Monday, September 19, 2011

Tax Life Insurance and Manufactured Homes

Glenn Reynolds (aka Instapundit) asks for reader suggestions on specific tax proposals that would hit Warren Buffett personally. Rather than rely on email, I'll post my suggestion here - tax life insurance from every direction and put a natural disaster tax on new manufactured homes. Warren Buffett's companies make a ton of money from selling life insurance. One of the reasons the wealthy buy life insurance is because life insurance proceeds can be exempt from income tax and estate tax, when structured and owned properly. As pointed out here, Buffett's companies make a fortune from the estate tax and repealing the estate tax would do away with a lot of Buffett's wealth. But since we'll likely never see the end of the estate tax (because guys like Buffett keep lobbying for it), this may be a good way to hit Mr. Buffett where it hurts.

Life insurance is still important for middle class families and many of them buy a large amount of it. Accordingly, I would propose that all income from life insurance proceeds in excess of fifty times median household income, as adjusted for inflation. This would exempt approximately $2.5 million in proceeds which would provide more than enough insurance for all but the richest of households. Anything above that threshold arising from the death of any individual would be taxed as ordinary income. Additionally, any insurance proceeds arising from the death of any individual shall be included in that person's gross estate for estate tax purposes regardless of whether the beneficiary of the proceeds is a person, trust or other entity other than a charity. This disincentive to buy life insurance would likely have a big impact on Buffett's cash cow business.

But maybe that's too complicated. If so, how about a natural disaster tax on all manufactured homes? It seems that these homes often do not fair very well during some types of natural disasters. Buffett's company owns Clayton Homes and I believe it also owns a company that finances manufactured homes.

Do these clowns really want to play the class warfare game?

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