The Death of the Death Tax (Or: How to Die in 2010)

Happy New Year, old relatives! You can die, now.That's pretty much the grisly theme of this WSJ piece on the estate tax, which takes a one-year vacation in 2010 -- thanks, W! (And Congress!) In a macabre act of inter-generational-kindness, a bunch of old people are trying to time their deaths just right to pass along their untaxed estate to their offspring. How ... sweet?



Here's the nutshell of the story:

The macabre situation stems from 2001, when Congress raised estate-tax exemptions, culminating with the tax's disappearance next year. However, due to budget constraints, lawmakers didn't make the change permanent. So the estate tax is due to come back to life in 2011 -- at a higher rate and lower exemption.

Two points: 1) This is a perfect example of a molehill transformed by political voodoo into a mountain. According to the article, the tax applies to about 5,500 taxpayers a year. That number is not large! And yet the attention that attends the "death" tax is.

2) I'll be interested to watch how both parties deal with the tax for 2011. Naturally, Republicans are united against any action that involves not destroying the death tax forever. That includes Sen. Judd Gregg, the moderate Republican and co-producer of the fantastical commission to reduce the deficit, who has consistently supported every effort to whittle away the estate tax.

Obviously, one way to reduce the deficit is to reduce spending. But another way is to raise taxes -- or at least to not kill the taxes that we already have in place. The Lincoln-Kyl bill in the Senate to cut estate taxes after the one-year hiccup would cost almost $250 billion over 10 years. That is, as they say, real money, and it's hard for me to imagine how this tax cut would spur economic growth, since inheritance is passive. If we're going to consider spending over the baseline part of PAYGO, we should do the same for government receipts below the baseline. So would Republicans plan to make up that money?