May 30, 2008

Throw Momma from the Train

In today's Wall Street Journal, Steve Moore writes about some of the perverse effects of current estate-tax policy.
A few weeks ago, I gave a talk about tax policy to a group of elderly people at a ritzy country club in Jupiter Island, Fla. I reminded the audience that the estate tax is scheduled to fall from 45% today to zero in 2010, but then rise all the way up to 55% in 2011. I joked that what we have here is the "Throw Mama From the Train Tax." I even playfully surmised that by this time next year, when kids visit the nursing home they'll be pleading: "Come on, Grandma, hold on for just a few more months." But then in late 2010 it will be the opposite: Heirs will be disconnecting their parents or grandparents from life support or slipping arsenic in their Vodka Tonics.

After my talk, a lady who looked to be in her early 70s grabbed me by the arm and said: "Mr. Moore, I thought you should know that my mother is 96 years old and in poor health. If she dies before 2010, we're not going to turn over her $30 million estate to the IRS. We will put her on ice if we have to." ...

Several tax lawyers around the country have told me that their clients are constantly asking about the 2010 issue. ... [One] estate-tax planner tells me: "I don't know if we will see an increase in suicides, but the threat of the government taking half of a lifetime of earnings and assets will certainly lessen the will to live past 2010 for many at death's doorstep." Retirement magazines are recommending strategies for dealing with this grisly timing issue.

All of this may seem overly dramatic or far-fetched, but it isn't. We know that estate taxes alter all sorts of human behavior. ... If speeding up death can prevent a small fortune from being captured by the government, it's not a stretch to suspect that death will be timed conveniently. Many senior citizens who care most about the future of their beloved children and grandchildren may conclude, as Jimmy Stewart did in "It's a Wonderful Life," that they are "worth more dead than alive." But in this case it will be many millions of dollars more.

A 2007 study by two Swedish economists reports that when Sweden abolished its inheritance tax (yes, even socialist Sweden now has no tax at death), "mortality decreased by 16% the day before the beginning of expected tax reductions."