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Buffett calls an estate tax repeal 'a terrible mistake'—here's how to know if it affects you

President Donald Trump's tax plan, introduced during the campaign and outlined in more detail last week, calls for getting rid of the federal estate tax. That would be a "terrible mistake," billionaire Warren Buffett told CNBC on Tuesday.

The estate tax — a tax on cash, real estate, stock or other assets transferred from one generation to the next — was first introduced in 1916, when it charged 10 percent on estates valued at $5 million or more. At its peak, it levied a tax of 77 percent on estates worth $10 million or more.

Under current rules, any individual's estate that exceeds $5.49 million in value, or a married couple's estate that exceeds $10.98 million, is taxed up to 40 percent upon the owner's death.

Since the threshold is so high, the very richest Americans are alone in paying the tax.

"Only the estates of the wealthiest 0.2 percent of Americans — roughly two out of every 1,000 people who die — owe any estate tax," reports the Center on Budget and Policy Priorities. "This is because of the tax's high exemption amount, which has jumped from $650,000 per person in 2001 to $5.49 million per person in 2017."

The Tax Policy Center estimates that only about 5,500 tax returns will owe estate taxes. That means the vast majority of American's wouldn't be affected by this part of the GOP tax reform plan.

Still, the GOP frames the issue in terms of fairness. House Ways and Means Committee Chairman Kevin Brady calls the tax "un-American": "You work your whole life to build up a nest egg or a family-owned business or family farm. Then you pass away. ... Uncle Sam can swoop in and take over 40 percent of everything you've earned over a certain amount."

But eliminating the estate tax, Buffett said on "Squawk Box," could lead to dynasty building: "If they pass the bill they're talking about, I could leave $75 billion to a bunch of children and grandchildren and great-grandchildren. And if I left it to 35 of them, they'd each have a couple billion dollars."

That would concentrate funds in the hands of the few. "Is that a great way to allocate resources in the United States?" he asked rhetorically.

"The wealthy now are so much wealthier than they were 25 years ago," the billionaire said. "We're talking about the 400 [richest] now having $2.4 trillion ... 25 times as much money."

CPA David First brings up a similar point. "This is going to be a boon to rich people," he told CNBC's Jessica Dickler. "All the billionaires are going to save billions of dollars."

While it's still hard know exactly how the GOP's proposed tax reforms will play out, financial advisors are encouraging clients to start preparing today for any changes that may be on the horizon.

After all, Buffett thinks the chances that the Republicans will pass a tax plan are "higher than most people think."

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