Keep Momma on the Train!

by on December 30, 2009 at 2:34 pm in Current Affairs, Economics | Permalink

Today, Paul Krugman writes, under the headline "Stop, you’re killing me" the following:

Eight and a half years ago, when I dubbed the first Bush tax cut the Throw Momma from the Train Act of 2001,
I didn’t really think that we’d get to the point where there would be
strong financial incentives for wealthy heirs to bump off their parents
before the legislation expired, and the estate tax was reinstated….[but] it’s really happening.

As Paul might say, uh no. Or at least not yet. The estate tax goes away in January of 2010 so the story today is that the rich have an extra incentive to keep momma on the train or, as the WSJ correctly puts it, Rich Cling to Life to Beat Tax Man.  (What happens in 2011, however, is another story although the law will almost certainly be changed by then.)  Paul, it seems, just can't stop blaming Republicans for killing people or maybe he just had to make the story fit his Monty Python clip.

1 Rick Schaut December 30, 2009 at 2:49 pm

Oh, good grief, Alex. You take the headline over the content of the article as substantive proof? As the article states:

“The situation is causing at least one person to add the prospect of euthanasia to his estate-planning mix, according to Mr. Katzenstein of Proskauer Rose. An elderly, infirm client of his recently asked whether undergoing euthanasia next year in Holland, where it’s legal, might allow his estate to dodge the tax.

His answer: Yes.”

Honestly, can’t you do any better than this?

2 libert December 30, 2009 at 3:01 pm

An interesting moral thought experiment is whether there are externalities associated with death, and then advocate for or against the estate tax accordingly on Pigouvian grounds. I can see arguments on both sides:

Examples of externalities:
Positive: “pulling the plug” reduces the demand for health care, reducing costs of procedures, thereby benefiting other consumers (not to mention saving heirs money).

Negative: lost knowledge, grief of loved ones.

Suppose the negative externalities dominate. Then there should be a Pigouvian tax on death. Voila, an efficiency case for the estate tax. On the other hand, suppose the positive externalities dominate. Then there’s a case for a death subsidy, or maybe an estate tax that increases over time.

3 david December 30, 2009 at 3:07 pm
4 libert December 30, 2009 at 3:23 pm

@Bob Murphy:

Jeremy’s idea would work too: make any change retroactive, so there’s no incentive to “knock someone off.”

5 Bill December 30, 2009 at 3:50 pm

Having been the surprising beneficiary of an uncle’s demise, I can assure you that estate taxes, or rather the absence of them, are quite a surprising windfall.

You see, my uncle never paid taxes. He did all he could ever do to defer taxes, buying equipment when he didn’t need to, just tons of stuff. I mean tons of stuff, all for the purpose of avoiding taxes.

So, when he died, and I along with some cousins inherited his estate, I thought, well, at least my uncle’s estate finally paid taxes.

Nope. No estate taxes. No capital gains. Nada. When the tax lawyer told me I couldn’t believe it.

My uncle is probably laughing from the grave, but I’m wondering: how did we ever let people escape paying taxes? We probably got some chumps to repeat the slogan death taxes long enough so they were mesmerized into submission. Thank you for your generousity. Now, let’s talk about the deficit.

6 JoddeHaa December 30, 2009 at 4:38 pm

One of Krugman’s great strengths is the courage to be funny. It is dangerous because it allows journalists (and bloggers too now, apparently) to misunderstand on purpose and feign shock to get an article.

7 E. Barandiaran December 30, 2009 at 5:08 pm

Anyone that wants to pay additional taxes because they believe they should be higher, please do it now. You don’t need to wait for tax rates to be increased or taxes to be restored or new taxes to be imposed. I’m sure tax-cheater Tim Geithner will be very happy to hear that there are some people willing to make donations to the Treasury. BTW: I’ve just read that The Geithner Edition of TurboTax is now available.

8 Jeff December 30, 2009 at 5:16 pm

Since taxes are bad, why not just not fund the government at all? Heck, let’s just move to Somalia…

9 Bill December 30, 2009 at 6:00 pm

@Jim,
I checked with the estate lawyer. Everything was legal. What people miss is that if an enterprise is in the estate (in this case it was a farm), there were no capital gains. Amazing. Also, if you see a lawyer, you can do a lot to escape estate taxes.

What bothers me is that it used to be that people had to pay for their own healthcare, and that of their parents. Now we have medicare. So, estates get bigger because healthcare costs of the elderly are lower. Money goes to kids. No estate taxes. We should probably dedicate estate taxes to fund medicare or social security. Medical expenses for the elderly are highly correlated with death, so estate taxes can be a pay as you go system.

10 Bill December 30, 2009 at 8:15 pm

@Bob, The generosity of a tax system that let’s business owners (my uncle) pay minimal taxes, increasing his assets during his lifetime, and when he dies, no capital gains and no estate taxes, while wage earners pay through the nose.

11 Yancey Ward December 30, 2009 at 10:01 pm

Bill,

I would really like to know how an individual avoided all taxes legally. Really, I just don’t believe this story.

12 luke December 30, 2009 at 11:43 pm

@huh

get your fact straight. From factcheck.org

the truth is that very few actually pay the estate tax. The Tax Policy Center projects that roughly 440 taxable estates were primarily made up of farm and business assets in 2004.

And even considering estates for which farming or business was a sideline, the Center found only 7,090 taxable estates for 2004 that included any farm or business income. That’s still just 38 percent of all taxable estates. The fact is that repealing the estate tax entirely, as the ad advocates, would benefit mostly non-farmers and non-business-owners.

These 440 taxable estates are those for which farm or business assets made up at least half the total value of the estate. They represent only 2 percent of all 18,800 taxable estates in 2004.

Worth noting is that family-owned farms and closely held businesses already receive special treatment under current law. Heirs who agree to keep the farm or business assets within the family for 10 years after death can reduce the taxable amount of the estate by 40 percent to 70 percent. And if the farm or business is at least 35 percent of the gross value of the estate, payments can be spread out over 14 years.

13 ben December 31, 2009 at 1:05 am

I’ve never seen an academic of any stripe, let alone a Nobel winner, say so many wrong things. What value is Paul Krugman’s ideas if he consistently says things that can be so easily disputed or shown wrong?

14 mulp December 31, 2009 at 3:17 am

By the way, let’s remember why the estate tax law was written as it was:

1. it was phased in slowly so Republicans could claim they were repealing the death tax without actually repealing it.
2. is had a slow phase in so it wouldn’t cut revenue too much in the CBOs budget calculations so it didn’t massively increase the deficit long term
3. it was terminated in 2011 so the Republicans could claim their tax cuts were going to balance the budget, based on the CBOs end of ten year period budgeting, plus let, or force, the CBO to project a long term balanced budget.
4. it had to get 60 votes and that was done by showing a smaller deicit in the later years to win reluctant votes from deficit hawks, get to zero for the lackeys of the few billionaire who didn’t want leave their estates to charity, and create a campaign issue for the anti-tax ideologues.

This provision of the tax cuts had no rational justification – it had been modified multiple times to address the constant whine of breaking up family farms and destroying small businesses, yadda yadda.

And Republicans has zero plans for cutting spending to match the tax cuts proposed.

The reason conservatives claim the health reform will increase the deficit is because they see all the taxes and subsidies for insurers as provisions they will eliminate as soon as they can without any corresponding cuts in spending, resulting in massive increases in deficits. Just like their tax cuts like the estate taxes.

15 Andrew December 31, 2009 at 4:54 am

“The truth is that very few are actually wrongly convicted and sentenced to death.”

Okay, how does that argument sound? Let’s start speaking the same language.

“Since taxes are bad, why not just not fund the government at all? Heck, let’s just move to Somalia…”

Cute but nonsense. First, let me break the news to you, taxes are bad. They are a cost. You know that 5 bucks you smack down when you buy your Playboy magazines. You don’t like the 5 bucks. You like the mag. You don’t even like the mag, you like the…well anyway, I’ve never understood why costs become benefits when liberals look at government revenues. I mean I understand it from their point of view, but that is obviously wrong. Divesting money from people who have shown that they are good investors of it is foolish even if they don’t run farms or small businesses. It is not a good in itself.

Second, if you are interested in what your costs go to pay for, we aren’t getting our money’s worth. Only leftists that can’t bear to see that can not see that. You like a bulk of estate taxes going to pay for needless wars? Well, you haven’t stopped the wars either.

Third, even if the money is spent intelligently and justly, dumb taxes that muck up peoples’ planning for the future are, yes, very bad. Bad policy including bad tax policy is what makes us like Somalia to the degree we are.

16 holmegm December 31, 2009 at 9:04 am

So I guess you guys want to ban life insurance too? Because it promotes covert murder?

17 Matthew Ernest December 31, 2009 at 1:23 pm

“The estate tax goes away in January of 2010 so the story today is that the rich have an extra incentive to keep momma on the train”

Krugman does not claim that the incentive is greater in Dec. ’09 that it will be in Dec. ’10, just that the incentive in Dec. ’09 is significantly great than it had been in Dec. ’01. Of all the wrong things that Krugman has said, why do we need to spend time blaming him for something he did not say?

“What about the alternative: permanently non-existent?”

In between all of the things that Krugman is accused of saying in that article but didn’t, this alternative was something he *actually did* raise: “or Republicans would achieve the political dominance needed to permanently abolish the tax”. While clearly he does not personally prefer this alternative, he does admit that it is a plausible outcome.

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