How Billionaires Are Fighting Over Taxes
By Janet Novack & Ashlea Ebeling
This column appeared on Forbes.com, Oct. 7, 2010; printed Oct. 25, 2010

Has there ever been a time when so many Forbes 400 members have been involved in so many tax fights--on both sides? And not just in Washington, D.C., where epic battles rage over the future of the federal estate tax, income tax rates for the rich and whether the earnings of private equity and hedge fund managers should be taxed at 15% or 35%.

In Washington State, for example, Microsoft Chief Executive Steve Ballmer and Amazon founder Jeff Bezos have given $100,000 each to defeat ballot initiative 1098, which would slap a 5% tax on income over $400,000 per couple and a 9% levy on income over $1 million. On the other side is the nation's richest man, Microsoft cofounder Bill Gates--not surprising, since his dad is promoting the new tax, which would fund education, health care and other tax cuts. Gates Sr., 84, has given $500,000 to the 1098 campaign and even filmed a comic "soak the rich" ad for it, which ends with him dropped into a dunk tank.

Gates Sr. readily concedes he's in the minority among the highly affluent. "It's quite natural for people who are well-to-do to resist paying more taxes. In fact, it's quite natural for every person, everywhere, of whatever means, to resist paying more taxes," he says. "The interesting side," he adds, "is the number of people who are well-to-do who feel that this is something that should happen and that taxation should be progressive." (Washington State now relies on real estate and sales taxes, which hit the less wealthy harder.)

In California, too, The Forbes 400 vote is split. Rich lister and former eBay chief Meg Whitman is running for governor on a platform that includes killing the state's capital gains tax, now as high as 10.55%. That could save a bundle for those of her rich list backers who live in-state, including Scott Cook, Craig McCaw, Charles Munger, A. Jerrold Perenchio, Thomas Siebel and Jerry Yang. Yet California's richest man, Oracle Chief Larry Ellison, backs Democrat Jerry Brown, who supports the tax.

Then there's the epic battle over the future of the estate tax, which (thanks to the Bush tax cuts) is defunct for 2010 but comes roaring back in 2011. Some rich listers, including Charles and David Koch and the Mars family, have long bankrolled lobbyists and/or organizations advocating an end to the "death" tax.

Meanwhile, the list of rich folks openly supporting the tax has grown. Warren Buffett told Congress that a progressive estate tax is needed to keep the nation from moving "toward a plutocracy." Hedge fund billionaire Julian Robertson recently opined that the fairest way to get more deficit-closing revenue is "to tax the least deserving recipients of wealth, which are the inheritors." He and rich listers David Shaw, George Soros, John Sperling and Ted Turner have signed a "Responsible Wealth" project statement calling for the tax to be preserved. So have the six children of David Rockefeller, the oldest member of the 400. "If there weren't estate taxes, we might be in a position to inherit a great deal more, and I don't think any of us wishes that was the case," says daughter Neva Rockefeller Goodwin, a Tufts economist. "I recognize the danger of fortunes piling up and creating huge concentrations of wealth,'' she adds.  [emphasis & links added]

Splits among the rich on taxing the rich aren't new. "Some rich folks have always advocated positions against their own economic interests,'' says Clint Stretch, managing principal for tax policy at Deloitte Tax. In an 1889 essay Andrew Carnegie argued estate taxes are needed to prevent spoiled heirs and to put wealth to use for the common good.

Still, Gates Sr. says, the redistributionists (though a small minority) are more organized and seem more numerous than when the current estate tax debate got rolling in the mid-1990s. He notes, too, the recent campaign by his son and Warren Buffett to persuade other billionaires to pledge half their wealth to charity. "That's brand-new, to have a halfway-organized effort,'' he adds.

Then, too, tax battles are center stage these days, raising the profiles of participants and the temperature of the rhetoric on both sides. In August Blackstone Group Chairman Stephen Schwarzman had to issue an apology for comparing the Obama Administration's attempts to increase taxes on private-equity managers with "a war . . . like when Hitler invaded Poland in 1939."

Have the nation's dire fiscal situation, the current historically low tax rates on the rich and the growing concentration of wealth also influenced some rich folks? Perhaps.

Peter G. Peterson, another Blackstone billionaire, has been funding efforts to bring the federal deficit threat to the fore. Some liberal bloggers claim he's simply out to savage Social Security. But in a statement to FORBES Peterson said he believes tax hikes for the rich must be part of the solution, too. "Fortunate Americans like me have more than enough and should be willing to take on higher income tax rates, a progressive consumption tax and reduced benefits." He added that the "large and growing" disparity of wealth "threatens the basic ideals of fairness."

Then there's Tom Golisano, the billionaire founder of Paychex and antitax gadfly who ran for New York governor three times. After New York raised its top income tax rate last year, he moved his legal residence to income-tax-free Florida. He fought the tax assessment on his Mendon, N.Y. estate, won in court and last month held a seminar for 650 of his Rochester, N.Y.-area neighbors on how to challenge tax assessments.

Golisano doesn't think the estate tax is a good thing. "Philosophically, I don't believe in the concept of the estate tax. I call it the 'grave robbery tax,'" he says. Still, he seems weary of this particular war. "If we have to have it,'' he says, "I wish we'd come up with a set of rules and stay with it." He adds: "How do you do estate planning when you're constantly concerned about changing rules?"

Read this column on Forbes.com