There was a time when merchants waited until after the holiday season to begin their clearance sales. Now, of course, such promotions start by Labor Day at the latest. This year, however, there is one commodity that did not hit the sale racks until the start of the new year: death.
Recall that, under the terms of the Economic Growth and Tax Relief Reconciliation Act of 2001, the "Death Tax," as it is known in GOP circles, was phased down and, starting this January, eliminated in its entirety. But only for one year. Absent further congressional action, the tax will be reinstated a year from now at its pre-2001 levels. In other words, for the next 12 months, estates can be onpassed to favored survivors at bargain rates. As a result, both theory and experience predict that, other things equal, a notable uptick in the death rate can be expected.
On the theoretical front, the dictates of necro-monetary theory as first outlined in 1999 in the online magazine Slate extrapolate from the belief, common among ardent supply siders, that revenue raising is an incidental, indeed often undesirable, side effect of tax policy. The real reason for raising or reducing marginal tax rates is to "incentivize" behavior. If you wish to discourage something (say, cigarette smoking), hike up the tax rate on each purchase thereof (unless you are worried about the disincentive thereby produced for profit accumulation by the tobacco company located in your district). If you wish to encourage the supply of something (say, capital gains), you lower the marginal tax on their realization. And if you simply can't get enough of something, you cut the tax on it to zero.
Given this, it seems reasonable to conclude that the architects and supporters of the estate tax phase-out had, as their ultimate objective, the desire to increase the supply of death. After all, in the face of the then-operative 55% marginal tax rate on very large estates, it was unsurprising that most well-heeled Americans were exerting much effort so as to avoid a meeting with their Maker. Now, with the prospect of a zero tax rate in the offing, millions more Americans may well decide to cash in their chips, secure in the knowledge that - for a year at least -- Uncle Sam will not demand a cut.
On the empirical front, a December 30 article in the Wall Street Journal provides recent evidence of the influence of tax incentives on the timing of departures from this vale of tears. Families of some wealthy individuals on life support were, the Journal reported, pondering whether or not they should prolong heroic measures so as to delay the demise of their beloved relative into the new, estate-tax-free year.
Now that the year has begun, one should not expect that hordes of well-heeled elders - with or without the assistance of their potential beneficiaries - will soon be flocking to the Golden Gate Bridge and other familiar jumping-off points. But ample data show that individuals have subtler and, well, more natural ways of adjusting their expiration dates and that decisions regarding longevity are, at the least, sensitive to the "price of dying" - i.e. to the tax burdens that may be visited upon their heirs and assigns.
For example, shortly after the Supply-Side Theory of Mortality was first enunciated, empirical support for its validity was provided by David Plotz now Slate's top editor. Employing international data on inheritance levies and mortality rates, Plotz demonstrated that countries with low estate tax rates tend to have shorter average life expectancies. Conversely, those with high inheritance rates tend to have longer life spans. The Plotz-Allen contributions were later independently confirmed by Joel Slemrod, of the University of Michigan Business School and Wojciech Kopczuk, of the University of British Columbia. Subjecting data on changes in the U.S. estate tax system over time to highly sophisticated econometric techniques, the researchers studied "temporal pattern of deaths around the time of changes in the estate tax system, periods when living longer, or dying sooner, could significantly affect estate tax liability." For this important contribution, Slemrod and Kopczuk were awarded the much coveted Ig Nobel prize in economics in 2001, with the committee applauding "their conclusion that people find a way to postpone their deaths if that that would qualify them for a lower rate on the inheritance tax."
It is true of course that the vast majority of Americans have nothing to fear from the "death tax" (at 2009 levels, which the Obama administration would make permanent, 99.8% of estates were exempt from any tax liability http://taxpolicycenter.org/numbers/displayatab.cfm?DocID=2506 ). But as is well known, in the operation of incentives on the behavior of a subject population, it is the belief held by those subjects that matters, not the reality. And much effort has been expended by proponents of repeal in disseminating the impression that the Grim IRS Reaper waits at the threshold of every dying pauper, let alone those of the average inhabitant of Middle America.
This leaves only the question of why proponents of repeal - among them many unyielding supporters of the maintenance of human life at all costs -- would wish to provide this stimulus for accelerating the shuffle off this mortal coil. It has been conjectured that promoters of estate tax abolition hope to provide a fast answer to the problem of Social Security insolvency posed by the looming retirement of the baby boom generation--a problem that will only be aggravated if, as promised, the inauguration of universal health coverage in the U.S. further extends life expectancies.
This being the case, it seems not a moment too soon for the country to prepare itself for the mortality surge soon to be expected. It is, of course, possible that in the interim Congress will act to forestall this peak in mortality with its inevitable economic side-effects (bottlenecks at mortuaries and funeral homes, shortages of grave plots, runs on the handkerchief counter at Neiman Marcus, etc.). But nothing in recent congressional history is comforting in this regard. Better be safely dead than sorrowfully taxed.