Warren Buffett Backs the Estate Tax. His Own Estate Won't Pay It.

Warren Buffett wants you to know he's fine with paying taxes. He's said his secretary pays a higher effective tax rate than he does, and that mindset helped inspire the so-called Buffett Rule, a plan floated by President Barack Obama for a 30% minimum tax on Americans earning more than $1 million a year. The Senate rejected it in 2012. Buffett also told CNBC's Becky Quick in 2017 that eliminating the estate tax was a bad idea for the country.

Then he structures his own finances so the estate tax never touches him.

According to CNBC's Warren Buffett Watch newsletter, Buffett recently accelerated his annual donations of Berkshire Hathaway stock, worth roughly $140 billion, to four family foundations. Readers responded in large numbers, CNBC reported, some praising the generosity, others questioning whether foundation money actually helps poor and elderly Americans, and others accusing Buffett of using philanthropy to avoid paying estate and capital gains taxes.

All three reactions can be true at once.

The Math on the Estate Tax

In that 2017 interview, Buffett laid out the numbers himself. Roughly 2.6 million Americans die every year. Only about 5,000 estates owe any estate tax at all, he told Quick. Attend a funeral every month, he said, and on average you won't hit one with estate tax liability for 40 years.

That's Buffett's own argument for why the "death tax" label is, in his words, "a very pejorative term" for something that barely touches anyone.

Buffett is one of the roughly 5,000. Or rather, he would be, if he hadn't given almost everything away first.

Buffett told Quick directly what the alternative looks like. If the GOP-backed bill eliminating the 40% estate tax had passed as written, he said he could have left $75 billion to 35 heirs, each walking away with a couple billion dollars, able to generate $100 million a year at just a 5% return doing nothing. He called that a bad way to allocate resources in the United States.

He's not wrong that concentrated, untaxed generational wealth is a real policy question. But the fact that he thinks it's bad for other billionaires' heirs doesn't change what his own estate plan actually does.

Foundations Aren't a Loophole. They're the Point.

Giving stock to a private foundation isn't cheating the system. It's exactly what the tax code is designed to let you do. Charitable donations are deductible, and assets moved to a foundation before death aren't part of a taxable estate.

Buffett has been steadily giving away his fortune, largely through his children's foundations, and CNBC notes he recently sped up those donations of Berkshire stock. Every dollar that leaves his estate that way is a dollar the IRS never touches under estate tax rules, because it was never his estate to begin with by the time he dies.

When critics accuse him of using philanthropy to dodge estate and capital gains taxes, per CNBC's account of the reader reaction, they're not describing a scandal. They're describing the plain function of the law as written.

The fair question isn't whether Buffett broke any rule. He didn't. The fair question is whether a tax code that lets one of America's wealthiest men simultaneously campaign for higher estate taxes and structure his own affairs to owe zero estate tax is a coherent system, or just a system that rewards whoever has the best accountants and the longest time horizon.

Where This Actually Lands

Congress rejected the Buffett Rule in the Senate in 2012. Buffett was responding to a 2017 GOP-sponsored bill that would have eliminated the 40% estate tax over several years when he laid out his own hypothetical $75 billion inheritance scenario.

Buffett isn't secretly a hypocrite hiding something. He's told reporters exactly what he's doing and why, on camera, repeatedly, going back decades. He joked in 1998 that he doesn't send "voluntary payments" to the IRS, and he's never claimed otherwise.

The unresolved question is a policy one, not a Buffett one: if the estate tax is supposed to check concentrated generational wealth, but the country's wealthiest people can route around it entirely through foundation giving, what is the tax actually accomplishing? Congress hasn't answered that. Buffett, for his part, isn't waiting around for it to.