A group of wealthy businessmen petitioned Congress last week for a more progressive estate tax.
“We believe it is right to have a significant tax on large estates when they are passed on to the next generation,” the letter says, boasting signatures from billionaires Warren Buffet, William Gates Sr., and George Soros.
Critics say the wealthy signatories actually stand to benefit financially from the policy they advocate.
“To Warren Buffett, a higher tax isn’t merely a political issue, it’s good business. Who do you think profits from higher insurance premiums purchased to defend against the death tax?” said Jim Martin, chairman of the anti-death tax 60 Plus Association, in a statement.
Some companies are inventory rich but cash poor. A farm may have acres and acres of land worth millions, but little cash in the bank. When the farmer dies, however, all of his wealth, both land and cash, is subject to the estate tax. To shield from this tax burden, and so that the family doesn’t need to sell assets in order to pay the tax, people purchase life insurance policies.
The life insurance industry is one of the biggest proponents of a high estate tax.
“They sell products that protect against it,” Schoening Strategies President and Family Business Coalition Chairman Palmer Schoening told The Daily Caller News Foundation. “They sell what are called second-to-die, and other policies that basically bring them premiums of about $12-15 billion a year.”
Other estimates put the number around $17.4 billion per year from life insurance premiums — nearly the same amount the Treasury received in death tax receipts in 2011, $17.6 billion.
A 2010 report showed that the last time there was a debate over the death tax, the life insurance lobby was a “key force pushing against repeal of the estate tax as the tax creates demand for their insurance,” The Daily Caller reported.
“The life insurance industry’s lobbying presence in D.C. is huge – larger than almost any other industry sector. According to the report, life insurers spent $10 million per month on lobbying in the first half of 2010.”
Warren Buffett owns seven life insurance companies within his holdings of Berkshire Hathaway.
Currently, all wealth above $5 million is taxed at 35 percent when the owner dies. The penalty can be deferred to a spouse, making the threshold when they die $10 million at 35 percent.
If no deal is made on expiring tax cuts by the end of this year, the taxable threshold will go down to $1 million and be taxed at 55 percent. There will also be no portability to transfer the penalty.
“You can imagine if you are a family business owner, or you are a farmer, and you’re planning for succession of your family farm or family business, you have to plan for a 55 percent tax. And a lot of businesses are cash poor and land or inventory rich,” Schoening said.
“So when it comes time to pay the tax … the IRS comes in and says, ‘Well how much equipment do you have, let’s add up your house, everything down to the last penny in your sock drawer.’ It’s really not tough for anyone who employs ten or 50 people to have over a million dollars in total stuff. Then there’s a 55 percent tax on anything above that million. So if you have $2 million, you need to give a 500,000 tax bill,” Schoening continued.
“The ultra wealthy really don’t pay the estate tax. They can afford expensive estate planning attorneys and they funnel their money into foundations. For example, Warren Buffett is going to give most of his money to the Bill and Melinda Gates Foundation,” Schoening said.
Should the current law expire, estates over $1 million will be taxed at 55 percent. According to one estimate, this will hit 97 percent of all farms.
Sens. Mary Landrieu of Louisiana, Mark Pryor of Arkansas, and Max Baucus of Montana are among the Democrats up for re-election in 2014 who have voted to repeal the estate tax in the past. Baucus is also chairman of the Senate Finance Committee.
“Probably the most likely solution is an extension of the current policy,” Schoening told TheDC News Foundation. The letter to Congress from Buffett and company “just basically to make his [the president’s] position of taking almost half of some one’s property look more reasonable.”
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