people suffering in the world? That’s like saying “Your misery means nothing to me, because I earned my money”. What kind of argument is that?
Over the weekend, I thought more into this “Ovarian Lottery” term and realized how much BS it really is. Buffett is spinning something to go his way. He didn’t have 50-to-1 odds of being born in the US, he had 1-to-1 odds because his parents made the choice to live in the US. A better argument would be that he had a 1,000,000-to-1 shot of being the sperm that made it into the egg to fertilize it.
And to the people who say that we should pay taxes, what are we doing with 911 taxes, grocery taxes, property taxes, excise taxes, ad valorem taxes, etc. etc. etc.?
A person’s first job at 25 years old has him/her making 50k annually. That same person never gets a raise, and continues to work until he/she is 65. Over that 40 years, he/she pays 300k in federal taxes (7.5 annually), 153k in FICA, and obviously depending on the state, lets say 120k in state taxes. When that person’s paycheck arrives at his/her door, he/she has already lost almost $575,000 in taxes. Then he/she has to eat, say 100 monthly, and pays another 3500 in taxes for groceries. He/She has to live somewhere, so he/she pays taxes to own a house, which for this scenario, let us say that the house cost 100k and has taxes taxed at a millage rate of 25, giving him/her annual taxes of 1k, so 40k total. So, a single person that never gets married and never gets a raise has just spent over $600,000 in taxes in ONLY 5 areas. In the middle of all this, this person learns to be a fabulous investor in many markets, and is able to save 5% of his/her money and earns a grand 12% tax-free (remember this person learned how) APR over the course of 40 years. When he/she gets to retirement, he/she has approx 2.5 million plus a house that’s grown to be worth 500k, giving him/her a NW of 3 million. The next day, that person dies (say 2012) and willed that money to a beloved niece/nephew. Now the niece/nephew only gets 45% of that due to taxes, making the recently deceased pay another 1.65 million in estate taxes. Now the person has paid 600k while alive, another 1.6 million after dying, making the person pay 2.2 million, when that person only earned 2 million.
One day people will realize that things in life are earned and nothing is deserved, and the PLA example of the single, drug addict mother who had three kids by 13 would realize that even she has a chance to do well if she works for it. Because someone made a bad decision isn’t entitlement to anything except the fact that they’re entitled to make their decision as long as it doesn’t negatively affect (or is it effect? Crap!) the people around that person.
Two words.
Paris Hilton!
My wife did not come from a well off family. She went to college on scholarships, which she earned due to her academic performance in high school while working. She then went to grad school, taking out loans to enable that. She then got pregnant by some loser that left her to fend for herself with the baby. As a single mother with a newborn she struggled to get a PhD in Chemistry, but did it and is now a college professor herself.
Explain to her how you feel she didn’t earn whatever fruits of her labor she has coming to her. Why would anyone struggle and work that hard knowing that whatever they earn isn’t really theirs. Her story also illustrates that people CAN overcome adversity to succeed and excel.
PLA would like us all to think that we are helpless and only government can help us. That makes us all dependent on the government teat. Why stop leveling the playing field at taking away one’s life earnings? Why not make every single job pay exactly the same regardless of its value, the revenue generated by the job, the level of responsibility, the seniority of the worker, or his education level? Then we’d all be equal. Of course, then there would be no motivation to better yourself by educating yourself or even try to excel at your job. I mean, why bother, you’d get paid the same either way, right?
If you knew that when you died, all your life savings would be stripped from you, why would you try to save anything? Or amass wealth in the first place? What would be the point?
One of government’s primary purposes is to protect personal property. How does this death tax not fly in the face of that?
One of a parent’s primary responsibilities it to provide for the well being of their offspring. That doesn’t stop when the parent dies. My parents died young. I suppose I should have been put out on the street without access to my parents’ resources, which they would have given me had they been alive?
There is more than one principle at stake in the estate tax. It really rankles me that at the end of my life the government can choose to take all I have earned instead of letting me pass it on to my children. This after taking fully half I earn year after year.
The government doesn’t tax you. You’re dead. It’s taxing your children who are receiving, essentially, a gift that they have not had to work for other than by being born to you.
The top marginal tax rate in this country is also only about 39%, so I’m not sure how the government is taking half of what you earn — if so, you need a new accountant.
Stefan – the top federal rate is 35% but going up. But then there are state income taxes (yes some states don’t have income tax but most do) and sales taxes, and property taxes, and the first $90,000 or so is taxed at around 15% social security tax too (including the employer and employee contribution). And despite the reduced dividend and capital gains tax rates corporate income is also taxed twice once at the corporate level and then at the personal level. Between all these it is possible for someone to reach close to half their income going to tax.
I’m in the top tax rate, and yet I don’t pay 50% of my income in tax, so I don’t quite know how that’s possible. What I think you’re not taking into account is that while the top federal rate is 35%, that’s a marginal rate applied only to every dollar you earn above $373,000 — below that, you pay different rates on the dollars you earn (i.e., you only pay 10% on the first $8,000 you earn, 15% on what you earn from $8,000 to $33,000, etc.). Therefore, while the top rate is 35%, the effective rate is actually lower, since you’re only paying a tax for a given bracket for each dollar within that bracket’s range. Put it another way, if you earn $374,000, the 35% tax bracket only applies to the last $1000 you earned, not to the entire amount.
You’re also not calculating the various deductions that most high-income individuals avail themselves of (mortgage interest, family dependents, etc.).
Yes of course, someone would have to be earning substantially above the threshold to get to the 50% quoted and live in California with a big house they recently bought etc. Those deductions you mention don’t have much effect on very high income earners because they phase out at fairly low levels. To get lower taxes you have to structure things towards say a partnership with carried interest that gets taxed at the lower long-term capital gains rate etc….
“Would you be where you are if you grew up in a country where nobody would even teach you how to read?”
Umm…who is this “you” referred to in the line above? The physical body? Or the “soul”?
Questions like these are irrelevant until we can agree upon the definition of pronouns like “You” and “I”.
For those with low reading comprehension, and there are so many of you, let me distill Buffett’s point of view on inheritances down for you in knucklehead consumable chunks: If you are wealthy (meaning you have more than $3.5M in assets in 2009 dollars), either pay an enormous estate tax or donate all but $3.5M of your estate to charities of your choosing before you pass. If you believe in a meritocratic democracy, and the health of our Union, you won’t leave more than $3.5M to your offspring, who very likely lack the ability to contribute to society in any meaningful way because, well, look at the genetic and intellectual stock from which they sprang. If your kids have any ability at all, and if you had any ability as a parent, they’ll use the incredible resources available to them to amass their own fortunes before they are stuck with a mere $3.5M with which to slum through life.
Capiche?
But, if you were not smart enough to understand Buffett’s argument about why creating a class of untitled royalty is bad for America and bad for democracy, don’t worry about it. Because you might have been smart enough to make a fortune (doubtful, since your ability to read and reason is so sadly deficient), but you certainly are not wise enough to know what to do with it when you are dead. Go be the richest guy or gal in the cemetery and keep empowering your no-talent, do-nothing Hiltons and Kardashians to keep dragging our country down. Thanks so much, and have a nice afterlife!
Yeah! What Ram said!
Filter as much cash as you can to your kids while you are alive.
Then hide plenty as easily redeemable assets gold platinum stamps art precious stones etc and spend the rest.
Also don’t believe all this “offshore nonsense” you will just be robbed by foreign lawyers and accountants instead of US ones.
I spent fifty hard years to achieve what I have now and if the Government wants it off me it will have to take it via VAT.
Even two years after this post was published people such as Colin Baugh either refuse to read the arguments, or are so filled with hubris and self-centeredness that they are unable to consider the concepts proposed.
‘Ovarian lottery’, ‘veil of ignorance’, powerful concepts. Try to have a bit more compassion and place yourself in others’ shoes, it might help you to understand the naivety bordering on evil inherent in: “Durh, I worked ‘hard’ my whole life, I deserve the money I have; the government will have to take it from my “cold, dead hands”.
Lots of people work a lot harder than you ever have and will never get very far because they were born from another womb, simple as that. And a lot of people have a lot more money than you without ever having worked a day in their lives. You are not special bub.
To quote the end of the post: “Something to spread a little humility. You or I may have worked hard, but that’s doesn’t mean we didn’t get a huge head start from winning the Ovarian Lottery. Would you be where you are if you grew up in a country where nobody would even teach you how to read?” -Amen?
I must say. Hearing about the Ovarian Lottery might have been the best piece of knowledge I’ve ever heard. It still motivates me in the hardest of times. We’re so lucky to have internet and time, we’re able to do anything! I’ll always try to make use of it.
Thank you for posting this article, I really enjoyed reading it, keep going!