Buffett's Estate Tax Ear-Bender

More new taxes? That's the surprising mantra of America's second richest man: Warren Buffet. On Wednesday, the billionaire investor and philanthropist urged the Senate Finance Committee to keep the controversial estate tax. Buffett, whose net worth is over $57 billion, has heavily crusaded for more taxes on the rich. While many of his peers may disagree, Buffett staunchly believes that the current tax system favors the elite and overburdens the middle class. Perhaps in a sign of how near-and-dear the tax issue is to Buffett, the head of Berkshire Hathaway addressed the committee without a prepared speech (according to one of his personal assistants). Speaking off the cuff, he said a repeal of the estate tax would unjustly benefit America’s wealthiest.

The estate tax has been a hot-button issue on Capitol Hill this year. Under a 2001 law, the estate tax will be gradually reduced until 2010, when it is suspended for on year. Then in 2011, the tax returns in full force, and estates worth over $1 million could face a 55% tax. While some Republicans have pushed for the tax’s full repeal, many Democrats want the tax to stay in place. It is unclear where Republicans and Democrats will find common ground, but many expect the sides to reach a compromise before 2011.

According to Buffett, the estate tax is important, because it bridges the gap between the poor and rich. “A meaningful estate tax is needed to prevent our democracy from becoming a dynastic plutocracy,'' he said. He said low taxes on the rich (many of the richest Americans are taxed at the lower dividends and capital gains rate) have given them an unfair advantage over the middle class, which fork over a greater percentage of their income to the government.

In a recent interview with Tom Brokaw of NBC, Buffett produced a document that showed he had about $49.6 million in taxable income, 18% of which was paid to the government. For comparison, he said the average federal tax rate for a Berkshire employee was nearly double that–33%.

Proposing a more-direct redistribution of wealth, Buffett said the approximate $24 billion in proceeds from the estate tax, should be redirected to the poor. One way to do it, he argues, would be to give $1,000 tax credit to 23 million low-income households.

Buffett’s focus on U.S. economic disparity may seem like a modern dilemma, but his arguments echo the words of Theordore Roosevelt, the 26th president of the United States. In 1906, the president Roosevelt told Congress: "The man of great wealth owes a peculiar obligation to the state, because he derives special advantage from the mere existence of government,” he said. And the man of great wealth “should assume his full and proper share of the burden of taxation.”

While Buffett’s tax position, seems like an unlikely perch for a man that has aggressively accumulated wealth, he has been a longtime proponent of wealth redistribution. He doesn’t just talk the talk, he also pays up—big. In 2006, Buffett pledged to give 85% of the value in his Berkshire Hathaway stock to charitable organizations. The lion share of that—about $30 billion over 20 years— will go to the Bill and Melinda Gates Foundation. For all of 2006, Buffett gave away $4 billion, or 7% of his wealth.

But Buffett is not a lonely black swan in the Forbes 400 circle. Fellow philanthropist, Bill Gates has said that he is committed to his late father’s pro-tax policy. In addition, George Soros, the chairman of Soros Fund Management, has also lobbied Congress to keep the tax on the books.