Wednesday, July 12, 2006

Two Cheers for Gates and Buffett

Irwin Stelzer gives two cheers for the philanthropic merger of the world's two richest men, Bill Gates and Warren Buffett. Stelzer reserves the thrid cheer because the two rich guys are allowed to give their fortunes away tax-free, while giving more than $12,000 annually or $1 million lifetime to a child is taxed up to 46%. Additionally, although Gates and Buffett argue against "dynastic wealth," they will effectively remain in control of their fortunes for as long as they live, and their children will have billions of foundation money to manage along "with all salaries, power, and prestige that confers."

Stelzer also questions whether Buffett having Gates on the board of Berkshire Hathaway BRK.B and Gates having Buffett on the board of his foundation violates the Sarbanes-Oxley law, requiring directors to be independent of management. As Stelzer puts it, "one can't help wondering how eager a properly appreciative Bill Gates will be to questions the management decisions of a man who has enriched his foundation with a contribution of some $31 billion. And it is reasonable to ask whether Buffett will want to questions Gates's philanthropic decisions, at the risk of antagonizing a member of his own company's board."

Third, charity begins at home, and it would seem that this philanthropic merger "hardly constitutes 'giving back' to the system that made the wealth creation possible."

(It occurs to me that helping Hurricane Katrina victims hits Buffett too close to home, since Berkshire Hathaway is primarily in the insurance business and suffers losses at the hands of hurricanes -- though it also promptly raises premiums in their aftermath. However, one can imagine many domestic problems not affecting Berkshire that such wealth could address.)

Finally, although foundations are required by law to give away 5% of their wealth every year, they tend to have a perpetual life, and tilt to the left when the next generation takes over, according to Stelzer. Even before the next generation takes over, however, Buffett's political views are rather well known and put him firmly within the liberal establishment.


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