Warren Buffett squared off against other witnesses today at a Senate Finance Committee hearing on the estate tax.
Buffett, chairman of Berkshire Hathaway Inc., Omaha, Neb., the parent of a conglomerate that owns General Re Corp., Stamford, Conn., and is a major investor in Symetra Financial Corp., Bellevue, Wash., said Congress should preserve the estate tax to avoid a “dynasty of wealth” that could turn the United States into a plutocracy.
“I believe in keeping equality of opportunity,” Buffett said.
Buffett accused opponents who refer to the estate tax as a “death tax” of intellectual dishonesty.
Only about 0.5% of Americans pay any estate taxes, Buffett said.
“You would have to be at 200 funerals to attend one where the decedent paid the tax,” Buffett said.
Estate tax critics rarely talk about how the government would replace the $24 billion in revenue it now gets from the tax, Buffett added.
Estate tax critics “just say ‘free us,’” Buffett said. “They don’t say who to further shackle.”
Dean Rhoads, a rancher and state senator from Nevada, testified that he and his wife had moved to land purchased by his in-laws and added to a ranch the in-laws owned. When Rhoads’ mother-in-law died, the family had to sell that land, which had also served to produce hay for the family’s cattle, to pay the estate taxes, Rhoads said.
“When my father-in-law died in 1995, there was no more land left to sell if we wanted to survive in the ranching business,” Rhoads said. “Based on the ranch’s value, the tax we now owed, with interest added, was over $340,000. Therefore we have been paying $18,000 in estate taxes, plus interest every year, which we are continuing to pay. We have had to borrow money to make these payments.”
In some cases, estate taxes must be paid within 9 months, according to Eugene Sukup, chairman of Sukup Manufacturing Company, Sheffield, Iowa,
“If we have to sell in nine months, as it goes, that’s a fire sale,” Sukup said.
Under current law, the estate tax is set to vanish in 2010, then, in 2011, return to the high levels in effect before passage of the Economic Growth and Tax Relief Reconciliation Act of 2001.
In 2011, the estate tax exemption could fall to $1 million, from $2 million today, and the rate applied could increase to 55%, from 45% today.
“The uncertainty of the tax means that we have to plan for the worst case scenario, costing us even more money,” Sukup said.
Buffett agreed that the current approach is an “abomination.”
A better approach would be to establish a $4 million exemption, index the exemption for inflation, and come up with a tax rate formula that applies the highest tax rate on the largest estates.
Another way to improve the current system would be to wait to collect any estate taxes owed on a family-owned business, along with interest on the back taxes, until the family sells the business, Buffett said.
Sen. Jon Kyl, R-Ariz., pointed out that the life insurance industry has lobbied to save the estate tax.
Life insurers fight estate tax repeal, because “their products are one of the ways to shelter assets,” Kyl said.
Buffett replied that the only life business that Berkshire owns outright, Gen Re, accounts for well under 0.5% of Berkshire’s profits.
For now, “the votes aren’t there to repeal” the estate tax, “despite its unfairness,” Kyl concluded.