How Did the Deaths of Four People Cost the U.S. Government $6.5 Billion?

No, it wasn’t because of lawsuits.

No, it wasn’t because the four people were buried with trade secrets worth a lot of money.

It was because they happened to die in a year during which the estate/death tax is zero. From a post at ElderLawAnswers.com:

[George] Steinbrenner was worth an estimated $1.5 billion, meaning his heirs could save as much as $600 million in taxes because he died this year. Steinbrenner’s wealth — mostly consisting of the Yankees, a new stadium and a regional cable network — could pass to his wife tax-free even if the estate tax were in effect, but this year she might have an incentive to disclaim (or turn down) any bequest, which would allow the assets to pass to Steinbrenner’s four children free of federal tax. (But, as the Probate Lawyer Blog points out, Steinbrenner’s family would have to pay a huge capital gains tax if it were to sell any highly appreciated assets, since along with the disappearance of the estate tax, there is no “step-up” in the cost basis of inherited assets during 2010.)

The other billionaires to die in 2010 are Janet Morse Cargill of the family that founded Cargill Inc. (net worth: $1.6 billion), Texas pipeline magnate Dan Duncan ($9.8 billion), and California real estate mogul Walter Shorenstein ($1.1 billion). By rough calculation, their deaths in 2010 have cost the government some $6.5 billion.

We’ve blogged on this topic before. The inconsistencies of U.S. tax law, if it weren’t rather serious, would be comical.

Question: this being December, with a January to follow that may see an entirely different estate-tax law, might there be some surprising death activity this month among the wealthiest American families?

(HT: Van Brenner)


Brett

You could also frame this... 4 deaths save the us taxpayer $$$$

Dismayed

Yes, the inconsistency in laws is mind-boggling. However, these deaths did not cause a loss. Presumably, and this is a huge presumption given what we know of the super-wealthy and taxes these days, presumably taxes were already paid on these monies. The estate tax amounts to double taxation, which, I believe is not allowed here in the US, and as such should be abolished.

Chuck

I protest your use of the word "cost". The government had to pay nothing. I agree it may have been a lost income opportunity.

But using the word "cost" implies the money was somehow rightfully owned by the government.

Using such wording is a subtle way of making taxes more palatable. We would all be better off by focusing on other issues instead of giving the government another excuse for robbing us!

Robert

Were any of these guys hit by State level Estate Taxes?

Marcus

Actually it didn't COST the government a dime. The family SAVED that much money. Our income is our income first. After it is taxed legally and not given could it be considered LOST by the U.S. government. REPEAL THE DEATH TAX!

Brian Begley

Your Headline is misleading. Theses deaths did not cost the govenment anything. Wouldn't a cost imply that the US governmnet actually paid someone the 6.5 Billion? THe current tax law prevented the government from collecting 6.5 billion from the estates of private citizens who used their skills to build enormous wealth during their lifetimes.

Ryan

You can only say that it "Cost" the US Government if you approach it from the assumption that the US government is entitled to those assets in the 1st place. Bad assumption to start from. The more correct analysis here is that $ 6.5 Billion of legally earned private property escaped pillaging by the US Treasury department.

TimBob

Well, in Douglas Adams' "Restaurant at the End of the Universe" one of the minor characters was spending a year dead for tax purposes. Does it seem so odd that George Steinbrenner, never one to let rules/laws/ethics get in his way, might try to do the same?

Q

How is it a "death tax" or "double taxation" when it's the heir, not the deceased, who's paying the tax? Any reasonable definition of income would include inheritances.

TaxFacts

Its more than a little misleading to pretend that billionaires like George Steinbrenner had no estate planning that minimized his estate taxes.

In fact, its been previously reported in major media.

Craig

Are you assuming that they did no estate planning? If so, then are you overestimating the tax loss?

pablo

Inheritance of estates promote an aristocracy in direct contradiction to the ideal of a meritocracy. Taxing estates is one of the best ways to gather income and promote social mobility with a minimum deadweight loss.

Jim

Add me to the "this isn't a 'cost'" chorus. It is purposefully misleading to argue that a failure to tax someone amounts to "losing money." President Obama recently went so far as to claim that not increasing taxes on the rich amounts to paying them.

Estates are post-tax wealth, and the government already took a cut a long time ago. If the government had been as wise with its sums over the years as these people were with theirs, perhaps it too might have developed a nice nest egg. Instead it seems to view taxpayers as a well of money that will never run dry.

my money

The money belongs to the deceased. The governement didn't LOSE money and it didn't COST the government becuase it's not the government's money.

malcolm

Of course, it's a cost. A cost is what you give up due to a choice made. This is the microconomist's definition of cost. Since this ios a blog on economics matters, it makes sense to use terms correctly.

charles

You didn't mitigate based on what might be done with the money they were permitted to keep.

Carpitect

Sensationalist headline...That is all..

Elizabeth

There is only 30 days before the Estate tax is reinstated. It is doubtful that there would be any elderly billionaire or multi- millionaire who would decided to cut their own lives short so that their heirs can be further corrupted by inherited wealth. On the hand, there may well be a number of heirs with health care power of attorney that might be tempted....

SKO

Everyone should contribute to the good of society each according to his means, and I certainly think these people had the means. The same people who decry government spending make use its services and benefits from roads, to the military, to education, to social security. Try building a "privately funded" society that provides you with all these benefits not to mention the polictical instability that would come with extreme income inequality. Finally, the term "death tax" is overly dramatic; rather progressive estate tax would be more suitable.

nathan

"Question: this being December, with a January to follow that may see an entirely different estate-tax law, might there be some surprising death activity this month among the wealthiest American families?"

not to worry - there's a law and order episode about this.