More On Tax Planningfrom The Advisor's Professional Library
- Health Insurance: Health and Medical Savings Accounts A Health Savings Account is a trust created exclusively for the purpose of paying qualified medical expenses of an account beneficiary. Although they are popular, they are not without their pitfalls and the regulations can be complicated. Learn more about how to avoid federal taxation on the accumulation and distributions of HSA.
- Long Term Care Insurance: Premiums While premiums for qualified long-term-care insurance may be deductible as medical expenses there are exceptions to this general rule. Learn how to avoid unnecessary tax liabilities.
Some of America’s wealthiest people were guests this past Sunday on the television show This Week with Christiane Amanpour. Warren Buffett, Bill and Melinda Gates, Ted Turner; and hedge fund manager Tom Steyer addressed the primary topic of the “Giving Pledge” that Buffett and Gates have been advocating, but the subject of taxes arose as well.
Bill Gates Sr. has not only advocated an increase in taxes on the wealthy, but put money and effort into the campaign to institute a personal income tax in the state of Washington. Although the bill failed in the November election, with Washington voters handily rejecting the public question, Buffett told Amanpour that he “really admired” Gates Sr. for his efforts, and Gates Jr. volunteered that he’d voted for the measure his father had supported and said he was disappointed that it lost.
Buffett *(left) has been outspoken in his quest to get the federal government to raise taxes on high income earners, and repeated his support of higher taxes on the program. Amanpour asked if he thought that all Bush-era tax cuts should come to an end, as advocated by Alan Greenspan, but Buffett said, “No . . . actually you might extend them further for the lower class, middle class and maybe upper middle class but I think that you should raise taxes on the very rich.” He pointed out that during his life, capital gains taxes had been at 39.6% and taxes on earned income had stood at 70%, “and our economy did just fine.”
He also pointed out a previously much-publicized fact—that he pays less income tax than his employees; something he does not consider fair. He told of how he’d done “this little survey” in his office, with 16 people who responded. “And I had the lowest tax rate of the 16.” He explained further that he didn’t have tax shelters or a planner to cut his tax bill; “It was all courtesy of the U.S. Congress. I mean, they did my tax planning for me. And, literally, the average for the office, counting payroll taxes, was 32% and mine was 16 and a fraction percent.”
Amanpour asked about the “trickle-down” theory, and he replied, “Well, all I can say it hasn’t trickled. You know, as I said, a rising tide has lifted all yachts, but the rowboats have been left behind.”
Turner wasn’t so quick to agree on taxes, saying that he paid “quite a bit” but “not as much as I would if I didn’t give so much money away.” But that turned the conversation to philanthropy, and this is an area where all the guests had plenty to say.
Buffett has signed a pledge to give away 99% of his fortune, and said that it was not difficult to make that decision, particularly since he credits his ability to amass such a vast amount of money to “. . . a combination of living in America, some lucky genes and compound interest. [Both] my children and I won what I call the ovarian lottery.” He also said he does not feel it beneficial to
pass along too much wealth to his offspring, calling the idea of dynastic wealth “kind of crazy. The idea that you should be able to do nothing in this world, you know, for the rest of your life and your children and your grandchildren just because you picked the right womb does not really seem to be very American.”
Gates then agreed. The Gateses have, according to the interview, created the largest private foundation in the world, at $35 billion, devoted to improving global health and U.S. education. Gates Jr. agreed that passing along vast wealth to their children isn’t the right thing to do. Gates said, “I don't think it's a favor to a child or to society to have immense amount of wealth bequeathed to them simply because of the family they're in.” He says that they will want to “develop their own identity, their own excellence. And clearly, they're going to get some benefit in terms of going to great schools and broad exposure, but then have a chance to make their own way.”
Turner has sunk a large portion of his fortune—$1 billion—into the creation of the United Nations Foundation, to help eradicate poverty and to eliminate nuclear weapons. He also says that so much money left to children isn’t a good idea: “I don't believe it's really healthy to pass on fortunes to children just because they're your children. They're not necessarily more worthy than anyone else—and if they get everything from their parents or from the previous generations then their life doesn't have the kind of meaning or the challenges that being able to make it on their own does.”
Hedge fund manager Steyer confirmed he had also signed Buffett’s “pledge,” and he and his wife are funding sustainable energy and agriculture, as well as a community bank, “structured in a way so that my wife and I could never make any money; that money went into the bank, and it can never come back. If the bank makes money, all it means is we can make more loans.” He, too, is willing to pay higher taxes, and reluctant to pass along so much money to his children—who, he said, “were years ahead of us in thinking that they knew that being somebody's offspring is not the way to go through life.”
Steyer talked about the importance of challenges throughout one’s life and mentioned a Tennyson poem his grandmother had read to him, about Ulysses after his return from the Odyssey. He resumes his throne, but then “decides to take all of his old men and set sail to try new places, new boundaries, see what they could do, and never to give up. And I thought that was a great attitude. As long as you're trying something new and sailing into new seas, you have a chance to learn something and do something new, and that's what's really fun.”