The Cost Of Dying In 2013; It's more than you think

The New Face Of Tax Collectors

The 2001 tax relief bill (EGTRRA), drastically reduced the impact of the death tax over the course of a decade, so that it was eliminated entirely for one year in 2010, a good year to die. The bill lowered marginal rates and increased the applicable exclusion amount, but it also included a provision allowing individuals to carry over exclusion dollars that were unused by their spouse at the time of the rich persons death. This “portability” measure effectively increased the applicable exclusion for many households, in some instances putting millions of dollars beyond the reach of the federal government.

The death tax rose from the grave at the end of 2010, with a Bush-era top rate of 35% and an applicable exclusion amount of $5 million ($5.12 million in 2012).

Scheduled Changes

In 2013, the death tax will revert to its antiquated, pre-2001 form. The applicable exclusion amount will plummet to $1,000,000, and the top marginal rate will leap twenty points to 55%. A 5% surtax will also return, to be levied on estates between $10 million and $17 million. This raises the top effective rate of the death tax to 60%.

ATRF Analysis

According to research by the Tax Policy Center, if the current death tax expires, then the resulting, stricter exemption threshold will force 114,600 estates to file for the tax in 2013 — this represents a 13-fold increase from the previous year’s 8,800 estates, and countless wasted hours filling out tax paperwork. Of that cohort, an unfortunate 52,500 will be liable for the tax, way up from 3,300.

Milton Friedman

While those 52,500 taxpayers only represent 2% of those who die each year, no one should be fooled into thinking that the effects of this tax fall only on the proverbial “one percent.” The economic incidence of the death tax is far broader, because it causes many wealthy individuals to save less, choosing instead to retire early or, as Milton Friedman put it, “dissipate their wealth on high living.” This reduction in savings means a concomitant reduction in investment, lessening the flow of capital to businesses and organizations where countless ordinary Americans are employed.

Additionally, use of estate planning lawyers, life insurance trusts, and inter vivos gifting (all common practice in upper-income circles) allows many wealthy individuals to minimize their estate liability, so that the death tax ends up harming only those who could not or chose not to navigate a maze of legal loopholes. 

 Must view this video to better understand the gravity of our future tax burden

This is how the government takes the bulk of your money after you're dead

But the ills of a 55% death tax are not just speculative. Prior to 2001, when the death tax stood at 55%, a 1994 study by the Tax Foundation found that a 55% estate tax “has roughly the same effect on entrepreneurial incentives as a doubling of income tax rates.” The same death tax today, then, would have similar decision-distorting economic effects as an 80% income tax on affected parties. A 1992 study that was generally pro-redistribution piled on, finding that the paperwork and compliance costs of the estate tax largely cancelled out any revenue raised from the tax.

This consistent finding, that the death tax is effectively revenue neutral, and is a net economic drain exposes the class warfare aims of death tax advocates. The other reasons listed merely reinforce the point: that the death tax increase should be vigorously opposed.

A recent report from the Tax Foundation about the Estate (aka Death) Tax is receiving some publicity for the small amount of actual tax dollars at stake, as well as the fact that it costs more to enforce the laws than the tax generates. 

In a sane world, this would motivate our rulers to dispense with the Death Tax as too inefficient.  That misses the real reason behind the Estate Tax.

As I have been explaining for quite sometime now, two of the main planks of Karl Marx’s Communist Manifesto are Heavy Progressive Income Tax and Abolition of all rights of inheritance.  Both of these concepts are part of the DemonRat agenda, which is itself almost indistinguishable from Marx’s. 

However, the real world experience is that neither one of these concepts generates more money for the government.  Higher marginal tax rates actually result in less economic activity and less overall tax revenue, while lower rates encourage people to work more, with much higher revenues to the Treasury as a result. 

                          Why don't liberals understand this?

So why would the Dims be against higher government revenues?  It’s found in the first plank of the Communist Manifesto, Abolition of Private Property.  Their overall goal is to reduce the amount of wealth in private hands.  They would rather confiscate 90% of everyone’s income and have less government money than only take 15% with higher government revenues, because the latter would leave 85% of the income in private hands. Did you get that? Progressive liberals hate the fact that you are allowed to keep any of your money, so they invent slogans like "Pay your fair share and Tax the rich, feed the poor". 

The same goes for the Estate Tax.  They welcome any chance to reduce the amount of wealth in private ownership and couldn’t care less if it costs the government two dollars for every dollar they can confiscate from private owners.  Communism has never been a logical system, nor can it ever be, even in the hands of our supposed messiah, Barrack Hussein Obama, and his gang of Fellow Travelers.

While critics have dismissed Sarah Palin's "death panels" to dole out medical care as fiction, a tax loophole may in fact give the heirs of some wealthy people a financial incentive to make this new year their loved one's last.

For example, a wealthy person who dies on December 31, 2012, and left her heirs $10 million would really be leaving them $5.05 million because of taxes. If they died a day later, the heirs could receive less than 14% of the $10 million.

Nobel prize-winning economist Paul Krugman appears to be the first to explain the potential pitfall for some elderly individuals, writing in May 2001 in the New York Times that it should have been called the "Throw Momma From the Train Act of 2001."

Steven Levitt and Stephen Dubner

Since then other economists have noted the impact tax changes might bring, including bestselling authors Steven Levitt and Stephen Dubner, who wrote in SuperFreakonomics that it would mean heirs would want their benefactors to make it to 2010, but not beyond.

"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.

Not So Fast

Roberton Williams

To be sure, Congress could enact legislation to reinstate the estate tax and make it retroactive to the start of the year, so the notion of a wealthy family receiving a windfall by having a relative die in 2010 might be moot. But while many expect that to happen, "I thought there was no way we'd get to this point without having done something about 2010," said Roberton Williams, a senior fellow at the Tax Policy Center of the Urban Institute.

Although he said the estate tax would likely be restored in some form, part of the problem may be legislative priorities.

"If there are other issues like health care reform or cap and trade, this is relatively small potatoes, so who's going to use what political leverage is the name of the game."

Still, Williams said, people wanting to off themselves for their heirs' sake may want to make sure they make it far enough in this year to ensure nothing changes the law where they will be taxed anyway. "Death is a rather permanent thing," he said.

The estate tax has been a contentious issue, as it is perceived by some as a "double tax" -- since some assets are being taxed that were taxed previously.

Advocates of the tax point out that it only affects the wealthiest, and it prevents people from accumulating a windfall simply because their parents were wealthy.

Either eliminating the tax permanently or reinstating it would avoid the issue with the law as it stands now, but debate seems to have put it in place.

In 2001, a largely Republican coalition tried to repeal the estate tax permanently, but their majority could not get the bill past a filibuster, and so instead the changes were put into the tax code, meaning they had to be revisited after 10 years. So a gradual phase-out (done to keep some revenue flowing into the budget) and finally full repeal in 2010 would be reinstated in 2011.

"They anticipated that somewhere during the 10-year window they would just go back and repeal it completely," said Williams. "When they did this in the first place, they never thought 2010 would come around as being the only year. It was not intended that way; it was forced up on them by parliamentary rules in the Senate."

Indeed, it does not seem there was too much concern over the law when it came about.

Dr. Paul McHugh

Dr. Paul McHugh, the former chairman of psychiatry at Johns Hopkins, served on the President's Council on Bioethics under Bush. He said that while the idea that people would attempt to die by Dec. 31, 2012 to avoid a tax was discussed casually by members, it was never part of official meetings.

"We certainly didn't discuss this in a serious fashion," said McHugh. "There was a kind of presumption that the idea that taxing people again and again would eventually be seen as unfair."

"They thought that was going to be an unstable proposition," he said of the tax law, adding that he feels "It's going to be hard to bring it back without something of a fuss."

The estate tax only affects the wealthiest; roughly 1 person in 400 pays the estate tax when they die, and only about 5,500 estates are expected to owe estate taxes this year, according to the Tax Policy Institute.

Heirs Of A Fortune After The Estate Tax Was Paid

However, the concern illuminates an issue faced by many at the end of life, who are concerned that the resources they consume to extend their lives may diminish what they can leave for their children.

"These are the kinds of pressures people can feel," said McHugh, although as a staunch opponent of physician-assisted suicide, he said it was not a justification for taking one's life. "This death with dignity idea is made even more ridiculous in that this is death for dollars."

Generational Tension

People respond to the pressure of what they leave to their children differently.

"For some people it's a major concern, for some people it's totally irrelevant," "It depends on the character of the person, and their priority and values."

But would some people's concern for their children cause them to somehow arrange to die during a year with no estate taxes? I don't think that many people would resort to physician-assisted suicide to escape the estate tax.

"You can easily imagine the hypothesis, but there's no evidence supporting the notion that would happen. It's very hard to imagine people doing that for money.

But some say that the lack of an estate tax may give some who are clinging on to life just another reason to check out early. Eileen Fitzpatrick is an attorney and coauthor with her sister Jeanne, who is a physician, of "A Better Way of Dying" A book that deals with decisions to avoid life-saving measures (but not euthanasia) in order to avoid living beyond the time one wants to. She explained that many who die in 2010 of their own accord would likely die from choosing to avoid certain treatments rather than actively attempting suicide.

"People at the end of life reach a point where extending life ceases to be a good thing for that person because the quality of life has so degraded that quality of life has become miserable," Fitzpatrick said.