While no political thinker worth his salt underestimates the importance of private property, Machiavelli cut to the heart of the matter most succinctly. A prince, he wrote, "must not touch the property of others, because men sooner forget the killing of a father than the loss of their patrimony."
James Madison's analysis, while a bit more high-minded, amounts to nearly the same thing. He asserted in Federalist 10 that "The diversity in the faculties of men, from which the rights of property originate" will always lead to divergent interests within society. Men will, he held, invariably exhibit different abilities and inclinations. Some will be smarter, more industrious, even luckier than others, and in a condition of general equality these differences will lead inexorably to economic inequality. Government must be up to the task of protecting the gains of the few against the many if need be. Indeed, he said, "The protection of these faculties is the first object of government."
And few have been more protected than Warren Buffett. He is without question the most successful investor of the second half of the 20th century, and he is poised to become one of the greatest philanthropists of all time with his pledge of more than $37 billion to various charities, most notably the Bill and Melinda Gates Foundation.
While the gift makes Buffett look like the capitalist with a heart of gold, the timing of his announcement might have more to do with recent legislative machinations over the estate tax, not to mention his apparent faith in social engineering. The House, after all, sent an estate tax reduction bill to the Senate on Friday. By Monday Buffett was monopolizing the air waves with his divestiture. The terms of the legislative debate, if there was even to be a debate in the Senate, have been indelibly redefined by the so-called "Oracle of Omaha."
Coincidence? Not likely.
The estate tax, or death tax as it is more commonly known, was targeted for extinction in the first round of President Bush's tax cuts in 2001 and has long been an object of Republican scorn. Continued resistance in the Senate has made repeal impossible, but an impending election cycle has put the issue back into play. Senate Majority Leader Bill Frist asked for and received a watered-down bill, a bill which passed the House in a 269-156 vote and has a fighting chance at getting the 60 votes needed to conduct business in the Senate. If the bill becomes law, estates worth up to $5 million for individuals and $10 million for couples would escape taxation entirely beginning in 2010. After the exemptions, estates worth up to $25 million would be subject to rates equal to those on capital gains, rates which are now 15% but are scheduled to increase to 20% in 2011. The remainder of estates which exceed the $25 million limit would be taxed at 30% until the capital gains rate hike in 2011, at which point they would be taxed at 40%. Some estimates hold that the number of estates subject to the tax will decrease from 30,000, which was the number for 2004, the last year for which data is available, to only 5,100 when the law takes full effect in 2011.
In the press conference announcing his gift to the Gates Foundation, Buffett addressed the tax explicitly. "It's a very equitable tax," he said, urging Congress to maintain the status quo. "It's in keeping with the idea of equality of opportunity in this country, not giving incredible head starts to certain people who were very selective about the womb from which they emerged."
Like all good nanny-state proponents, Buffett would use tax policy as a blunt-force tool to achieve his social preferences while simultaneously closing the door on dissenting views. The real problem, after all, isn't that Buffett is disposing of his assets according to his own wishes, it is that he would deny others the same level of self-determination given half a chance.
When asked how his children took the news of his impending liquidation, Buffett said, "My kids were elated when I told them. They knew my views on inherited wealth and shared them. I believe in equality of opportunity...They should not inherit my position in society..." Warren Buffett's position in society is not up for grabs though, and he knows as much. The only thing that his children could have inherited was the accumulated result of a lifetime of impressive work. And why shouldn't this be an option? How is wealth given to a foundation qualitatively different from wealth given to sons and daughters? In a 2001 New York Times interview Buffett offered his answer, saying, "We have come closer to a true meritocracy than anywhere else around the world. You have mobility so people with talents can be put to the best use. 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."
But the "resources of the nation" are not at issue; and this was no slip of the tongue. Private resources are at issue, and they have been taxed already -- multiple times in many cases. Also on display is his raw paternalism. Someone might inform Mr. Buffett that "people with talents" are not "put to the best use" in a free society. They choose their own paths, just as he has always done. And in a free society the purpose of taxes is to raise revenue, not remake society in the image of an enlightened investor.
Buffett often claims that he believes in equality of opportunity. Without the ability to enjoy the spoils of success, though, equality of opportunity is a meaningless term. The means by which one can enjoy the fruits of his own labors is a decidedly personal matter, and the "pursuit of happiness," to borrow a phrase, is invariably a self-defined endeavor. Neither Warren Buffett nor the United States Congress can change this by fiat, no matter how well-intentioned.
Warren Buffett can dispose of his own property any way that he wants, but nothing gives him the right to interfere with others as they do the same. He should be lauded for his gift, and if others choose to follow his lead, that is their prerogative. If they choose to follow their own path, he should respectfully withhold comment.
Madison would have said as much. He also would have advised the Senate to ignore Buffett's grandstanding and follow the House's lead. In a perfect world the death tax would be eliminated entirely and immediately, but in a perfect world 41 Senators, aided, abetted, and goaded by Warren Buffett would not have the ability to stifle the popular will. Passing the compromise tax cut now will make eliminating the tax easier later, and it will strike a blow against would-be social engineers, both public and private. It's hard to say which of these two eventualities would have a more salutary effect over the long term.
James R. Harrigan is an Assistant Professor of Political Science at Saint Vincent College in Latrobe, Pennsylvania.