How to Talk to a Republican #9: Estate Taxes

Warren Buffett, no relation to Jimmy, is a billionaire. He has made billions by buying and trading stocks. When Buffett speaks about money, I listen.

The Right calls it the Death Tax, claiming it's somehow unfair to leave the heirs and assigns of one who has lived the American Dream(tm) with a reduced sum of money. This argumentation is incorrect on many levels but here's what Buffett had to say:

"Without the estate tax, you in effect will have an aristocracy of wealth, which means you pass down the ability to command the resources of the nation based on heredity rather than merit," Buffett told the New York Times in 2001. "[Repeal would be like] choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics."

Let me get one thing straight: I fully support the ability of the first generation entrepreneur to get as rich as he or she can figure. And I fully support the obligation of the second generation to earn it again. And the third generation, well, famous third-generation babies include George W. Bush and Paris Hilton. Should they be rich? As Buffett said, it's an aristocracy of wealth.

I call it self-perpetuating wealth, assets that pay beyond the point where they can be spent. Second-generationers may ward and grow the family business some but they normally end up putting their wealth in second-generation assets, stocks excluding IPOs. These do not benefit the broader economy as none of the money from the sale goes back to the company issuing the shares. They may employ a few stockbrokers, an illegal maid or two but on the whole, their wealth becomes parasitic. And by the third generation, well, Bush and Hilton.

119 of the nation's richest people are signing on to prevent repeal of the estate tax. The estate tax is the greatest protector against generational wealth and the greatest re-distributor of wealth possible. In Europe, a large part of their higher living standard and greater emphasis on mid-size companies can be attributed to the estate tax, called the opportunity tax by some there. And hey, if Buffett says it's good money sense, it probably is.