Thursday, November 15, 2007
Warren Buffett Attacks Middle Class Businessmen and Farmers
On February 14, 2001 BBC News reported that:
"A group of the United States' most wealthy citizens have urged Congress to reject a plan by the new Bush administration to phase out taxes on estates and gifts by 2009...A petition, to appear in the New York Times on Sunday, is being organised by William Gates Sr, father of Microsoft chairman Bill Gates...Around 120 rich Americans, including billionaire investors George Soros and Warren Buffett, support the petition...Mr Buffett, who himself did not sign the petition because he thought it did not go far enough, said that repealing the estate tax would be a "terrible mistake."
Fox News reports today that Buffett:
"told the Senate Finance Committee on Wednesday that Congress should keep the estate tax rather than repeal it and help a few rich Americans like him."
When you think about it, it makes sense for America's wealthiest citizens to support the estate tax since it doesn't affect them. There has been an estate tax in effect for nearly 100 years, yet America's wealthiest families have mostly avoided it. In fact, virtually nothing in the tax code is as it seems. The tax code is full of exceptions, regulations, exceptions to the exceptions and regulations that regulate the exceptions to the exceptions.
In contrast, wealthy but middle class businessmen and farmers worth $3 or $4 million have trouble affording legal talent to lobby for or find the exceptions. Not so the Rockefellers. The Gates-Buffett pro-inheritance tax movement is an effort by the very wealthy to attack and impoverish the upper middle class.
Farmers and small businessmen may find that they lack the cash to pay an inheritance tax. Owners of expensive Manhattan apartments may have to throw their less lucky children onto the street because the parents fear that they will not have the cash to cover the inheritance tax on the apartment.
It is logical for the super-rich to favor the inheritance tax because the inheritance tax has never prevented them from establishing trusts. Many of the signers of the Gates petition may do so when the glare of the news media is turned away.
Moreover, cronyism and nepotism, the hiring of friends and relatives as opposed to the best qualified candidate, is morally indefensible. Yet, Buffett has appointed one of his children to run Berkshire Hathaway. The not-so-wealthy can't afford to appoint their children to a corporate sinecure.
The opposition of the super-rich to inheritance is hypocritical for another reason. If the state did not interfere with the money supply and the economy, an inheritance tax would not be so big a problem because asset values would be lower. But it is because the Fed inflates the money supply, artificially depressing interest rates, that illiquid estates are problematic. Apartments and houses that have been in families for generations must be liquidated. Small businesses must be broken up.
Were the Fed to allow interest rates to float to a market level, rates would rise. This would be fair because interest is just the price of money. We do not subsidize the price of shoes to benefit shoe retailers or of cars to benefit car retailers. Why do we need to depress the price of money, interest, to protect stock market investors, Wall Street and commercial bankers? Can't these guys create value in a free market?
Higher, market-responsive interest rates would depress the stock market and make the super-rich less rich. Moreover higher rates would stop inflation from elevating asset values. Thus, farmers' land and New Yorkers' apartments would become less unrealistically expensive.
Messrs. Buffett, Soros and Gates do not lobby for market-driven interest rates. Instead, Messrs. Buffett, Soros and Gates argue for tax code provisions which everyone knows are complex, often unnecessarily complex, frequently dodged and subject to manipulation by the very wealthy. Hence, we must suspect that Messrs. Buffett, Soros and Gates are insincere. If they were concerned about income inequality, they would speak out for market-neutral interest rates, not for complicated enhancements to the byzantine tax code.
Although financiers like Buffett, Soros, Gates et al. have above-average intelligence, this may not be true of all who have built successful businesses. Some may have average intelligence. Their children may also have average intelligence. Why should the hard work of the parents be forfeited? In contrast, because of income taxation, government regulation, licensure and inflation, success in today's world increasingly (and unfairly) depends on the ability to gain entry to Ivy League colleges and obtain a job on Wall Street, as has been the case with Messrs. Buffett and Soros. Mr. Gates attended an Ivy League college but did not work on Wall Street. If the children of Ivy League graduates are more likely to be able to attend Ivy League colleges because of inherited genetic endowment, then they benefit by inheritance tax. They benefit because small owners are forced to sell their family businesses to large businesses such as those that Messrs. Buffett and Soros own. The low interest rates benefit them; and the emphasis on academic scores tends to benefit them. In contrast, the hard working farmer sees the state violently rip his life's work from his children. But this is fine with Mr. Buffett because Berkshire Hathaway is ready to buy at bargain basement prices.
Frankly, I see little moral or respectable in the anti-inheritance or pro-inheritance tax position. Buffett's position is vicious. If the super-rich want to give their money to charity, they have every right to do so. But shouldn't the hard working upper middle class be permitted to shield their children from the rapacity of the marketplace? Or must their children be subjected to the inflationary stealing of a new generation of financial manipulators and beneficiaries of government intervention?