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The Hypocrisy of the Very Wealthy

June 24, 2010
Fortune magazine’s July 5th issue features a story about “The $600 Billion Challenge” from Bill Gates and Warren Buffett to other billionaires. They are soliciting pledges from the other super wealthy people to give at least half of their net worth to charity in their lifetimes or at death.

These are the same billionaires that keep championing the Death Tax [Estate Tax] that will once again start confiscating up to 55% of large estates for those who die after December 31, 2010.



Estate taxes penalize ‘Good behavior’. Society is better off when its citizens save and invest, rather than spend and consume all their income. These retained earnings are used to fund growth in America. Those who have private wealth do not burden the rest of its citizens with supporting them in their retirement years.

What do our laws promote though? People who die with little to nothing in lifetime savings can pass their meager assets to their families or others of their choice with no additional federal tax burden. In others words… if you spend/squander all your net lifetime earnings you are rewarded with no taxes upon death.

On the other hand, those who save, invest and grow their net worth throughout their lifetimes are penalized by up to 55% for not spending the money they did not consume.

When you reward bad behavior and chastise good behavior, which do you think you will get more of? This is very similar in our present social security system. We give disproportional benefits to those who contribute little to nothing into the system during their working lives while those who paid the most into the system during their working years will get much less back in relation to their personal contributions.

It is almost a given that ‘means testing’ is just over the horizon as a way to trim future social security deficits. When that takes full effect the people that paid in the very most will likely see little to nothing at all because they ‘don’t need’ the help. Our crazy system once again sends the message that you have to be crazy to work hard, save and invest. You’ll get much better treatment if you have nothing saved when you retire than you will if you have substantial assets and income.

Back to the headline topic. Gates and Buffett have pledged or given almost all their wealth to tax exempt foundations that effectively protect their enormous wealth from ever being taxed- in their lifetimes or even after their demise. Yet they want others, with much lower estate values, to have to forfeit over half their lifetime savings to the federal tax man.

Just as our politicians should be in the same health plans and social security system as they are dictating for us, billionaires should subject their estates to the same treatment they are touting for those with less than them (and without their teams of lawyers to avoid paying taxes).



Dr. Paul Price

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Rating: 2.6/5 (31 votes)

Comments

jrhubbard
Jrhubbard - 4 years ago
Although the principle of the argument cannot be questioned (taxes incent tax-avoiding behavior), I would be interested in seeing some data supporting your argument that estate taxes reduce investment spending (or, increase discretionary consumption).

I should not assume to know the outcome, but I cannot help but be skeptical.

Also, I sincerely hope that you are wrong about "means testing" for social security, but I fear you are correct. I believe that data actually WOULD show that redistribution of retirement savings will cause significant adverse effects.

batbeer2
Batbeer2 premium member - 4 years ago
On the other hand, those who save, invest and grow their net worth throughout their lifetimes are penalized by up to 55% for not spending the money they did not consume.

I'm no a tax expert, but I think worldy posessions are usually passed on to someone else upon death.

1) The tax man

2) Your children

3) and/or other heirs

In your view, the first option is a form of punishment; but who exactly is being punished and how does this influence their behaviour ?

By the way, means testing for social security makes perfect sense to me; not so much for pensions. There is a difference no ?
Dr. Paul Price
Dr. Paul Price premium member - 4 years ago
Social Security has been "sold" as a retirement plan for all workers who contrbiute into it - NOT as a form of welfare.

If those who pay the most into the system end up getting little or nothing out simply because they don't "need" it - then it is, indeed, just another welfare transfer from the most productive members of society to the least productive.

It also would penalize anyone who 'did the right thing' and provided for their own living expenses in retirement while rewarding all who squandered every penny and now 'need' help to survive. We are teaching people to do the wrong thing by incentivizing what we don't want and screwing those who did what is beneficial to America.

Means testing is already in effect to some degree as up to 85% of SS payments are now taxable income only for those who earn over a certain minimum. They receive their checks with the left hand and then have to give some of that back with their right hands.
mschram
Mschram - 4 years ago


I agree that this article raises an interesting point regarding rewards for poor behavior. I never looked at it that way. I disagree with the premise of hypocrisy. You say

"Gates and Buffett have pledged or given almost all their wealth to tax exempt foundations that effectively protect their enormous wealth from ever being taxed- in their lifetimes or even after their demise. Yet they want others, with much lower estate values, to have to forfeit over half their lifetime savings to the federal tax man."

Others "with much lower estate values" don't have to forfeit over half of their savings to taxes. They have the same opportunies to protect their money by donating to tax free charities. Where is the hypocrisy? As a matter of fact I believe that Buffett and Gates would like as many people as possible to donate their money to charity and keep it out of the "tax man's" hands.
mschram
Mschram - 4 years ago
I
mschram
Mschram - 4 years ago
I thought
mschram
Mschram - 4 years ago
l
mschram
Mschram - 4 years ago


I thought social security was supposed to be a safety net not a retirement plan. Means testing makes a lot of sense in that aspect.
batbeer2
Batbeer2 premium member - 4 years ago
then it is, indeed, just another welfare transfer from the most productive members of society to the least productive.

Fair enough; however, I think, with testing, it is more accurately described as a transfer from the most productive to the most in need.
Dr. Paul Price
Dr. Paul Price premium member - 4 years ago


By advertising that those with nothing when they quit working will be better treated than those who saved we are encouraging people to do spend all their money then sit back and wait to be taken care of by those who behaved more reasonably.

This is lunacy.
roiguy
Roiguy - 4 years ago
The estate tax can be argued in exactly the opposite way. Heirs to their estates have done nothing to deserve their inheritances. Their parents put in the hard work. If anything, history shows that heirs of inheritances are more apt to squander their parents' fruits than do good. The Vanderbilt family is a great example of this.

No estate tax means America heads towards an aristocracy.

There is something inherently wrong with a man who hoards money. To trade comfort, pride, and fame for social progress and the advancement of the human race is lunacy. Many of the wealthy have the power to do this but choose not to exercise it.

Bill Gates and Warren Buffett are examples of wealthy men that see the truly important things in life. If the wealthy donated like them, they would never have to pay estate taxes because most donations are tax exempt.

So stockdox... it really comes down to this: how much of an inheritance have your children earned because the gift/estate tax exemption is set at ~$2 million.
goodvaluehunting
Goodvaluehunting - 4 years ago
ROIGuy hits the nail on the head- if we get rid of the estate tax, we'll end up with a country filled with Paris Hiltons and a bunch of trust fund babies.

Not to mention, only a few thousand people actually pay the estate tax per year. Those who pay it are idiots too because they didn't do the necessary financial planning. Once again, thanks to Doc for starting a topic that has absolutely zero investment value.
Dr. Paul Price
Dr. Paul Price premium member - 4 years ago


You miss the whole point...

Buffett and Gates hold tremendous wealth that will never be subjected to taxes even after their deaths.

They preach that others should have to pay estate taxes that they themselve are avoiding permanently.
mschram
Mschram - 4 years ago
I think you are missing the whole point. Buffett and Gates aren't leaving their money to their heirs either. The money can either go to charity tax free or to their heirs minus taxes. They aren't preaching that others should pay estate taxes. Rather that they shouldn't be allowed to send all of their accumulated earnings to the heirs untouched. Either give it away to charity or pay part to Uncle Sam.
PHILCIR
PHILCIR - 4 years ago
I only receive Fortune because it costs about 10 bucks per year now. What a rag.... the same old garbage circa 1988. According to Fortune and the other financial rags - Gates and Buffett on the cover is the magic formula --- NOT... I don't know about you, but I'm am sick and tired of these pompass a-holes and their "we know better than you because we were so lucky to win the gene pool in smarts". At lease you don't see Munger popping up every 10 minutes. These MFers suffer from a serious need to be seen and heard every time the clock strikes 12. Mr Gates --- GO AWAY - your 15 hours is up.
Dr. Paul Price
Dr. Paul Price premium member - 4 years ago


mschram,

If the estate tax is needed to FUND the government [and to reduce deficits] then leaving billions to charity is just legal tax evasion.

batbeer2
Batbeer2 premium member - 4 years ago
Does it matter in any way that Buffett has declared that his donations must be spent on charity within 10 years after his death ?

No everlasting fund with annual donations comemmorating..... no; all spent !.... gone !
Dr. Paul Price
Dr. Paul Price premium member - 4 years ago
Since estate tax advocates claim the government can't afford to give up the income from DEATH TAXES Buffett's rate of charity spending is irrelevant.

None of those billions will help pay down the deficit.

jrhubbard
Jrhubbard - 4 years ago
Leaving billions to charity is not tax evasion, it is rather similar to putting money into a 401k. These actions are designed to promote (but not require) behavior that is seen as being of value to society as a whole. Tax evasion is a willful mis-representation of circumstances in order to reduce what would be your legal tax obligations.

I would suggest that giving to charity is somewhat preferable to giving to the government regardless of your political and economic philosophy, but is especially supportable if you believe that the private sector is more efficient at allocating capital than the public sector. I certainly don't think the government is going to provide social value of each dollar with the same effectiveness as the Bill and Melinda Gates Foundation, for instance.

Social Security is a mandatory retirement savings account that was established to be elemental to each individual. Re-defining the program to redistribute wealth is asking for widespread social discontent. It's not right to allow that simply because the discontent is overcomable. It is an issue of ongoing credibility for the government (not that they haven't already fallen off that cliff).

batbeer2
Batbeer2 premium member - 4 years ago
None of those billions will help pay down the deficit.

HUH ? are we discussing the alleged hypocrisy of individuals or government budget deficits ?

I think an analysis of someones actions may be relevant in determining his/her level of hypocrisy.
roiguy
Roiguy - 4 years ago
He's trying to change the subject after his argument fell flat on its face. I think most people can see through that.

The guy whines all day about social security but doesn't even bat an eye at military spending. That is hypocrisy.
Dr. Paul Price
Dr. Paul Price premium member - 4 years ago


Just for the record... I would pull out of Afghanistan and Iraq tomorrow if I ran things. I have never said I support the war efforts.

******************************************************************************************************************

The basic rationale for estate taxes is that the revenues are needed by government and can't be given up.

Billionaires like Gates and Buffett have ensured that their great wealth will NEVER be subject to those taxes and will never go to the government.

The hypocrisy is that they think other people should pay that tax - but not them.
jrhubbard
Jrhubbard - 4 years ago
I think there are both ideological and logistical arguments being made against your point of view, but have you considered that income tax works the same way? You can avoid income tax by giving to charity, just like estate taxes.

There is certainly an ideological position that can be defended that the government should not allow charitable contribution to reduce a person's tax burden (it is not my position, but it is A position). However, Buffett and Gates are most certainly NOT hypocrites to support a tax arrangement that will encourage - surprise surprise - the exact act that they are advocating. What is mysterious about that? Laws provide incentives for certain behavior, and they believe there is value in charitable giving, so they are advocating a law that encourages it. I believe you have a misperception of what constitutes hypocrisy.
Rommel Acosta
Rommel Acosta - 4 years ago
I agree with JrHubbard/Mschram/Roiguy. I think you're off base here Doc.

I remember Buffett testified about the issue of estate taxes a few years back, and his points are as valid now as they were then, so there's no need to rehash them. (The video is available on Youtube.)

You can't say its hypocrisy when both these men call for more charitable giving. It is in fact admirable. They have committed themselves to using their wealth to help the broader civilization, and are trying to get other wealthy people to do the same. The solution that these men have found for the disposition of their fortunes is perfectly logical, and to my mind, they will do a much better job giving it back to society than any government can.

goodvaluehunting
Goodvaluehunting - 4 years ago
Wouldn't a true disciple of Ayn Rand favor a 100% estate tax? Why should the following generation be judged on anything but their own merits and performance? Why should you get a good life, owing it to nothing except the luck of being born correctly? Our country would be much better if each subsequent generation had to produce of their own skill rather than let them coast along on the sweat of the brow of their descendants. The Arabs have a saying, "My father rode a camel. I drive a Mercedes. My son flies his own plane. His son will ride a camel." It shows as people continue to inherit they lose their incentive to produce and create and grow soft.
Dr. Paul Price
Dr. Paul Price premium member - 4 years ago


This is NOT about whether or not inheritance should be allowed. It is also NOT about whether you think charities can spend their money better than government. It is NOT about the legality of leaving money to charity.

Buffett's and Gates wealth will NOT be subject to death taxes while they think it's fair that others life savings will be 55% confiscated by the government [plus any state and local level levies].

batbeer2
Batbeer2 premium member - 4 years ago
I think these poeple would donate even if such donations were taxed. Luckily, the burden of proof is on you.

In any case, if Warren Buffett and Bill Gates are hypocrits, I'm all for hypocrisy.
augustabound
Augustabound - 4 years ago
Warren Buffett has said on more than one occasion he doesn't mind paying taxes since it means an investment worked out well.
jrhubbard
Jrhubbard - 4 years ago
Buffett and Gates have the choice to give to charity tax-free, or pass on their money and pay the estate tax. Everyone else has the choice to give to charity tax-free, or pass on their money and pay the estate tax.

Buffett and Gates have chosen to give to charity tax-free. Others (and now, I must generalize) have chosen NOT to give to charity tax-free, but instead to pass on their money and pay the estate tax.

It is not hypocrisy when two people or two groups of people make their own self-interested decisions, those decisions are different, and they lead to different outcomes. It is called free choice. The only possible point of hypocrisy in the whole ordeal is if the legislators that pass a bill stand to gain, but how would Buffett and Gates benefit from a higher estate tax? Even with the lower rate, they are giving their money to charity.
CMW
CMW - 4 years ago
This is a silly article. The incentives suggest we leave our children enough to get a head start but not enough that they don't ever get started. If we decide that we want to spoil our children a little more (or a lot), then we pay taxes on that. If we want to help the more needy, which reduces the stress on governments to do so, then we don't pay taxes on that amount. What is unreasonable about that?
CMW
CMW - 4 years ago
Doc is quick on the trigger. Any dissenting opinion (basically everyone) gets a 1 star within 30 seconds of submitting.
Evan
Evan - 4 years ago
Taxation on wealth is a manditory redistribution of wealth. It is not theft. Theft is taking another's property in violation of the social-economic relationship between two people.

We have structured our current system such that people have the chance to accumulate wealth. That's a great bennefit to those who can. But, along with allowing this privilage we have also decided that those who do aquire wealth must pay back into the system through taxation -- helping those who can't or who have chosen to do otherwise.

The bennefit of this should be clear: a person is able to engage in economic activity without much interference while extremes in society are prevented from coming about (well... more or less). Since extreme inequality breeds extreme violence, society is a much better place with progressive taxation than it would be otherwise. Ultimately we all have to live in a society so we might as well make it the best one we can.
billspetrino
Billspetrino - 4 years ago
Agree with Doc here

WEB is a GREATEST investor ever who I modeled my world famous dividend machine after

But he says tax rates should be higher but yet keeps his own salary low and avoided the estate tax he WANTS everyone else to pay

WEB also talks negatively about options but has used them alot

Great investor great hypocrite

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