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Comment by gyardley | Hacker News Reader

The estate tax is a disgrace, but this is overly cynical. Buffett is giving away far more than he'd pay in taxes, even at the 55% estate tax rate.

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The estate tax isn't a disgrace, it only even kicks in on estates greater than a few million. I'll repeat that -- if your estate is less than a few million, the estate tax doesn't affect you. If your estate is more than a few million, the first few are still exempt.

Used to be people respected earning your own living, now all people seem to respect is compound interest.

As of January 1st, 2011, the estate tax kicks in at $1,000,000. (The law on the books actually kicks in at $10,000, but there's a temporary credit in place.) The actual rate and exemption has varied widely from year to year. This year there's no estate tax, but in 2009 there was a $3.5MM exemption.

Much of the money you have on hand when you die has already been taxed in one form or another. (If it hasn't, your death should trigger the much lower capital gains tax - that's how it works in Canada, for example.) If you've been working hard to ensure your wife and children don't want for anything in life, why in hell should the government take half of what you've earned and already paid taxes on?

I don't understand your bit about compound interest. The people in this community who are affected by the estate tax don't get there through compound interest, they get there through entrepreneurship and job creation. If you want to propose that the estate tax only affects passive income, I'd certainly be in favor.

Ok, so basically I'm right about the few million part. Attempts to say it could be otherwise, but isn't, notwithstanding.

And if your wife and children inherit 3.5 million tax free and half of everything else, they will be fine. I'm more sympathetic to the wife argument, if she was spending time with the kids instead of developing a career - the children have presumably had a good education, they should be able to make their own money if 3.5 million isn't enough.

RE: compound interest, if you don't understand that, then you really do not understand inherited wealth.

You know some die hard capitalists would argue that all of your wealth should be taken away at death. That way, the wealth of an individual can only come from what you build and create during your life. Not that I think it is the correct or fair way of thinking, its seems just so wrong when death was unforeseeable.

"If you've been working hard to ensure your wife and children don't want for anything in life, why in hell should the government take half of what you've earned and already paid taxes on?"

To avoid the creation of an aristocratic class.

The founding fathers had this specific aim in mind. Details here:

http://budiansky.blogspot.com/2010/10/adam-smith-thomas-jeff...

A relevant quote from the article:

  [Thomas] Jefferson cited Adam Smith, the hero of free market
  capitalists everywhere, as the source of his conviction that (as
  Smith wrote, and Jefferson closely echoed in his own words), "A
  power to dispose of estates for ever is manifestly absurd. The
  earth and the fulness of it belongs to every generation, and the
  preceding one can have no right to bind it up from posterity. Such
  extension of property is quite unnatural." Smith said: "There is
  no point more difficult to account for than the right we conceive
  men to have to dispose of their goods after death."

  The states left no doubt that in taking this step they were giving
  expression to a basic and widely shared philosophical belief that
  equality of citizenship was impossible in a nation where
  inequality of wealth remained the rule. North Carolina's 1784
  statute explained that by keeping large estates together for
  succeeding generations, the old system had served "only to raise
  the wealth and importance of particular families and individuals,
  giving them an unequal and undue influence in a republic" and
  promoting "contention and injustice." Abolishing aristocratic
  forms of inheritance would by contrast "tend to promote that
  equality of property which is of the spirit and principle of a
  genuine republic."

In capitalist societies this is less of a problem. Wealthy families generally dissipate their wealth in a few generations, not through taxes or charity, but through consumption, error and incompetence.

Trust babies destroy family fortunes more efficiently than estate taxes.

true, it is the states that get you. I paid Ohio $28k in estate taxes on an amount well under a million dollars, the majority of that being equity in a house that is very hard to sell.

Here's something I only recently became aware of that may change your opinion on the estate tax.

I have three children, ages 3, 2 and six months. If I were to die tomorrow, the cost of raising those kids and sending them to college would be something like $3.5M. So, I have a life insurance policy, as any responsible parent does.

But under the current law, the proceeds of my life insurance policy are subject to the estate tax.

Sure, if you're paining a hypothetical about a 24-year-old Ivy League graduate who just received news that his parents have passed and that he has inherited a $3M estate, it doesn't sound too bad if part of that inheritance is taxed.

But now imagine a toddler who just lost two parents and needs to be fed, clothed, sheltered and educated for the next 20 years... it's different.

Ok, so there's a case that's pretty important and probably deserves an exemption under the law. Or, maybe not, if you think 3.5 million is enough, you already have all the exemption you need. I could see something pushing it a little higher in cases of early death and a life insurance payout.

That makes sense.

You know what doesn't make sense, though? Complaining about a "death tax" on the one hand while complaining about the budget deficit at the same time, yet maintaining that you're the political party of hard work, bootstrapping, blah blah. If you care about the latter two, don't spend your time going to the mat for Paris Hilton. If you consult some charts about income distribution in this country, you can conclude that the vaaaaaaaaast majority of the revenue collected under this tax comes from very large estates where the children would be set for life with 10% of it, and they're doing very very well with 3.5Mil + 45% of the rest.

Exceptional cases may be worthy of exceptions under the law, but that doesn't change whether the law makes sense in the general case.

Simultaneously complaining about taxes and the deficit does does make sense if you consider cutting spending.

Not given the size of the budget deficit, and especially not if you're only concerned about taxes that exclusively affect the very very wealthy.

If I recall correctly, the status-quo-ante estate tax is 55% of everything over $1M. So a $3.5M estate would be $2.125M after taxes. (Note that the Obama Administration is willing to support a $3.5M exemption, but that’s not enough for the Republicans.)

I did a quick check at vanguard.com, and mutual funds that deal in intermediate-term bonds are yielding in the 6.5% to 7.5% range. So whoever gets guardianship of your kids would be able to feed, house, and educate them from an income stream of over $130K per year (presumably that income would be subject to capital gains tax).

I am sure that your untimely death would cause great suffering for your children, but I really don’t see them suffering in a financial sense.

If I were to die tomorrow, the cost of raising those kids and sending them to college would be something like $3.5M.

I'm opposed to an aggressive estate tax too, but I can't believe those numbers; that comes out to more than $50k per year per child.

Your life insurance policy has a $3.5M death benefit? I've never heard of that.

This is why your spouse or your children should own the policy, not you.

If all the wealth is dynastic and concentrated at the top, there goes the American dream of social mobility. The estate tax is a brake on that process.

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