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Death and taxes

EstateTax_EstateTaxParamete.jpgOr, to be more specific, death and tax-avoidance:

Starting Jan. 1, the estate tax -- which can erase nearly half of a wealthy person's estate -- goes away for a year. For families facing end-of-life decisions in the immediate future, the change is making one of life's most trying episodes only more complex.

"I have two clients on life support, and the families are struggling with whether to continue heroic measures for a few more days," says Joshua Rubenstein, a lawyer with Katten Muchin Rosenman LLP in New York. "Do they want to live for the rest of their lives having made serious medical decisions based on estate-tax law?"

According to the article, another elderly rich guy is considering euthanasia. Another one wakes up every few days and asks, "What day is it? Is it Jan. 1 yet?"

Credit for this one goes to George W. Bush's cynical misuse of the budget reconciliation process. Because he was warping the procedure to explode the deficit rather than decrease it, all of his tax cuts had to end after 10 years. The thinking on the estate tax was that if you eliminate it completely for one year, these sorts of stories would persuade Congress to phase it out permanently forevermore. No one would want to vote for a financial incentive to die in 2010 rather than 2011.

Chart credit: Center for Budget and Policy Priorities.

By Ezra Klein  |  December 30, 2009; 9:30 AM ET
Categories:  Taxes  
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Comments

The more disturbing stories are going to be the end of 2010 if no changes to the law are made. Death panels, indeed.

Posted by: _SP_ | December 30, 2009 9:37 AM | Report abuse

Medicare is probably paying most of the bills to keep those two on life support. That's the real sick and cynical thing about this whole mess.

Was there an attempt to address the issue? I remember hearing something about 3.5 million but that was not enough for some folks in the Senate.

Posted by: luko | December 30, 2009 10:02 AM | Report abuse

Sucks if I die in 2011 and my company has to be broken up. Going over 50% is really bad as it means the heirs will lose control.

Posted by: staticvars | December 30, 2009 10:24 AM | Report abuse

Ezra- I think you are missing the point. The point for republicans are the stories at the end of 2010. When people are talking about how unfair it is that if someone dies in december that the company stays in the family but if someone dies in January then the government will rip away 50% of everything just because they are mean.

Posted by: spotatl | December 30, 2009 10:27 AM | Report abuse

Sounds like you are getting very poor estate planning advice, staticvars.

Posted by: luko | December 30, 2009 10:36 AM | Report abuse

What I find most infuriating about this entire debate is that, like so many Republican "issues", it's so disingenuous. If there is evidence that the estate tax has some negative and possibly unfair effect on a subset of the population, in this case we're usually talking about small businesses, then the discussion should be whether we can find a way to adjust the policy to eliminate that effect. But no, a few people with atypical estates might get screwed, so let's ditch the whole thing.

Posted by: MosBen | December 30, 2009 11:18 AM | Report abuse

"Going over 50% is really bad as it means the heirs will lose control."

What? It's a tax to be paid, not a transfer of ownership.

Moreover, the number of businesses that had to be given up to pay the tax has been minuscule.

Moreover, one could build in exemptions for such businesses.

Instead, the law called for a complete one-year repeal on everything, far broader than any real problems people were complaining about. This was a recurring theme during the Bush years (the "marriage penalty" was "solved" by giving all married couples a tax break, even though about just as many couples already had a "marriage bonus").

And I wonder how many in the repeal crowd are also supposed budget hawks. Then again, consistency has never been a hallmark of political debate.

Posted by: dasimon | December 30, 2009 11:23 AM | Report abuse

This is definitely an issue that separates the true budget hawks from the help-the-rich-and-screw-the-rest poseurs like Melissa Bean (IL-06).

The estate tax is an essential part of preventing a hereditary aristocracy in this country, and therefore a spur to innovation rather than indolence. Which is why it is supported by Bill Gates Sr and Warren Buffet. How come we never hear that it was supported by the Founders? That it long predates the income tax? It is NOT a death tax, nor is it a tax on inheritances. It is paid by the estate before distribution on amounts currently above $3.5 million, so it hits a very small percentage of estates, something like 3000 estates a year, IIRC, maybe even fewer than that.

Right wingers succeeded in persuading people for a time that it would take away their riches when they finally got them. I suspect that the financial situation since the fall of 2007 has disabused many people of the idea that they are ever going to get rich enough for it to matter and made them more likely to support the estate tax.

A tax on estates over $2.5 million per person or $5 mil per couple is plenty. I'd even support $3 mil if they keep the sliding tax rate that starts at 45%.

The small business "problem" is, as many have said, a very miniscule problem that can be ameliorated. But too many in Congress (including Dems) are in hock to the rich. I truly hope they pass it this year and make it retroactive for 2010 if that is possible. The alternative is more taxes on the rest of us so the Mars and Wal-Mart and Hilton heirs can live in total luxury.

Posted by: Mimikatz | December 30, 2009 11:50 AM | Report abuse

Capital gains taxes will be assessed on the difference between what was paid for the asset and its current value during the period when the estate tax will be temporarily 'repealed'.

I think there was a ruling that the 3Million dollar exemption was to be used so there will be an estate-tax-like exclusion.

Posted by: grooft | December 30, 2009 12:05 PM | Report abuse

They've been looking for decades for the proverbial "family farm" or "family business" that had to be sold to satisfy the ghoulish death tax. So far, no luck. You would think just by the law of large numbers they woulda come up with somebody.

Yes, there are atypical situations. Often it's not the tax that causes the problems - it is lack of planning or disagreements among owners and heirs. And in the largest of estates even with the best of planning sooner or later one of the generations is going to end up owing some tax. It is rarely THE MAX!!1!!

Posted by: luko | December 30, 2009 12:28 PM | Report abuse

As my tax law prof put it: the real issue is whether we want to only tax income, or tax wealth so that you can tax income less. If you do think that taxing wealth is a good idea (aristocracy, preventing economic stagnation, etc.) then you have to pick an arbitrary time at which to do it, and death is a pretty good time. The estate tax makes a ton of sense. I'd rather have it taking a chunk out of large inheritances rather than have to hike other taxes to make up for the loss.

Posted by: etdean1 | December 30, 2009 1:22 PM | Report abuse

"like so many Republican "issues", it's so disingenuous."
"This is definitely an issue that separates the true budget hawks from the help-the-rich-and-screw-the-rest poseurs"
"Right wingers succeeded in persuading people for a time that it would take away their riches when they finally got them."
Your inability to understand any point of view other than your own is not my fault. Conservatives think it is _immoral_ for the government to take people's money just because it can. It's, like, stealing.
The estate tax hits a particular nerve since taxes were paid on this property already by the deceased.

Posted by: MikeR4 | December 30, 2009 1:42 PM | Report abuse

So George Bush and the Republicans setup the original death panel? Kill grandma so we can keep more of her money?

Posted by: ATLGuy | December 30, 2009 1:59 PM | Report abuse

"Conservatives think it is _immoral_ for the government to take people's money just because it can. It's, like, stealing."

I know that many who call themselves "conservative" think that they shouldn't have to pay taxes, and that taxes are evil, or at least they profess to hold those beliefs, but they are, not to put too fine a point upon it, wrong. As Justice Holmes famously said, taxes are the price we pay for civilization.

"The estate tax hits a particular nerve since taxes were paid on this property already by the deceased."

This is so utterly preposterous that even you should be able to see it. Say I bought a thousand shares of stock in 1986 for $2 a share. I die tomorrow, and the shares are $482 each. I may have paid income tax on the $2000 I paid in 1986 (or not, depends), but what about the other $480,000? (Of course, if this were my entire estate it wouldn't be subject to the estate tax anyway.)

Posted by: thehersch | December 30, 2009 3:02 PM | Report abuse

Given that if we do nothing we have a silly situation in 2010 then an estate tax I like from 2011 onwards I say let it play on untouched. We have veto points to protect the 55% $1,000,000 law through at least 2012 and most likely forever.

Posted by: kellgo | December 30, 2009 3:08 PM | Report abuse

MikeR4: "Conservatives think it is _immoral_ for the government to take people's money just because it can. It's, like, stealing."

Since this argument would seemingly apply to all taxes (there's no reason here to see that it wouldn't), it proves far too much.

It seems to me that some conservatives have turned the rallying cry "No taxation without representation" into "No taxation. Period."

Posted by: dasimon | December 31, 2009 12:55 AM | Report abuse

"The estate tax hits a particular nerve since taxes were paid on this property already by the deceased."

So called conservatives who make this excuse know they are lying but just like to confuse those who are ignorant of the facts. This is the way the current conservative Republican party operates. Sorry if I have offended the few moderate Repubs left.

Posted by: Falmouth1 | December 31, 2009 11:32 AM | Report abuse

I bet alot of christmas candy given to rich people by relatives was thrown out without being opened this year :-)

If a bunch of rich people commit suicide or mysteriously die this year and avoid paying taxes (such as Pete Peterson) the repeal will have been well worth the lost tax revenue.

Posted by: cautious | January 2, 2010 2:53 AM | Report abuse

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