Jesse, ‘There are three matters in respect fo which the accompanying sets of attachments may be helpful. The first is the question of dividend payments by Berkshire. In 1-1, the history of onr unusual shareholder constitueney is deseribed. More than 50 years ago, many of this group (or their parents or grandparents) opted for long-term reinvestment. New owners have continued to do so: Our owners like and expect a re-investment approach. A unified constituency is formed in the manner I describe as Phil Fisher's “restaurant” — self selected (1-2). Many large shareholders, including me, enjoy the long-term buildup in value, knowing that itis destined for philanthropy, not consumption or dynastic aspirations. Attachment 1-3 illustrates the incredible breadth and depth of shareholder enthusiasm for Berkshire’s save-and-build philosophy. I can’t think of any large public company with shareholders so united in their reinvestment beliefs: a 50 to 1 vote against dividends is simply unheard of. The U.S. government has benefitted from our reinvestment policy as well In the decade prior to the change of control at Berkshire, the company paid no net federal income tax. (Over that period the business lost a significant sum.) In both 2019 and 2020 Berkshire paid about 114% of the total comporate income tax receipts enjoyed by the U.S. government (see 2-1). The second question involves my personal tax situation, My returns have long been available. On August 1, 2016, in a talk introdueing Hillary Clinton (available on YouTube), I offered to meet candidate Trump and make public our retums together. (We were both under audit, which did not restrict displaying returns.) Subsequently, in one of the Presidential debates, candidate Trump made an inaccurate reference to my deductions. I announced the correct figures immediately (2-1). He did not challenge my correction. PBS subsequently invited me to discuss faxes with Judy Woodruff. I agreed and sent her my most recent return. PBS had a tax expert examine the return before she interviewed me in June 2017, and I put no restrictions on questions she could ask me about any item. In 2-2, [tallied the tax benefits received from contributions made pursuant to the philanthropic pledges I made in 2006. Subsequent to that pledge, and counting the 2021 contribution I will, soon make, I have donated roughly half of my 474,998 “A” shares of Berkshire to the five foundations. Berkshire shares, for long, have constituted about 99% of my net worth. The tax. benefit I have realized from the $40 billion of shares I will have contributed since 2006 (now ‘worth more than $100 billion) is as stated in 2-2 ~ less than 50¢ for every $1,000 I have donated. Finally, the third matter is what do I ultimately hope to accomplish by finalization of my gifts following my death. My philosophy remains the same as stated in 3-1, a Fortune cover story from 1986.After the run-off period following my death, about 99.5% of what I have will go to some combination of taxes and disbursements fo various philanthropies. The split depends on future US. tax policy. I believe the money will be of more use to society if disbursed philanthropically than if'it is used to slightly reduce an ever-increasing U.S. debt. But that will be for Congress to determine. Lawyers recommend trusts for avoiding public scrutiny of wills. My will eschews this technique and the publie will be able to check what I did compared to what I have said. continue to believe that the tax code should be changed substantially. I hope that the eamed- income tax-credit is greatly expanded and additionally believe that huge dynastic wealth is not desirable for our society. Perhaps annual payout requirements should be increased for foundations. Some time ago, I testified before Senator Baucus in favor of increasing and tightening estate taxes. (My persuasive powers proved to be limited.) For any who may read this, the NYT article to which you refer is attached as 4-1. [remain OK with what I said, though its effect in Washington was zero. Warren BuffettFreom Gerkshice Hethess, Pod0 Anival ® ‘The Berkshire Partnership Berkshire is a Delaware corporaticn, and our directors rust follow the state's Laws. Among then is a requitement tbat board members mur’ act in the best interest of the Corporation and its stockholders. Our directors embrace that doctrine. Jn addition, of course, Berkshire directors want the company to dlight its customers, to develop and reward the talents of ts 360,000 associates, to behave honorably with lenders and to be regarded as a good citizen of the many cities and states fm which we operate. We value these four important constituencies. None of these groups, however, have a vote in determining such matters as dividends, strategic direction, CFO selection, or acquisitions an divestitures. Responsibilities like those fall solely on Berkshire's directors, who ast faithfully represent the long-term interests of the corporation and its overs. Beyond legal requirements, Chiari and I feel a special obligation to the many individual shareholders of Berkshire. A bit of personal history may help you to understand our unusual attachment and how it shapes our behavior. Before my Berishire years, | managed money for many individuals through a seies of partnerships, the fist three of those formed in 1956. As time passed, the use of rmultiple entities became unwieldy and, in 1962, we samalgnmated 12 partnerships into a single unit, Buffet Partnership Lid ('BPL”). By that yoar, virtually all of my own money, and that of my wife as well, had become invested longside the funds of my many limited partners. Teccived no salary or fees. Instead, as the general partner, I was compensated by ny limited parmess only afer they secured reurns above an annwal threshold of 6%, I returns failed to mect that level, the shortfall was to be carried forward against my share of future profits. (Fortunately, that never happened: Partnership retums always exceeded tbe 6% “bogey.”) As the years went by, a large pat of the resources of my parents, siblings, aunts, uneles, cousins and in-laws became invested inthe partnership.Charlie formed his partnership in 1962 and operated much as 1 did. Neither of us had any institutional investors, and very few of our partners were financially sophisticated, The people who joined our ventures simply trusted us to teat their money as we treated our own, These individuals ~ either intuitively or by relying on the advice of friends ~ correctly concluded that Charlie and I had an extreme aversion to permanent loss of capital and that we ‘would not have accepted their money ualess we expected to do reasonably well with it. | stumbied into business management after BPL, acquired control of Berkshire in 196S. Later still, in 1969, we decided to dissolve BPL. Afler yearend, the partnership distributed, pro-rata, all ofits cash along with three stocks, the largest by value being BPI.’s 70.5% interest in Berkshire, Charlio, meanwhile, wound up his operation in 1977. Among the assets he distributed to partners was a major interest in Blue Chip Stamps, a company his partnership, Berkshire and [jointly controlled. Blue Chip was also among the three stocks my partnership had distributed upon its dissolution Jn 1983, Berkshire and Blue Chip merged, thereby expanding Berkshire’s base of registered shareholders from 1,900 to 2,900. Charlie and I wanted everyone ~ old new and prospective sharcholders —to be onthe same page. ‘Therefore, the 1983 annual report — up front ~ laid out Berkshire’s “major business principles.” The first principle began: “Although our form is corporate, our attitude is parinership.” That defined our relationship in 1983; it defines it today, Charlie and I —and our directors as well - believe this dictum will serve Berkshire well for many decades to come. Ownership of Berkshire now resides in five large “buckets.” one occupied by me as a “founder” of sorts. ‘That bucket is certain to empty as the shares I own ate annually distributed to various philanthropies. ‘Two of the remaining four buckets are filled by institutional investors, each handling other people's money. ‘That, however, is where the similarity between those buckets ends: Their investing procedures could not be more different, [In one institutional bucket are index funds, & large and mushrooming segment of the investment world, These funds simply mimic the index that they track. The favorite of index investors is the S&P S00, of which Berkshire is a component. Index funds, it should be emphasized, own Berkshire shares simply because they ate roquired to do so. ‘They aze oa automatic pilot, buying and selling only for “weighting” purposes, In the other institutional bucket are professionals who manage their clients’ money, whether those funds belong to wealthy individuals, universities, pensioners or whomever. These professional managers have a mandate to move funds from one investment to another based om their judgment as to valuation and prospects. That is an honorable, though difficult, occupation, ‘We are happy to work for this “active” group, while they meanwhile search for a better place to deploy the funds of their clientele. Some managers, to be sure, have a long-term focus and trade very infrequently. Others use computers employing algorithms that may direet the purchase or sale of shares in @ nano-second. Some professional investors will come and go based upon their macro-economic judgments. Our fourth bucket consists of individual shareholders who operate in a manner similar to the active institutional managers I've just described. These owners, understandably, think of their Berkshire shares as a possible source of funds when they see anothor investment that excites them, We have no quarrel with that attitude, which is similar to the way we look at some of the equities we own at Berkshire.All of that said, Charlie and 1 would be less than human if we did not feel a special kinship with our fifth bucket: the million-plus individual investors who simply trust us to represent their interests, whatever the future may bring. They have joined us with no infont to leave, adopting a mindsct similar to that held by our original partners, Indeed, many investors from cur partnership years, and/or theie descendants, remain substantial owners of Berishire, A prototype of those veterans is Stan Truhlsen, a cheerfil and generous Omaha ophthslmologist as well as personal friend, who tumed 100 on November 13, 2020. In 1959, Stan, along with 10 other young Omaha doctors, formed a partnership with me. The does ereatively labeled their venture Emdee, Ltd, Annually, they joined my wife and me fora celebratory dinner at our home. ‘When our partnership distributed its Berkshire shares in 1969, alf ofthe doctors kept the stock they received. They may not have known the ins and outs of investing or accounting, but they did know that at Berkshire they would be treated as parness, Two of Stan’s comrades from Emdee are now in their high-90s and continue to hold Berkshire shares. This group's starting durability ~ along wit the fact that Charlie and I are 97 and 90, respectively ~ serves up an interesting question: Could it be that Berkshire ownership fosters longevity?Berkshire’s unusual and yalued fumily of individual shareholders may add (o your understanding of our soluctance to court Wall Stroct anklysts and institutional investors. We already have the investors we want and don’ ink that they, on balance, would be upgraded by 1eplacements. ‘There are only so many seats — that is, sharcs ontstanding — available for Berkshire ownership. And we vaty much like the people already occupying ther, OF course, some turnover in “partners” will occur Cuadle and I hope, howoves, that i will be minimal, Who, afterall, seeks rapid turnover in fiends, neighbors or marriage? Jn 1958, Phil Fisher wrote a supoth book on investing, Init, he analogized runing a public company to managing @ restaurant. If you are sccking diners, he said, you can atiract a clicntele and prosper featuring either hamburgers served with a Coke or a French cuisine accompanied by exotic wines. But you must not, Fisher warmed, ‘apriciously switch fiom one tothe other: Your message to poteatal customers must be consistent with what they will find upon entering your premises At Berkshire, we have been serving hamburgers and Coke for 56 yours. We cherish the clientele this fare bas attracted. ‘Tho teas of millions of oer investors aad spoculatrs i the United States and elsewhere have a wide variety of equity choices to fit their tastes. They will ind CROs and market gurus with enticing ideas. If they want price targets, managed exmings and “sores” they will ot lack suites “Technicians will confidently instruct thera as wo ‘what some wigeles ona chart portend fora stock's next move. ‘The calls for action will never sop. Many of those investors, I should add, will do quite well. After all, owncrship of stocks is very much 2 “positive-sum" game. Indeed, a paticnt and level-headed monkey, who constructs a postflio by throwing 50 daris at 1 board listing all of the S8 500, will — over time ~ enjoy dividends and capital gains, just as long as it never gets tompted to meke changes im its original “selections.”would be remiss if I didn’t salute another key constituency that makes Berkshite special: our shareholders, Berkshire truly has an owner base unlike that of any other giant corporation. That fact was demonstrated in spades at last year’s annual meeting, where the shareholders were offered a proxy resolution: RESOLVED: Whereas the corporation has more money than it needs and since the owners unlike Warten ate not multi billionaires, the board shall consider paying a meaningful amual dividend on the shares, ‘The sponsoring shareholder of that resolution never showed up at the meeting, so his motion was not officially proposed. Nevertheless, the proxy votes had been tallied, and they were enlightening, Not surprisingly, the A shares ~ owned by relatively few shareholders, each with a large economic interest voted “no” on the dividend question by a margin of 89 to 1. The remarkable vote was that of out B shareholders. ‘They nuinber in the hundreds of thousands ~ perhaps even totaling one million ~and they voted 660,759,855 "nia” and 13,927,026 “yes,” a ratio of about 47 to f Our directors recommended a “no” vote but the company did not otherwise attempt to influence wareholders, Nevertheless, 98% of the shaves voting said, in effect, “Don’t send us a dividend but instead reinvest all of the earnings.” To have our fellow owners — large and small ~ be so in syne with our ‘managerial philosophy is both remarkable and rewarding. Tam 2 lucky fellow to have you as partners. Warren B. Buffett4 6 Qo1F Enlerhirg Huthiwng ANWonl & In 2019, Berksbiee sont $3.6 billion fo the U.S. Treasury to pay its current income tax. The U8, goverament collected £243 billion frum corporate income tax payments during the same period. From those statistics, you wan take pride that your company delivered 1 ¥2% of the fedoral income taxes paid by all of corporate America. Fifty-five years ago, when Berkshire entered its current incamation, the company: paid novhing in federal i income tax. (For good reason, too: Over the provious decade, the struggling business had recorded a uct loss.) Since ther, as Berkshire retained nearly ail of its earings, the beneficiaties of thet policy became not only the company’s sharcholders but also the fexeral govemment. In most future years, we both hope and expect to send far larger sums to the Treasury,Warren E. Bursxrr Onrara, NimnAsice osist ‘earonnx (408) 40.4200 Some Tax Facts for Donald Trump Answering, a question last night about his $916 million income tax loss camyforward in 1995, Donald Trump stated that “Warren Buffett took a massive deduction.” Mr. Trump says he knows more about taxes than any other human, Te has not seen my income tax returns. But I am happy to give him the facts. My 2015 return shows adjusted gross income of $11,563,931. My deductions totaled $5,477,694, of which allowable charitable contributions were $3,469,179. All but $36,037 of the remainder was for state income taxes. ‘The total charitable contributions I made during the year were $2,858,057,970, of which more than $2,85 billion were not taken as deduetions and never will be. Tax law properly limits charitable deductions, My federal income tax for the year was $1,845,557. Retumns for previous years are of a similar nature in respect to contributions,-deductions and tax rates. Thaye paid federal income tax every year since 1944, when L was 13. (Though, being a slow starter, | owed only $7 in tax that year.) I have copies of all 72 of my returns and none uses a carryforward. Finally, I have been audited by the IRS muttiple times and am currently being audited. T have no problem in releasing my tax information while under audit. Neither would Mr. Trump —at least he would have no legal problem.BERKSHIRE HATHAWAY INC. NEWS RELEASE FOR IMMEDIATE RELEASE. July 8, 2020 ‘Omaha, NE (BREA; BRK.B) Yesterday, Warren E. Buffett, CEO of Berkshire Hathaway, contributed 15,971,345 ‘B” shares of Berkshire to five philanthropies. The shares, valued at about $2.9 billion, were given to the following foundations: Bill and Melinda Gates Foundation, Susan Thompson Buffett Foundation, The Sherwood Foundation, Howard G, Buffet: Foundation and NoVo Foundetion. Mr. Buffett's current contribution of Berkshire stock is the 15" installment of an annual ‘giving plac he initiated in June, 2006 and increased in August, 202. A procedural part of his plan is to annually convert sufficient “A” shares that he owns into “B™ shares, which are then. used to make his gifts Including the coniributions just made and a few miscellaneous philanthropic gifts that over the years have involved far smaller sums, Mr. Buffett has siace 2006 contributed Berkshire “B” shares that had a value totaling moze than 837 billion (as calculated by Berkshire's market price on the date of each contribution). These gitts, over the period that his giving plan bas existed, have reduced his holdings of “A” shares from 474,998 to 248,734. He has meanwhile sold no shares nor does he expect to sell any shares between now and his death, Mr. Buffett has received only minor benefits from tax deductions arising from his gills to the five foundations, During the 15-year span of his program, including projected figures for 2020, every $1,000 of contributions he his made pursuant (o his plan bas allowed him to deduct slightly less than $1 from his taxable income. Consequently, the combined federal and Nebraskit income taxes he has paid, again including projections for 2020, have been reduced by abot 43 cenis for each $1,000 of value be fas given the foundations. Looking ahead, Mr. Bulfeit envisions that all of the Berkshire sharcs he owns at his death wil] be distributed to various philanthropic organizations over the following 12 years. Again, SA” shares will be converted to “Bs” immediately before the specified distributions are made. The recipients of the gifts will be obliged to both spend their gifs in a prompt manner and to prevent their use, either directly or indirectly, for any kind of endowment pumpose. Contact Mare D. Hamburg 402-346-1400SEPTEMBER 29, 1986 “No!”’ says self-made ert tis Me Ta) Buffett— among other art Lh Pvc oeEXECUTIVE LIFE/COVER STORY SHOULD YOU LEAVE IT Ifyou do, you may not be doing them a favor. But if you want to, there are sensible ways of passing on what you haye without depriving the kids of a {feeling of achievement. Wi by Richard I. Kirkland Jr. JARREN BUFFETT, 56, the chairman and guiding genius of Borkshivo Hathaway, the phe- nomenally successful holding compaiy, is worth at least $1.5 billion, But don't botiser being jealous of his.threo chil dren, Buffett does not believe that itis wise to equeath great wealth andlans to give most of his money to his charitable founda: tion, Having pit his two sons and a daughter through college, the Omalia investor con- teats himself wit giving then several thou: sand dollars ezch at Christmas. Beyond that, says daughter Susan, 39, “IfT write my dada heck for $20, he cashes it” Bulltt is not cutting his ehildren out of his fortune because they are wastrels or wan: tons of refuse to go into the family busi ness—the traditional reasons rich parents ‘withhold maney. Says he: "My kids ate goi to earve out their own place in thie wor and they know I'm for them whatever they ‘want to do.” But he belioves that setting up his heirs with “a lifetime supply of food simps just because they came out-of th right womb" can be “h is “an satisocil act amouat to leave children is “enough mon so that they would feel dey could do any’ thing, but not go much that they eoulel da nothing.” For a college graduate, Buffett reckons “a few hundsed thousand dollars" sounds about right, ‘Hoy much sliould you leave the kids? Ag: conizing over that question is a peculialy Aunetican obsession. In much of the world custom tnd law dictate that children, ualess they have committed some heinous crime, automaticaly moat of the parent ‘wealth when they dio. Only Britrin amd her former colonies—common-law countries Travel magnate Cust Carlson, lof, ask, “How the hell dove heep ony money from destroying our 18 FORTUNE SePTEMER 29, 86 : IOTOCRANS BY AE KANSERids?” He ond wife A ost oftheir estate other daughters, right with her esbavc all_give property owners the freedom to leave their children whatever they want ‘And nowhere is the feeling about inhecited ‘wealth so ambivalent as inthe U.S. No coun- try so readily celebrates the selfsnade man, no culture is more suspicious thatthe silver spoon contains something vaguely narcotic. Says Curtis L. Carlson, 72, the Minnesota travel and real estate magnate (Radisson Ho- tel Corp,, TGI Friday's restaurants, and the AskMr, Foster travel agency), who has a met worth of: $700 million and’ two married daughters: “There's nothing people like me ‘worry about more—how the hell do we keep ‘our money from destroying our kids?” Certainly nowhere else in the world do so many parents enjoy the privilege of grap- pling with this dilemms. The Federal Re- serve Board estimates that some 1.3 million US. households enjoy anet worth of atleast $1 million, The vast majority of millionaires inherited cic wealth or built iton a business they founded, Plenty of corporate careerists have also racked up seven-figure estates by taking advantage of prost-sharing and pen- sion plans. But éoncern for how best to pro- vide for the offspring is not exclusive to the millionaires’ cub, Estate planning is fast be- ‘coming a major concern of the micidle clas. Whatever their misgivings about inher tance, most .Americans—tich, poor, and somewhere in between—keep the bulk of und the money ins ot. It hs prety snsch run out for some of the great names of U.S business: the Dodges, Reynoldses, and Van- exbilts, The sons of ‘Texas oil tycoon H. L. Hunt, whose fortune was once estimated at $8 billion, have just filed for bankruptcy pro- tection for the family’s corporate jewel, Pac id 01 Co OF G0 muitinilionaires recently surveyed, by. Foerune, six say their children will b better off with oily minimal inkcritances. Al- ‘ost half plan to leave at least as: much to charity as to their heies, In an area where al- mast no research exists, Alexander Sanger, partner with the law firm White & Cave in New York, offers a revealing static, OF 20 wills Sanger has drawn up for newly wealthy parents with net worths of $20 nilion or more, 16 left at least half the estates to charity. Of 12 comparable oldman: SEPTEMBER 29, 1986 FORTUNE 19EXECUTIVE LIFE Leaving nothing io his children, ey estates, only one gave so much away. Old money tends to keep its wealth in the fanily, “After a generation or more, inhexi- ‘ance hecomes a stewardship kind of thing’ says Alexander’Forger, head of estate law at the New York firm Milbank Tweed Had. Jey & McCloy. Sometimes, as in the ease of fone of the firm's clients, the Rockefeller family, the progenitor alrcady fattened some foundation with a big: endowment years ago, [Bven inheritors who want to give their noney away feel duty-bound to pass on some of their wealth to their children. George Pilsbury Jr, 37, a scion of the Mid: ‘western baking family, inherited more than 31 million while sil in college. He has spent his adult life building and bankrolling a net ‘work of foundations that tap young inher tors for a variety of Uberal causes, “Robin Hood was Right.” declares one foundation pamphlet, Pillsbury believes in “much, much higher" inheritance taxes. Yet despite erortan Assocure Carre Gould =o 20. FORTUNE SEPTEMAER 29,1906 politics, he says “it seems unfair” not to Jeave his two young children at least a few hundred thousand dollars. Why shouldn't parents leave it all to the ehildren? Newspaper headlines shriek the ‘more lurid reasons—drugs, derangement, even murder. In July a Pennsylvania judge ruled Lewis du Pont Smith, 29, heir to $1.5, nilion of the Du Pont fortune, "mentally i competent” to manage his affairs; Smith had ‘been handing aver thousands of dollars to po- litical extremist Lyndon H. LaRouche J. This jh a Florida judge sentenced Steven Ben- ‘80n, 36, heir toa $10-million tobacco fortune, to 72 years in prison for killing his mother and her adopted son with a car bornb HAT usually troubles successful cnteopreneurs and exccutives, however, i the mundane but far more likely prospect that large ‘inheritances will encourage their offspring fo do nothing useful with thei lives. They wor- ry that Commoxtore Vanderbilt's grandson 50-miltion man Kugene Lang, middle lls his family help decide which worthy cases to fu. William, heir to some $60 milion in 1885, was right when he dectared that “inherited wealth + i. as cértain death to ambition ie coceine to morality.” (An indifferent businessman and dedicated bon vivant, Wiliam suffered a fatal heart attack ata fashionable French race track in 1920.) Says ceatimilionaire Curt Carlson: “I know one extremely wealthy Minnesota family that has 63 heirs in the fourth generation, and none is gainfully em- ployed. I think that’s terrible.” One self-made multimillionaire Wants to ‘ensure that his heirs are leading productive lives before they gct a share of his estate, He has set up trusts for each of his childrgs—a sound estate-planning practice even for mid dlesincome families (sce box, page 24). None of the trusts pays a penny until the child reacties 30. Until then, reprene says, he expects his sons and daughters, all still under 30, to "live on the salaries that young adults who are college graduates can make.” ‘The terms of his trusts als6 allow him is executors to withhold the kids! patsLeaving semathing 1 histo children seems only air to Geongu Pils, scion of thu bal mony in certain situations. Says he: “I be- Fieve you've got to be doing right, or you don't get anything. If] end up witha 30-year old who's net worth a plugged nickel, all his money goes to my persciz foundation.” INCOURAGING rich children to be ‘selfsupporting ean be good for them. Jolut Levy, executive director ofthe C.G, Jung Institute of San Francisco, has spent the past five years studying the ef fects of inherited wealth on 30 families. He concludes that many wealthy children experi fence “considerable suffering and depriva tion because they have litle selfzespect. es hari for them to take much satisfaction snpishments since they alway suspect that their successes are at least patt Jy the retull of the wealth and position they’ have inherited.” ‘To let bélr,pate cents? long shadows is the main reason rich individuals choooe to withhold or limit their legacies. New Yorker Eugene Lang, 67, for example, built @ fortune of more than $50 milion by founding REFAC Technology De- velopment Corp, a high-Wch licensing com: pany. Lang paid for the education of his three hildren and after college handed ea nominal sumn"—he won't say how much ‘Since then he hes given them nothing but em. ‘couragement. Sey Lang: To meinheritance dilutes the motivation that most young peo- pile have to full the best that ig in thein. 1 ‘vant to give my kids the tremendous satis faction of making it on theic own.” Now Sn their 30s, his children are a lawyer, an actor, lyst. They will get ‘and an inyestinent nothing from their father's estate. Lang plane to provide “adequate security” for his wife and bequeath the rest to a chavitable founda- tion. He has already given away more then {$25 million to hospitals, colleges, and a schol arship program sor Harlem sehoolehildren, Californian Goiton Moore, 57, who cor founded semiconductor’ maker Intel and worth §200 million, agrees that “children ‘ought to have a sense of accomplishment for ing family. But he alo belcees in higher inbenitance taxes, what they've done.” Moore set up small 8 for his two sons when they were “the sort of thing that let my older boy make a down payment on the house” but does not plan to do much more. He ex pectstoleave “almoat everything” to chatty Sil, the urge to beap most of the wealth upos the family continues to be powerful. rather give my money to my kids than do anything else with it,” says Jackson T. Stephens, 69, chairman of Stephens Tne. of Little Rook, Arkausas, the largest invest: ment bank outside New York. “If my heirs ‘want to clip coupons, that'll be their busi- ness. I can't control the future, and Pra not golng to worry a whole bunch.” Stephens, ‘who has four children, and his older brother Wilton, who also has four children, share a set worth of a least $500 milion, ‘Some enirepreneurs and thei heirs argue ‘that rather than sing a disincentive to work, an inheritance can give a childs target to out- Strip. “Teel Eve got to make my mark equal ‘or better than my father,” says Warren Ste- SEPTENVBER 29, 1996FORTUNE 21EXECUTIVE LIFE jloper M, Larry Lawrence, 60, who has three children and a fortune worth mare than $200 milion, concurs. Says he, “If the children have been brought up right, they ‘end up attempting to outdo the parents.” INEVITABLY those who hand on their wealth sce proper upbringing 1s the ulti- mate safeguard against potential prob- lems. Says Katharine Graham, 63, chief executive of thie Washington Post Co. and head of a family whose fortune totals some {$350 milion: “My instinet-would be to just pass the money on and hope that in doing 30 ‘you also pass on your values—how to use i the lie to lead, the standards to have: Besides, some rich individuals argue, not siving it to the children can cause problems too. Says one: “If you're the child and you ‘see your father with allthis dough and you get.some but not much, I just can't help thinking resentment will enter in Buffett, who works in Washington as an ad ministrative assistant to the editor of U.S. News d World Report avd is mario to a pub: lic interest lawyer, admits her father's posi- tion is tough to live with: “My dad is one of the most honest, principled, good guys I Iknov,” she says. "And I basically agree with him, But it's eort of strange whea you know ‘most parents want to buy things for theic kids and all you need isa small sum of mon: ey-—to fix up the kitchen, not to go to the beach for six months. He won't give it to us on principle, All my life my father has been teaching us. Well, I feel I've learned the lesson. At a certain point you can stop.” Parents who disinberit not on principle but because they disapprove of their young hei’ behavior face «troubling prospect they right he making a mistake, Just days before committing sbicide in 1963, R. E, ‘Tamer, J the father of maverick television sogul Ted Turner, acranged a quick ale of hip Atianta billboard Insiness to. Cart Cal son. Recalls Carlson, wo hado eathat the ider Timer wan planning toil himselé fe told me he wanted to have some money to leave his wife when he did, bt that ev ‘ecything he had was tied up in his business. He said he was sure if Ted ot his bands on the ustess, he would rim it into. the around," Within days of Tueners death Carl Son gota cal fom hs widow, Florence, anda visit from Ted, then 24, Says Carlson, “Tis Imother wanted Ted to have the business buck, and Ted, who can be very convincing, talked about how this was hs ane chance to get going in life.” Persuaded, Carlson sold mDexter D. Cofin IIL, 37, grew up with servants, yachts, private boarding schools, and a US. family lee that dates to the mid- 116008, That's when his Dex- ter and Coffin forebears settled Cape Cod and Nan- tucket Island. He is heir to more than $6 millon, held in three trusts. Their principal holding is stock of Dexter Corp,, a manufacturer of spe alty chemicals that isthe na- tion's oldest publicly traded ‘company; his uncle is chair. Imprisoned in Virgin 4 17-year term in a Virginia state prison for prescription fraud. His first skirmish with the law came at 24, when he was con- vicled of stealing a yachtin Florida, Four years later, after a bout with pancreatitis, he became addicted to Tussionex, a potent, opiate-based cough suppressant. Ife csims that treatment for subsequent illnesses reinforced his addiction, In 1978 he was first charged with using fraudulent prescriptions. The sentence: five years’ probation. ‘Then Coffin attempted a comeback. Thrice divorce he mar- ried fora fourth time, moved to Vieginia, and invested in a com- puter store, Cofin's drug habit led to the store’s kankruptey, ‘was out every single day trying to obtain drugs to keep myself ‘rom going through withdrawal,” he says. He was up to 60 Tus- sionex pills and 30 other painkillers « day, a dosage doctors say could be fatal ‘Articulate and well groomed, Coffin got the drugs by imper- 22 FORTUNE SEPTEMBER 29, 1985 A TALE OF THE RICH AND INFAMOUS Deter Caf I, right, with his taser soniting doctors. and law yers. Says his attorney, ‘Michael Morchower: “Put drm in a suit and tie and put dim in front of a doctor and ‘he could pass for anyone.” His impersonations landed him in a Charlottesville, Vir nia, prison. In April he es- caped. He had been returning from a psychiatric session ‘with his wife and two armed. ‘uards whien he sneaked out of a roadside restroom and sped away in his wife's Line cola Continental. He says he ran because he felt his life ‘was in danger. He was caught trying to buy drugs in New Hampshire, ‘While Coffin was on the lam, the Connecticut Bank & Trust Co, the family’s bank for generations, cut off his trust funds ‘They had not been paying much $185,000 in 1984; $109,000 in 1985, One trust has been the subject ofa six-year court battle in ‘which Coffin, his mother, and his three siblings sought the re- ‘moval of the bank a8 trustee. “The problem is these bankera play God," Coffin says, “They decide how much you're going to get, and how you're going to live." Citing client confidentiality, ‘the Connecticut bank declined to comment Reflecting on his ealy ite of priviege, Cofin says, "I had ‘everything and more.” With his lawyer nearby, he is not now willing to blame his problems on his inheritance. Bat in June he told 2 Washington Post reporter: "If Thad not known there ‘wokid always be money, T would have done something more constructive with my He’ Carrie Gottlobthe business back to Ted, who has been going fast ever since. Estaté planning is particularly ‘tough when the legacy is family business, Most entrepreneurs do not plan to cell out, as RE. ‘Tumer did, but ‘try to keep the ‘business in the family. Says Curt Carlson, whose privately held Carlson Cos. brought in revenues ‘of more than $3 billion last year: “You think of your company as your own baby. You hate to think of someone buyig t and then the name is gone.” But leaving it to the cildren will not guarantee that the bust ness stays in family hands. Be cause of fraternal fights, the Bingham family’s Louisville news- paper and broadcasting empire Went up for sale last January. De- structive squabbles are most like ly-to break -out when family members uy to sell. company stock to outsiders, an act viewed as disloyal by those desperste to keep con- trol. In St. Louis the heirs of legendary Jo- seph Pulitzer staged a noisy row this year over the altempted sale of some Pulitzer Publishing Co. stock. The family members who wanted to sell bicked a takeover bid by Alfced Taubman, a Detroit-based real estate developer. Chairian Joseph Pulitzer Jr, his half brother, and a cousin struéica dea to buy cout the dissidents’ shares at three times the pre-fead price. Taubman is stil fighting in the courts Chicago, centimillionsice Lester Crown, Gi, worries that mescenary motives among fanily members could one day force the breakup of his very private business empico. ‘The Crowns’ okiings range from building, saterials, hotels,-and real estate to 23% of General Dyaamics, one of the largest U.S. defense: contractors. Over the years, says Lester, he and his father, Henry, 90, have “shvays treated our operations 28a common pot.” They have handed out voting shares ‘and limited partnerships in the various buis- nesses to Lester's uncles, cousins, brothers, nicces, and nephews, as well as his! seven children. Legter predicts that “one of these days we're going to get hit in the back of the head because we did this.” If he could do it over again, be would stil give the family “the ability to exjoy the good he" by setting 'up a single trust to pay out « guatantéed income to everyone. But he would, make sure that control of the companies was ‘re Investor Warren Buffet says leaving children alot is “haymful.” tained by those who operate the business.” The Coors family of Colorado has kept its brewery bubbling with just such an arrange- ment since 1969, All the company’s voting stocicsits in g trust, whose trustees can only be family members aetive in the business. Says Bill Coots, 70, cheirman of Adoph Coors Co, and grandson of the founder: "We've mininized fazily feuds by concen- ‘wating control in the hands of those most dedicated to preserving the family values.” Waren Buffett argues that most prope tors should forget trying to keep the man: agement of their beloved companies in the family, he asoumce current nonfamily man agement will continue running Berkshire Hathaway ater he is gone, He grants that oo- casionally an heiv may be the most suitable Oilman T Boone Pickens, with wife Becric, wil give half his estat charity, ee candidate to manage a company Dt believes the odds are against it. Says: Buffett: “Would anyone say the best way to pick a champi ‘onship Olympic team is to select the sone and daughters of those ‘who won 20 years ago? Giving someone a favored position just bocause his old man accomplished something is a crazy way for a s0- cdaty to compete.” Butlett especially admires how fellow Omaha businessman Peter Kiewit solved his legacy problem. Kiewit arranged his affairs so that when he died in 1979 his 40% stake in the family’s enormously successful construction company was sold to employees. The pro- ceeds from the sale then went toa ‘chatitable foundation that he hal established to promote education ‘and social services in Nebraska. Kiewit left approximately 3% of his $186-million estate to his wid- ow, his son, Peter J., 60, and oth ex relatives. Peter, a successful’ Phoenix lawyer, was surprised by the $1.5-million leg. acy he received at age 53. Says he, “I was raised to expect othing, and supported iny- self all my life. In the end, think my father ‘was saying from the grave thal he approved.” JOR WEALTHY PARENTS, and even or those with more modest estates, the question of how much to leave the ids is a highly subjective matter. But here are afew points worth keeping ia mind. > Don’t play hide-and-seek. Forget locks ing-your will away in mystery lice some 19t- ‘ochtury mises, Bring the family finances into the daylight, so the children will know what they are getting and where it came from, and will have some idea how to hold on to it., ‘They should also, of course, know if they axe not getting anything. For example, George Fillsbury knew that he woukd get more than ‘$1 milion when he turned 21—"U's tough to bbe unaware of your wealth when you have a and name,” he says. But many of his friends had no idea what was coring to them. “A lot of them were shocked," he re- calls, and some had trouble coping with their new fortunes. John Train, whose investunent firm claims to be the largest ia New York City serving rich families, recommends that talks about ‘money, lke those about sex, begin as early as possible, These can evolve into full scale sessions .on the fomily fiuances, Lester SEPTEMBER 29, 1986 FORTUNE 23EXECUTIVE LIFE Go ahead, give ital to dling daughter Debbie, And while you're at it, disnherit John Jr. He cant spend it in reform school anyway. But remember, merely putting seh desis in a wil may not ensure that your estate winds up in the right hands. Debbie may need some elaborate trust arrangements. She is too young to handle all that wealth now, and her favnite beau is 4 no-good whose principal aspiration is to marry your money. You must also make sre Jou will aot have his day in conrt and collet an inheritance anyway. Finally, you must account for tht other moody, if :uchnloved, relative that estate planners refer to simply as “Uncle.” If your estate uns nto the millions, he-could get 56 cents ‘on the dolla. “The iret estate planing priority is usu ally 19 provide for the surviving spouse; the ids can always inherit the second estat. You ean leave your entire estate to your spouse without paying federal estate taxes But if youdo that, you will miss an addion- al break: $500,000 can go to your children or other beneficiaies laciree. Next year the iit wil ise t:$600,000. 1 you hangin tl then, you can use the $600,000 exernp- tion (wo waya, Firat, you can leave that amount to the children outright. Or you can setup 2 $600,000 trust at givesincome to your spouse and principal to the chiliren ‘when your spouse dies. I you set up 2 “qualified terminable ia- terest property.” or QTIP, bust, you can contol the destiny ofthe unlimited amount you leave to your spouse tax-free. After you are gone, your spouse will collet the fncome on the trust hut will not be abe to tap the principal, except in emergencies. When the spouse dies, the principal will go tothe beneficiaries you have chosen; prob aly your chiliren. Your spouse's estate will have to pay taxes, but only on the ‘mpount over the $000,000 exemption. The TIP trstis popular in the case of second co third marriages. It pzevents the stryiv jog spouse from diverting the wealth to seaneane other than the oiginal hers. ‘Tax incentives should make you want to sive some of your estate away while you sue stil alive. Every year you can give $10,000 to each of your eildren or anyone fuse. Your spouse can give yet another HOW TO—AND NOT TO—GIVE IT AWAY {$10,000 10 each. ‘Thus a couple can pass $20,000 a year to a child. A loxical gift fr children isan asset that may well appreciate, such as a growth stock or undeveloped real estate. Such a sift will not hurt your pocketbook much and could easily fall under the annual exerp- tion, But if you contioue to hold on to the sel, it could trigger a huge tax later on. ‘Larry Biehl, a financiat adviser in San Mateo, California, recommends another ‘way to avoid estate taxes. When you por- chase a condomizium, say, you can divide the ownership into two parts a "ifetimein- terest,” which you buy, and a “remainder {ntereat," which your child buys. The Inter- nal Revenue Service requires Uat the child put up the money, although gilts from grandparents could boost his pucchasing, power, Your life expectancy, acoording to TRS actuarial tables, determines how the ‘ownership is split 80% to 20%, for exam- ple. When you die, we lifetime interest is legally dissolved and—presto—the child assumes full ownership tax-free. After a lifetime of lavishing gifts on the kids, you might want to turn over most of your estate to your granéctiliren. In the past that made sense, particularly since wealth could pass to several generations in trust, witl estate taxes. paid. only once. Congress tightened this loophole in 1976 ‘with a tax on "generation skipping” trust, though dicect transfers to grandchildren [Temi Gatate of Samael et e fr Revhowte, Dee s05,9685907.00 were not affected, The aitrent tax reform bill would also apply the generation-skip- sing tax to divect transfers. But only the very rich nced werey: You can leave up to $2 milion to each grandchild without pay- ing the extra levy. if you co plan to skip your children alto gether, you had better say sin your wil. I you simply omit ary reference to Joby in ‘that document, rather than specifically is- ‘inheriting him, be might have the makings ‘of d successful will challenge. ‘Where big bucks are involved, a will cone test can be a real gravespioner, like the case brought by the children of muitiil- Jhonaire Charles S. Payson, who died last year at 86. Most of Payson’s wealth came fom industrialist Payne Whitney, the fa ther of his ist wife, Joan When she died in 1975, the bulk of her $172milion estate ‘went to Charles, His will gave his son a cemetery plot, land, and peroonel property; his three daughters got only some paintings. Payson rave $20 million in cash, stock, and real es- tate to his second wife, Virginia, and put much of the rest in a QTIP trust. The in come from the trust goes to Virginia. Bul this case demonstrates a flow in the QUIP setup: stepmother Virginia and t Payson chien are of the same generat (et 56, she’s younger than two of them), so the “kids” may not ive lng enough to cok leet the QTIP principal. Charles's children are challenging the will on roany grounds, including «claim thatthe second Mas. Pay- | aatel | Disagreeing withthe 2RSowran estate's sale cam be etrensely costly. The feds clashed sith the Samuel I. Newhouse esate oer the seals of his company’s stock, The yesulls an overdue notice of $509 millon and cham. 2A FORTUNE SEPTEMBER 29, 1986 ——EEeEeEee>E>ye———EE—————————————————————‘on used “undue influence” in directing 80 much weelth her way. Such squabbling isnot limited tothe rich, “Will contests are more a matter of frus- trated expectations than anything else," says Jonathan Blattmachr of the New York Jaw firm Milbank Tweed Hadley & McCloy. Blattmachr tells of « widower who sought to Jeave 959% of his $200,000 estate to his impoverished daughter and 5% to his son, a ‘successful doctor, who was worth zbout $2 millon, The con challenged the wil and sct- tled out af court for another $5,000. ‘Unce's” appetite for a share shows up dramatically where estate assets are hard to value, notably famuly-held. companies. For example, take the estate of Samuel L Newhouse, the newspaper king who die in 1979, In valuing his Advance Publications Ine,, estate experts at Chemical Bank Jooked at price-earnings ratios of similar but pubicty traded companies and set a market price of aboat $1 bilion. The bank then assigned a substantial part ofthe value to the nonconvertible preferred stock, owned by the Newhouse beirs. The patr- arch’s holdings, all the common stock, ‘came to only $179 million ‘The IRS saw things differently. It calcu lated the company's market value at $1.5 Dillion, then discounted that price by the cost of liquidating the preferred stock. (The assumption is that an outside buyer ‘would have balked at the burden of paying the preferred dividend.) The remaining val- uc, all assigned to Newhouse’s estate, was {$1.2 bilion, In 1983 the IRS mailed off a “notice of deficiency” tothe estate, levying, ‘more than $608 million in additional taxes and a $306-million penalty for fraud. The ‘Valuation is sil in dispute. Marion Fremont‘Smith, an estate plan- Aer at the Boston law firma Choate Hall & Stewart, suggests that founders of growing. ‘companies consider swapping their com- ‘mon stock for preferred stock and a new Fssue of common. Such transactions are taxéree. The preferred shares can provide ‘teady income for an aging founder, while the new common stock ean be given to chil ken through annval exclusions and the one-time exemption. Their stock will ap- eclate as the business thrives. So if you Jat to leave your children a legacy, lt it © Something other than a dunning notice . fom the IRS, = Maggie MeComas Ross Perot, with jartof his family in 198, says children should nol grownpin "Jairylond, Crown is a big booster of this idea: “We started when the kids were young and put ‘the dollar signs in as they got older." Former Treasury Secretary William Si ‘mon, who has made tens of millions in lever- aged buyouts since leaving Washington, says that at one of his family’s regular meetings, his seven children had to read and discusa I9th-century steel magnate Andrew Carne- sie's essay “The Gospel of Wealth.” (Carne Bie argued that by giving away their great fortunes, rich men would produce “an ideal state in which the surplus wealth of the few ‘will become, in the hest sense, the property of the many.") ‘Though the children of Eugene Lang will not share in his estate, they and Lang's wife are trustees of his private founeation adjoin in deciding where to give. Says Lang: “In a way they’ce sjending their inheritance with me here and now and getting alot of satisfac tion and joy from it” ‘No amount of family talc wil guarantee thatthe childcen will not turn out ike Tommy, Manville, the asbestos heir who went through 13 marriages and milions of doliars, ‘or Huntington Hartford of the A&P fortune, who has lost a reported $90 mnllion in a life time of bad business deals. Butt should help, > Shelve thie silver spoon. Psychiatrists say the lack of worlcexperience not only alienates heirs from humanity, but also contributes to insecurity about the ailty to survive with- out their inheritance. H. Rowe Perot, 56, the, ‘Texas billionaire who founded Blectronic Data Systems, « computer services company and sold it to General Motors, puts if this ‘way: “If your kids grow up living in fairyland thinking that thoy'e princes and princesses, youre going to cxese their Hives.” . Boone Pickens Jr, chairman of Mesa Petroleum and worth tens ofnilions of dol lar, remembers his middle-class upbringing as “the best 2 boy could have." When he sraduated from college, Pickens thought his father, a buyer of il ieases for PilipsPeteo- Jeum, might ive him $800 or so. Instead, all hae got was “good luck.” Pickess pans to leave a least half his estate to charity; he has arranged what he considers rmnall its for is five cilren and three stepchildcen, Says he! “If you dont watch oxt, you can set up a situation where 2 chi > Don't be ofraid to experiment. Robert D. Rogers, chief exécutive officer of Texas Industries, a manufacturer of cement arid steel, sivears by a Texas-size version of eve ery parent's basic financial tx the allowance. At 18, each of ‘dren began receiving annual stipends’ that covered living expenses and then some— college costs, clothing, travel. ‘The young yr the snoney, but if t ran out, tougi luck. As an incentive lo save, the children could claim whatever remained when they reached 25. "My old- est son ran through his frst year's income in nine months and ad to go to work," re- calls Rogers, who credits a ‘Texas Instru- ments co-founder, Eugene McDermott, with the ides. Young” Rogers never ran out again. If you are going to leave money to your childven, @ generous living allowance SEPTEMBER 29,1986 FORTUNE 25it’s fun. It’s easy. It’s free. Us CovelMaker: the new eurrent vents quiz from the TIME Educa jon Program that makes learning a joy ind as timely as this week's news Designed #0 be used on the IEM PC, SovertMaker isn interactive pane that notivates students to read, to think srtically and to care about what is soing on inthe world aro then And teachers love the vay Cover- Maker works so easily into thei Seulum saving hours of preparation lane. Ten minutes a week is all itakes ‘br CoverMaker’s automatic tetephone delivery. Best of all, TIME is offering this nique and innovative social studies oftware program free to all high sehools and middle schools Interested parents and students should talk to their teachers. Bauca-| ‘ors, call tll free, to learn: more ahout aese much CaverMfaker can do for your social studies class, F LA CALL 1-800-523-f eet ‘G Penneyivania call 1-900: "FREE TO SCHOOLS: FROM TIME CovertMaher: Developed! with design sport torn IBM dveational Systems 26 FORTUNE SEPTEMBER 29, 1986 EXECUTIVE LIFE they ill do with it Parents who want to encourage their off- spring to work, snd provide them a little ex- toa money besides, can create income trusts designed to match or double the child's salary. The trusts also can be sot up to pay oul principal a child achieves some objective, such as attaining tenure at a university oF even holding down a steady jo: > Give inter rather than sooner. Most es late advisers now agree that 21, the age of majority, is oo early for most children to reap a wind. Warns John Train: "Very Jarge sums handed aver to children who have donenothing to desecve them ahnost inevita- bly tend to corrupt them.” Ross Perot, as usual, is mare blunt: “Anybody who gives ids alot of money at 21 doesn't have much sense.” Bill Simoa suggests that | parent” put-a reasonable amount in trust | that only starts paying interest at, say, 35, and then allows aoxess to principal in two ia siallmients at 40 and 45. What's a reasonable ‘amount? Says Simon: “Everybouly has to dk fine that for himseli? > Trust in God and Yeke short views, It's 2075, Do you know who your great-great ‘grandehiéren are? Do yor really care? Louis Auchincloss, the novelist, estate lawryer, snd scion of one of America’s most prominent families, belicves the "dynastic impulse” is on the yane in America, “When I came out of law school, people were always deeply con- cerned about their great grandelildren,” he says. “Nat now." That may be no bad things tho US. is littered with indolent people who ix lawyer Peler Kiet} recived only 1.5 ion of his father's $186-million estas were mined by trusts set ap by adoring ‘grandparents, Besides, Congress has tightened tax loop- holes that cncourage ‘generationskipping ‘trusts, If you want to ensure some account ability among your heirs, you might consider Ross Perot's advice to make bequests ane ‘generation a atime, Says he: “Let your chil dren decide how much to give their chien.” > Don't tive end die in Louisiana, The Bay- ‘ou State adheres to. the Napoleonic Code, ‘which requires forced heirship: A single chile ‘entitled to claim one-quarter of any estate, two or more children spit half-Ifyou want to ive more, that's no'problem. If you want to disiaherit, Haton Rouge lawyer Gerald Le ‘Van says the state recognizes 8 few reasons as valid attempted assault against the pat ‘ent, conviction for a felony, and a debatable rule, just passed by the legislature last ses sion, "fatire to communicate for two-years without just cause.” If you want to give ital to chavty, Le Van advises moving to another slate. ) Put child rearing before estate plan- ring, Chicago psychoanalyst Roy Grinker Je: worked withthe children of the very rich for 15 years, Often the problem in wealthy households, he says, ia that parents pay too Kitle attention to their children's upbringing. “Rather than give tich pareats money ad vice, T woukl pve them child-rearing, ad vice!” says Grinker. "I woul say, "Pay, attention to yont kids, spend some time with ‘yout kids, love your kids,” " Warren Basfleth ‘cheeefilly agrees: “Love fa tho geoatest vantage a parént can give,Stop Coddling the Super-Rich - NYTimes.com EheNew dork Gines, 4 Ropt ints August 14.2011 Stop Coddling the Super-Rich Omaha OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me, I checked with my mega-tich friends to learn what pain they were expecting. They, too, were left untouched. While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends mest, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who carn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 45 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they'd beon long-term investors, ‘These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls ot some other endangered species. It's nice to have friends in high places, Last year my federal tax bill — the income tax 1 paid, as well us payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money, But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower pereentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 pereent and averaged 36 percent, Ifyou make money with money, as some of my super-rich friends do, your percentage may hea bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot. To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these reventies came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes, It's a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot, http:/www.nytimes.cony/201 1/08/ S/opinion/stop-coddling-the-super-rich-html?_m1&pagewante.... 9/20/2011Stop Coddling the Super-Rich - NYTimes.com Page 2 of 3 Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends. I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation. Since 1992, the IR.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent, ‘The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income, In fact, 88 of the 400 in 2008 reported no wages atall, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.) I know well many of the mega-rich and, by and large, they are very decent people. They love ‘America and appreciate the opportunity this country has given them, Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn't mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering. ‘Twelve members of Congress will soon take on the crucial job of rearranging our country’s finanees. ‘They've been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It’s, vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country’s fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality. Job one for the 12 is to pare down some future promises that even a rich America can't fulfil. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduetion in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get. But for those making more than $1 million — there were 236,883 such households in 2009 — 1 would raise rates immediately on taxable income in excess of $1 million, including, of course, huttp://vww.nytimes.com/201 1/08/15/opinion/stop-coddling-the-super-rich.html?_r1 &pagewante,.. 9/20/2011Stop Coddling the Super-Rich - NYTimes.com, Page 3 of 3 dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — | would suggest an additional increase in rate. My friends and I have been coddled long enough by a billionaire-friendly Congress. Its time for our government to get serious about shared sacrifice. Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway. http://www .nytimes.com/201 1/08/15/opinion/stop-coddling-the-super-rich. htm =I&pagewante... 9/20/2011