In testimony to congress, Warren Buffett expressed his opinion that the inheritance taxes were meant to recirculate accumulated great wealth and that repealing them would support an undesirable "aristocratic dynasty of wealth."

Republican arguments in favor of repealing the so called "death tax," permanently, mention two concepts they think are unfair. One is that the money has already been taxed and the other is that to satisfy inheritance tax requirements, heirs are forced to break up family businesses or farms and sell assets at what might not be an appropriate time or fair value.

The idea that our earnings are taxed more than one time is pretty weak to me. First of all, we are not taxing the one that earned it (they're dead), we're taxing the heirs who did not earn it. Besides, most money is taxed every time it changes hands. It is taxed when earned, when you buy or sell something, when you win the lottery, gamble or make money on a game show, receive a large gift and more. Using gift taxes as the most similar -- are not the heirs receiving a large gift?

A group of minority and business leaders including former basketball star Earvin "Magic" Johnson plans to form a group called the Access to Capital Coalition to fight against efforts in Congress to end the tax advantages enjoyed by the hedge fund and private equity industry, according to the Wall Street Journal (subscription required).

"Members of the new coalition argue that increasing the taxes on carried interest, also known as the carry, would reduce the incentives for private-equity funds to invest and would make it harder to recruit top talent, particularly for small and midsize funds," the paper said. "Many of the new coalition's members run smaller funds that focus on investing in low- and moderate-income areas."

The U.S. Chamber of Commerce released a study today detailing the damage that these proposals could cause the economy, according to Reuters.

So, making hedge fund and private equity billionaires pay their fair share of taxes would somehow hurt poor people. I don't believe it and I doubt this coalition will do much to sway members of Congress. This issue isn't about taxation, it's about fairness.

Instead of paying the ordinary tax rates of 35 percent, these private equity and hedge fund managers pay the 15-percent capital gains rate on their carried interest. It's tough for most Americans to understand why one group of very rich people pays much lower taxes than another group of rich people. There is no political upside for any member of Congress to stick up for the industry, particularly as the presidential contest kicks into high gear.

There seems to be broad bipartisan support in Congress to close this loophole. It's not a question of if the industry pays higher taxes but when and how much.

I admire the cleverness of Iowa Republican Senator Chuck Grassley's tax proposal. Bloomberg News reports that Grassley wants to introduce a bill that will link passage of a tax increase on private equity firms to an Alternative Minimum Tax (AMT) tax cut.

Grassley's proposal would increase from 15% to as high as 37.9% the tax rate that private equity firms pay on their profits with a measure shielding 23 million mostly middle-income households from an AMT increase this year. Unless Congress acts, the AMT will impose a $45 billion tax increase on 23 million households in 2007; permanently repealing the AMT would cost the government more than $1 trillion in revenue.

While it's not clear how much additional revenue the private equity tax rate increase would raise, the politics of the linkage is clever. That's because it will be hard for politicians seeking reelection to vote against a measure that could ease the lives of 23 million potential voters. If they happen to at the same time raise the taxes of those big campaign contributors, the need to help middle class AMT voters will offer the politicians some cover.

Peter Cohan is president of Peter S. Cohan & Associates He also teaches management at Babson College and edits The Cohan Letter.

As I posted last month, Blackstone Group's CEO Stephen Schwarzman gave an interview to the Wall Street Journal with a compelling theme -- Schwarzman is the Napoleon of private equity. Napoleon-watch tracks his moves on the business battleground.

The New York Times reports that Blackstone Group LP (NYSE: BX) is making things tough for itself and its peers in the eyes of Congress. That's because Blackstone used a loophole to avoid paying tax on $3.7 billion -- most of which was raised in its IPO last month.

Although they will initially pay $553 million in taxes, Blackstone's partners will get that back, and $200 million more, from the government over the long term. In a nutshell, the partners used the writeoff of goodwill -- the difference between the book value and market value of an asset -- to shield their gain from tax.

The details are rather complex but fiendishly clever:

• the Blackstone partners paid a 15% capital gains rate on the shares of Blackstone's management company they sold last month in the IPO
• Blackstone then arranged to get deductions for itself for the $3.7 billion worth of goodwill at a 35% rate. They taxed low and deducted high.
• The deductions must be spread out over 15 years. And the original Blackstone partners are getting just 85% of the tax savings, leaving the other 15% to outside investors. The deductions on the $3.7 billion to the partners are $1.1 billion over 15 years.
• If these tax savings were paid as a lump sum this year, the partners would get $751 million, which is $198 million more than the taxes the partners will pay on the $3.7 billion of goodwill.

These guys didn't get to be billionaires for nothing. Meanwhile my proposal for putting half their pay in escrow for 10 years to cover the costs of bad deals is gaining tiny amounts of support.

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Blackstone.

The New York Times [registration required] reports that KKR partner, Henry Kravis, is belatedly and ineffectively entering the battle to keep Congress from raising his taxes. At issue is the 15% capital gains rate which private equity firms pay on the 20% of the profits their funds generate, known as carried interest. Congress wants to tax this 20% as ordinary income -- meaning Kravis and his pals would pay a 35% tax.

Despite his arguments about the jobs KKR created in Rep. Sander Levin's home state of Michigan and his claim that a tax increase could hurt the investment returns of the pension funds which invest in KKR, Kravis appeared not to have dissuaded Levin in his drive to raise the tax rate from 15% to 35%.

I wrote an e-mail to Rep. Barney Frank (D-MA) who chairs the House Financial Services Committee. My suggestion, on which I posted earlier, is that the real problem is that private equity firms and their bankers get rich by taking risks -- such as borrowing too much money -- and they often leave society to pay the costs of failed deals -- as they did with the $150 billion bailout of the junk-bond fueled collapse of the Savings & Loan (S&L) industry.

International Business Machines Corp. (NYSE: IBM) came up with such a clever way to save $1.6 billion on its taxes that the IRS plans to shut down the loophole.

As the Wall Street Journal [subscription] explains, IBM used some creative but legal maneuvering in structuring a $12.5 billion stock repurchase. First, Big Blue formed a new subsidiary in the Netherlands. Then it spent $1 billion in cash and $11.5 billion in borrowed funds to buy 111.8 million shares. By doing so, IBM avoided having the money subject to higher U.S. corporate tax rates.

Experts are divided on whether the IRS will fight IBM but Fortune 500 companies run in packs. If one company came up with a clever way to reduce taxes, others will copy it.

As the presidential election kicks into high gear, candidates from both political parties are going to make noise about ending corporate welfare and making the tax system more equitable. Companies such as Tyco International Ltd. (NYSE: TYC) that are based overseas for tax purposes are going to get special scrutiny.

There's no escaping death and taxes even for members of the Fortune 500.

When I read that New Jersey wasn't the least tax-friendly state, my civic pride was hurt.

This is worse than when Newark, Camden and Trenton were edged out by St. Louis for the title of most dangerous city. Having high taxes is a matter of pride to New Jersey residents like myself.

But the people at the Tax Foundation point out that New Jersey may yet take the title from the Peoples Republic of Vermont, which has won it for two years in a row. The state currently ranks number 10 and has advanced 14 places since 2000.

Last year, New Jersey's sales tax was raised from 6 to 7 percent. Other taxes, including one on cigarettes were also raised and a corporate income tax surcharge was implemented.

New Jersey is tops in property taxes no matter how you slice the data, according to the Tax Foundation's William Ahern.

Good, I needed something to brag about to my relatives in New York and Pennsylvania besides having the safest community.