Arnold Kling  

Estate Tax Bootleggers

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Tim Carney and Dick Patten write,


It's no surprise then that the life insurance industry, which stands to gain an estimated 10 percent of its revenues from estate tax policies, is leading the charge to ensure that the estate tax roars back to life.

...Warren Buffet, a major estate tax advocate, makes substantial profits through Berkshire Hathaway's holdings in multiple life-insurance companies.

The bootleggers and baptists model of regulatory influence strikes again.


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COMMENTS (9 to date)
TylerInChicago writes:

It should also be noted that Buffet has profited from the estate tax as an investor as well. By definition, successful entrepreneurs are good at building profitable companies. But that doesn't mean they are good at estate or transition planning, so there are sometime well run companies available at fire-sale prices from families blindsided by the estate tax.

Thanks to his position in the insurance industry, Buffet has also found a legal way to take advantage of insider information thanks to the inheritance tax - he knows in advance about entrepreneurs have planned poorly for the estate tax, so he can swoop in quickly and cheaply.

Back to the bootlegger analogy: Buffet sells protection from Elliot Ness' raids AND gets Ness to deliver to his own warehouse booze seized from speakeasies that didn't pay protection to Buffet.

geckonomist writes:

Should we "estimate" that 10% from something estimated is more billion dollars than an estate tax on his 50billion dollars?


After all, if those author's are so convinced of this, they should just invest all their capital in Birkshire shares, shouldn't they?
If their hypothesis is right, the stock gains would by default more than offset the loss of any estate tax on their capital.

Jim Ancona writes:

geckonomist:

What makes you think Buffet would pay significant estate tax on his holdings? The point of the post is that there are lots of mechanisms to avoid the estate tax (e.g. life insurance), and no doubt Buffet has the best estate planning money can buy. The estate tax primarily affects people of moderate wealth who don't have the knowledge or resources to effectively avoid it, not the Buffets who can avoid (and profit) from it.

Michael Bishop writes:

geckonomist beat me to it. Written the way it is, readers might accept the incredibly stupid argument that Warren Buffet might have selfish reasons for promoting the estate tax.

Peter Finch writes:

@Jim,

I've often wondered whether the estate tax was better described as a $3000 tax on small estates, with the revenue going to the planner industry, than as a large tax on large estates, with the revenue going to the government.

J Mann writes:

1. On the one hand, Buffet is supposedly planning on leaving the vast majority of his estate to charity, so he may pay little or no estate tax. (If he wants to leave tens of millions to any one heir, he can always do it tax free through a life insurance policy!)

2. On the other hand, as the Carney/Patten article points out, Buffet's life insurance holdings are actually relatively small, so this is probably more of a debating point than an actual major motive for Buffet's advocacy.

J Mann writes:

On the gripping hand, however, why is it even remotely logical that a $10 million life insurance policy goes untaxed, but a $10 million estate gets a bite taken out?

What possible business is it of the government's how some random rich provides for her heirs?

Buffett talking from his book doesn't come as a shock to me anymore - Papa Buffett isn't as folk as most people assume. That being said, this example is the least apparent and recognizable one I've come across.

lxm writes:

There you go again. Siding with the rich folks who benefit the most from the elimination of the estate tax. Because life insurance companies want the estate tax to continue, therefore, necessarily, the estate must be bad.

Bah, humbug.

It's just like "predatory borrowers", or "The housing market today is choked with speculators".

Never once to you question the practices of the rich and the powerful. I suspect this bias effects your thinking on everything. Too bad.

Here's a partial antidote: http://www.rollingstone.com/politics/news/17390/232611?RS_show_page=0

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