Buffetted: the Sage of Omaha loves the estate tax—as well he might

'THE Bush Money Machine: An Industry Gets Its Way," screamed a headline on the top front-page story of the May 17 Washington Post. The article quoted a major Bush campaign contributor saying that he supports the GOP because of its belief in "less government, more individual freedom, more individual responsibility." But, in a typical Post "gotcha," the story (by James V. Grimaldi and Thomas B. Edsall) detailed another possible motive for the gentleman's contributions: The Bush administration had reversed one of the Clinton administration's "midnight" environmental regulations that would have affected his business. This, the piece declared, was an example of one of "the subtle intricacies between corporations and an administration determined to roll back what it considers to be regulatory overkill." The article went on to document the Bush administration's adoption of policies "benefiting sectors of the business community ... that happen to be a source of major fundraisers and donors." "Securities and investment banking firms," for instance, "have benefited enormously" from tax changes pushed through by President Bush.

It's perfectly fair, of course, to ask who benefits from a candidate's policies; but the coverage by the Post and other mainstream media outlets has not been evenhanded. In the past few months, quite a few of the super-rich have backed John Kerry and attacked Bush's policies; among them are currency speculator George Soros, insurance magnate Peter Lewis, and Warren Buffett, the CEO and largest shareholder in Berkshire Hathaway, a holding company that owns, among other things, more than 20 percent of outstanding shares of the Washington Post Co. Yet the parallel question is never asked: Would these tycoons benefit from the more interventionist government policies advocated by Kerry and the Democrats?

RAIDING THE ESTATES

Alook at Buffett's holdings shows that in at least one case, that of the estate tax, the answer is a strong yes. Since Bush started pushing for repeal of the estate tax, Buffett--the second richest man in the world, just behind Bill Gates--has emerged as one of this tax's most prominent supporters. Repealing the tax undermines meritocracy, the billionaire argues to a fawning press. It's like "choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics," he told the New York Times. The Post gave him space for a whole column blasting Bush's tax cuts as "class welfare. For my class." Buffett is now on Kerry's economic team. Kerry, in explaining his plans to reverse Bush's phaseout of the estate tax, cites the supposedly noble sacrifice of Buffett. "If Warren Buffett can tell America that he just got a bonanza ... and he thinks it's more important to give $1,000 to every family, I think that's pretty good thinking," Kerry told PBS's NewsHour. At least two of this year's crop of anti-Bush books, Kevin Phillips's American Dynasty and Peter Singer's The President of Good and Evil, laud Buffett for his selflessness in opposing the estate-tax rollback. Liberal pundit Mark Shields has referred to Buffett as the rare "good CEO" who spoke out against the Bush tax cuts.

But Buffett's efforts look considerably less noble to those who have dug into his business holdings and methods: Buffett reaps a windfall because of the destructive impact the estate tax has on family businesses. Through Berkshire Hathaway, Buffett acquires profitable family businesses that are sold to him in large part because the businesses cannot meet the estate-tax burden, while at the same time selling estate-tax-insurance products to help other families hang on to their businesses. (Berkshire Hathaway's corporate headquarters in Omaha did not return phone calls asking for comment.)

Buffett is known for his philosophy of "value investing": buying stocks or businesses at prices below their intrinsic value and patiently waiting to reap returns. In short, he hunts for bargains. And one thing the estate tax does, say experts, is create bargains of well-run family businesses that are sold to avoid estate-tax problems. This is because the tax hits all assets--so if a family has most of its net worth in a business, it must quickly sell that business to satisfy the tax. And these businesses--many of which are the very "Main Street" businesses the Left invokes when inveighing against chains such as Starbucks and Wal-Mart--are often sold substantially below their market value. "If a family is forced to sell as a result of the death of the founder, so that you've got a 50 percent estate tax due nine months after death, that naturally depresses the price," notes Harold Apolinsky, an estate-planning attorney at the Birmingham, Ala., law firm of Sirote & Permutt. "When you're forced to sell to fund the tax, there's more of an opportunity for the buyer to negotiate a lower price."