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Death and Taxes, Slightly Less Certain

The second chapter of SuperFreakonomics, which is primarily about catching terrorists and running an emergency room, includes a few passages about the timing quirks of births and deaths. The birth quirks include the “Ramadan effect” analyzed by Douglas Almond and Bhashkar Mazumder; one death quirk we note concerns the U.S. estate tax:

Holding off death by even a single day can sometimes be worth millions of dollars. Consider the estate tax, which is imposed on the taxable estate of a person upon his or her death. In the United States, the rate in recent years was 45 percent, with an exemption for the first $2 million. In 2009, however, the exemption jumped to $3.5 million — which meant that the heirs of a rich, dying parent had about 1.5 million reasons to console themselves if said parent died on the first day of 2009 rather than the last day of 2008. With this incentive, it’s not hard to imagine such heirs giving their parent the best medical care money could buy, at least through the end of the year. Indeed, two Australian scholars found that when their nation abolished its inheritance tax in 1979, a disproportionately high number of people died in the week after the abolition as compared with the week before.
For a time, it looked as if the U.S. estate tax would be temporarily abolished for one year, in 2010. (This was the product of a bipartisan hissy fit in Washington, which, as of this writing, appears to have been resolved.) If the tax had been suspended, a parent worth $100 million who died in 2010 could have passed along all $100 million to his or her heirs. But, with a scheduled resumption of the tax in 2011, such heirs would have surrendered more than $40 million if their parent had the temerity to die even one day too late. Perhaps the bickering politicians decided to smooth out the tax law when they realized how many assisted suicides they might have been responsible for during the waning weeks of 2010.

We may have to amend the second paragraph in future editions, for according to an article in today’s Times by Carl Hulse, that hissy fit hasn’t been resolved, at least not yet. As of today, it appears that 2010 may indeed be an untaxed year (just in time for the N.F.L.’s uncapped season?). Here’s how one politician puts it:

“If you are at the checkout counter, you might want to expedite things,” said Representative Richard E. Neal, the Massachusetts Democrat who heads the House subcommittee on taxation.

Others are less funny:

“If you are rich, celebrate,” said Senator Harry Reid, Democrat of Nevada and the majority leader. “If you are not, you should be afraid.”

As Hulse writes, it is very unlikely that Congress will make an estate-tax deal by the year-end deadline; but he also makes clear that, as with most Washington deadlines, the deadline isn’t quite real:

Democrats hope to make the situation moot by restoring the current tax and making it retroactive to Jan. 1. Republicans would like to negotiate a new tax structure, perhaps taxing eligible estates at the 15 percent capital gains rate.

The estate tax this year brought in an estimated $25 billion. It is hard to imagine that Congressional Democrats won’t find a way to recapture at least that much revenue for 2010. But with the docket already crowded with health care and maybe even carbon-emissions legislation, might the estate tax temporarily slip into oblivion?