In the Nobel Lauerate Jose Saramago’s most recent novel, Death with Interruptions, he imagines the consequences of Death abandoning a small, landlocked country. Morticians need public support and the Catholic Church is out of business because there is no more afterlife to worry about.
The most disturbing consequence Saramago imagines is the subsequent treatment of the elderly. Those who were on the verge on death are stuck in a weird interstitial state and eventually become burdens to their families who must care for them indefinitely. So, organized crime syndicates start selling a new service: for a few, they will take these invalids to the other side of the border so they can die.
Saramago’s fable, of course, is fantastical, but because of a quirk of tax policy, similar incentives are being created for American families. Basically, the U.S. tax code is doing everything it can to encourage the death of your grandparents, especially if they’re wealthy.
In 2001, as part of a large-scale tax cut, the estate tax, which applies to bequests from the dead to their recipients, was cut so that, by 2009, the first three and a half million dollars of an estate was exempt, and the rest was taxed at a 45% rate. But, this year, on January 1, the estate tax was repealed, but only for this year. In 2011, the tax goes back to its pre-2001 rate of 60% with “only” the first $1 million exempt.
Considering that a good portion of the country is worried that universal health care will mean the institution of “death panels” for the old and infirm, it seems weird that the government would give such a great reason for rich old people to fake their deaths; or even worse, for their children to hasten their demise. Why did this happen?
The Bush administration and their allies in Congress wanted, very much, to get rid of the estate tax, which conservative PR gurus had decided to dub the “death tax.” They argued that the tax was horribly unfair and, most heartbreakingly, that it forced people to sell their family farms to pay the tax. In reality, they were just representing the interests of the very, very wealthy. According to the Tax Policy Center, “of the 440 taxable family farm and business estates in 2004, two out of five paid an average rate of only 1.6 percent.”
More generally, at 2009 levels, only .02 percent of deaths trigger the estate tax and the top 5% of income bear around 90% of the tax. It’s our most progressive tax, one that is borne nearly exclusively by the already privileged who are earning income that they did, by definition, nothing to earn. For some conservatives, it is the tax’s very progressiveness that makes it so objectionable; Grover Norquist, the famed conservative activist, said that appealing to progressivity as a justification for the tax was using the “morality of the Holocaust.”
But why didn’t the Republicans just kill the tax outright, instead of cutting it for eight years, eliminating it for one and then having it come back in full force? When Republicans were drafting their tax cut bill in 2001, they wanted to hide its full costs and put the burden on a possibly Democratic president of keeping taxes low, thinking that a president would take a hit if he let taxes go up under his watch.
Because the Congressional Budget Office, which measures the fiscal impact of legislation, uses a ten-year window to measure the effect of bills, the tax cuts were all scheduled to last for only ten years. So, on January 1, 2011, assuming no other congressional action, we will have, basically, pre-2001 tax rates again.
But is that a good idea for the estate tax? In the Senate, John Kyl and Blanche Lincoln, a Arizona Republican and a Arkansas Democrat, proposed a “reduced estate tax rate of 35 percent and an increased exemption of $5 million,” while President Obama has proposed simply freezing the tax at its current 2009 rates.
What’s most striking about the entire estate tax is how sharply it throws into relief the power of the rich. The estate tax is only a big deal for a vanishingly small portion of the population. According to the Tax Policy Center, it will hit 5,500 families and raise some $14 billion dollars.
What the tax does is strike, however marginally, at unearned privilege and inequality. Is it right that when the wealthy have never been wealthier they still have senators who so carefully attend to their interests?
Obviously, we shouldn’t be taking the rich’s money away just for the fun it, but can we take it from their kids?