Should We Blame Obama, Rangel, and Baucus if People Die to Escape the Death Tax?
The death tax is a punitive levy that discourages saving and investment and causes substantial economic inefficiency. But it’s also an immoral tax that seizes assets from grieving families solely because someone dies. The good news is that this odious tax no longer exists. It disappeared on January 1, 2010, thanks to the 2001 tax cut legislation. The bad news is that the death tax comes back with a vengeance on January 1, 2011, ready to confiscate as much as 55 percent of the assets of unfortunate families.
I’ve criticized the death tax on many occasions, including one column in USA Today explaining the economic damage caused by this perverse form of double taxation, and I highlighted a few of the nations around the world that have eliminated this odious tax in another column for the same paper.
Politicians don’t seem persuaded by these arguments, in part because they feel class warfare is a winning political formula. President Obama, House Ways & Means Committee Chairman Charlie Rangel, and Senate Finance Committee Chairman Max Baucus have been successful in thwarting efforts to permanently kill the death tax. But I wonder what they’ll say if their obstinate approach results in death?
Congresswoman Cynthia Lummis of Wyoming is getting a bit of attention (including a link on the Drudge Report) for her recent comments that some people may choose to die in the next two months in order to protect family assets from the death tax. For successful entrepreneurs, investors, and small business owners who might already be old (especially if they have a serious illness), there is a perverse incentive to die quickly.
U.S. Rep. Cynthia Lummis says some of her Wyoming constituents are so worried about the reinstatement of federal estate taxes that they plan to discontinue dialysis and other life-extending medical treatments so they can die before Dec. 31. Lummis…said many ranchers and farmers in the state would rather pass along their businesses — “their life’s work” — to their children and grandchildren than see the federal government take a large chunk. “If you have spent your whole life building a ranch, and you wanted to pass your estate on to your children, and you were 88 years old and on dialysis, and the only thing that was keeping you alive was that dialysis, you might make that same decision,” Lummis told reporters.
The class-warfare crowd doubtlessly will dismiss these concerns, but they should set aside their ideology and do some research. Four years ago, two Australian scholars published an article on this issue in Topics in Economic Analysis & Policy, which is published by the Berkeley Electronic Press. Entitled “Did the Death of Australian Inheritance Taxes Affect Deaths?”, their paper looked at the roles of tax, incentives, and death rates. The abstract has an excellent summary.
In 1979, Australia abolished federal inheritance taxes. Using daily deaths data, we show that approximately 50 deaths were shifted from the week before the abolition to the week after. This amounts to over half of those who would have been eligible to pay the tax. …our results imply that over the very short run, the death rate may be highly elastic with respect to the inheritance tax rate.
And here’s a graph from the article, which shows how many affected taxpayers managed to delay death until the tax went away.
Obama and other class-warfare politicians now want to run this experiment in reverse. I already noted in another blog post that there are Americans who are acutely aware of the hugely beneficial tax implications if they die in 2010. In other words, Congresswoman Lummis almost certainly is right.
I don’t actually think that Obama, Rangel, Baucus and the rest of the big-government crowd should be blamed for any premature deaths that occur. But I definitely think that they should be asked if they feel any sense of guilt, remorse, and/or indirect responsibility.
Free Trade Consensus Remains Intact in Australia
As many of you may know, Australia had a federal election on August 21 that yielded an at-time-of-blogging inconclusive result. As a consequence, the Liberal-National coalition (currently in opposition) and the Australian Labor Party are both wooing the Green and Independent members in the hope of securing their support. A Canberra-based friend sent me a link to an article in today’s (or, strictly speaking given the time difference, yesterday’s) Australian about the trade-related aspects of the current negotiations to form a minority government.
I’ll admit, the story had me worried. I’ve bragged before about Australia’s bipartisan political consensus on free trade, and it looked as though that was under threat. According to the article, Labor — the party responsible for much of the unilateral trade liberalization undertaken in the 1980s – was considering “re-erecting tariff walls”:
Yes, modern Labor has degenerated to the point where the Treasurer allows the prospect of protectionist horse-trading to be part of the equation for forming Australia’s next government. And so Australia’s political deadlock threatens to encourage the rise of a new industry protectionism driven by the anti-capitalist Greens in cahoots with left-wing trade unions and rural populism…
A few hours later, a new, happier story was filed on the Australian‘s website:
…Ms Gillard used her press club speech to offer continuity and certainty, but made clear she would not seek [Independent] Mr Katter’s vote by pandering to his passionate rejection of free trade, which he believes has ravaged sectors such as the sugar industry in his north Queensland seat of Kennedy.
“You’re talking to the leader of the political party that literally went to hell and back to modernise the Australian economy, including reducing tariff barriers,” Ms Gillard said.
“That is our heritage, that is our belief, that is in us.
“We would not have the modern resilient Australian economy we have now if Labor had not built it.
I’ll ignore that last preposterous statement about a political party building an economy, and instead focus on the main thrust of Ms. Gillard’s comments, which should come as a relief to free-traders everywhere, especially in Australia.
The Deadly Impact of the Death Tax
Australia got rid of its death tax in 1979. A couple of Aussie academics investigated whether the elimination of the tax had any impact on death rates. They found the ultimate example of supply-side economics, as reported in the abstract of their study.
In 1979, Australia abolished federal inheritance taxes. Using daily deaths data, we show that approximately 50 deaths were shifted from the week before the abolition to the week after. This amounts to over half of those who would have been eligible to pay the tax. Although we cannot rule out the possibility that our results are driven by misreporting, our results imply that over the very short run, the death rate may be highly elastic with respect to the inheritance tax rate.
It looks like this experiment is going to be repeated in the United States, but in the opposite direction. There was a rather unsettling article in the Wall Street Journal over the weekend. The story begins with a description of how the death tax rate dropped from 45 percent in 2009 to zero in 2010, and then notes the huge implications of a scheduled increase to 55 percent in 2011.
Congress, quite by accident, is incentivizing death. When the Senate allowed the estate tax to lapse at the end of last year, it encouraged wealthy people near death’s door to stay alive until Jan. 1 so they could spare their heirs a 45% tax hit. Now the situation has reversed: If Congress doesn’t change the law soon—and many experts think it won’t—the estate tax will come roaring back in 2011. …The math is ugly: On a $5 million estate, the tax consequence of dying a minute after midnight on Jan. 1, 2011 rather than two minutes earlier could be more than $2 million; on a $15 million estate, the difference could be about $8 million.
The story then features several anecdotes from successful people, along with observations from those who deal with wealthy taxpayers. The obvious lesson is that taxpayers don’t want the IRS to confiscate huge portions of what has been saved and invested over lifetimes of hard work.
Obama Right on “Don’t Ask, Don’t Tell”
Secretary Gates’s new guidelines for “don’t ask, don’t tell” are consistent with the Obama administration’s plan to alter—and eventually reverse—the misguided policy. Both the guidelines and their ultimate goal deserve broad public support.
In the nearly 17 years since it was enacted, DADT has impeded military effectiveness by prohibiting motivated and well-qualified individuals from serving their country.
A new generation of military leaders, both officers and enlisted, has seen the harm and injustice done by this policy, and is ready for change. As this cohort advances through the ranks, and as an earlier generation that was not willing to change retires from service, we should anticipate a relatively smooth transition to a policy that has been adopted in many other countries, including Australia, Canada, France, Israel, and the United Kingdom. But the strong leadership shown by President Obama, Secretary Gates, and Chairman Mullen on this issue will likely prove the essential final ingredient to ensuring that DADT dies.
Click the player below for more about why it is time to scrap the policy:
Hey G-20! Here’s How You Curb Protectionism
Last week I recommended reading a new paper published by the Lowy Institute in Australia, which proposes an utterly sensible reform for the G-20, if curbing protectionism is a serious aim.
Using Australia’s own successful experience as an example, the authors recommend other countries adopt “domestic transparency” programs, which would essentially include analysis from an independent, apolitical board or agency that measures the real costs and benefits of proposed trade restrictions.
The findings of these independent reviews would be accessible to the public—and probably published in newspapers and other popular media—in advance of any decision to impose or reject the proposed trade restrictions. The findings wouldn’t legally bind the authorities to take any particular action, but would help chase from the shadows the real costs of protectionism, so that those ultimately making the decision know that the public at large is aware of the costs.
When a politician knows that he/she can benefit politically by imposing import duties, the costs of which are hidden in higher prices paid by consumers, who are unlikely to make the causal connection, there is a profound asymmetry of incentives and disincentives. The politician is much more likely to choose to secure the political benefit of imposing duties since the costs are hidden. But if light is shone on those costs, through domestic transparency initiatives, that asymmetry is reduced or eliminated. Politicians, under these circumstances, can go back to the special interests and say how much they’d like to help out with a tariff, but the costs don’t justify the measure. And the protection-seekers know the politician’s hands are tied because the public is aware of those costs.
Well, Alan Mitchell of the Australian Financial Review on Monday supposed how the presence of a domestic transparency regime would have affected President Obama’s tire tariff decision. It is very instructive:
Australian Trade Scholars Offer Perfect Cure for ‘Protectionitis’
Earlier this month, the Lowy Institute in Australia published a paper offering some very sound and, obviously, very timely advice about how to contain, and ultimately, eradicate protectionism. The paper is being circulated among the G20 delegations, who will undoubtedly discuss the topic of trade and protectionism in Pittsburgh next week. So for those of you interested in getting a sense of what will probably be the single best idea on (or at least near) the table at the G20 summit, I highly recommend this 20-pager.
The solution proposed by the authors boils down to a two-word phrase: “Domestic Transparency.” What is meant by that phrase is that “defeating protectionism begins at home.” And by that slogan, the authors mean that the key to reducing, and ultimately eliminating, protectionism is not external pressure from other countries, mercantilist trade negotiations, or filing trade complaints at the WTO, but rather greater awareness at home of the real costs of protectionism. I couldn’t agree more. (In fact better transparency is one of our recommendations in this paper).
When governments impose trade barriers at the behest of special interests, they usually justify that protectionism with diversionary rhetoric concerning some vague conception of the “national interest,” and the imperative of shielding domestic business from unfair competition and other vagaries of the globalized economy. That the protectionist measure itself—the product of special interests diverting productive resources from economic to political ends—forces involuntary and usually unknowing subsidization of those protection-seekers by the same citizens at large who are expected to buy into the national interest canard is a detail about which most people remain in the dark.
An Australian Perspective on Joe Wilson
Will you allow a foreigner to comment on something that has intrigued her about this great country?
All this hand-wringing and then censure (not to mention impeachment talk) over Rep. Joe Wilson’s admittedly rude intervention at President Obama’s speech last week has me baffled. Partly, it is because I come from a land that is governed by a parliamentary system, where Question Time is a much-loved institution. The offense (manufactured, perhaps) that Representative Wilson’s comment has caused is almost laughable when I think about some of the insults that have been hurled in both directions in Australia’s parliament. Here’s a collection of quotes from former Australian Prime Minister Paul Keating just for starters (warning: offensive language). Here is a Brit’s take on why American politicians are “a bunch of wimps.”
Mainly, though, I am surprised that questioning of power is not more valued in America. To be sure, the President of the United States is not answerable to Congress in the same way that Ministers (including Prime Ministers) are to a Westminster-system parliament, but I would have thought that questioning the president would be well within the bounds of a nation conceived in liberty and on the understanding that all men are created equal. You got rid of infallible kings in 1776, remember?
I get why the Democrats are making political hay out of Representative Wilson’s outburst, even if I think they are hypocrites for suddenly finding religion on civility, given their own history. And I thoroughly reject, by the way, the notion that much of the criticism directed towards Obama is based on racism, even if this sort of talk gives unfortunate credence to the claims. But those same Dems who are shocked (shocked!) by Joe Wilson’s behavior are right now allowing a tax cheat to pull the nation’s purse strings.
This focus on style — who says what, how they say it, what their motivations might be — over the substance of what the congressional and administrative branches of government are doing is tremendously disappointing. I have heard far more censorious talk about Joe Wilson’s character and the propriety (or lack thereof) of what he did than of the point he was making. Meanwhile, the Dems are keeping “internal” investigations of Charlie Rangel’s ethical violations very quiet indeed.
Quite frankly, I’m far more interested in those than I am in Joe Wilson’s rudeness.
U.S. to Share Biometric Data With Foreign Countries
In the name of fighting identity fraud, the U.K. Home Office has entered into a biometric data-sharing agreement with Canada and Australia.
“The USA will be joining the agreement shortly, and New Zealand is considering legislation to join in the near future,” they say.
It would be nice to learn what commitments have been made to the U.K., justifying this statement.
Finally, an Ally That Doesn’t Wait for America
Washington’s willingness to toss security guarantees about the globe like party favors has encouraged other nations to do little for their own defense. From the European, Japanese, and South Korean standpoint, why spend more when the Americans will take care of you?
But it looks like Australia takes a different view, and is willing to do more to defend itself and its region. Reports the Daily Telegraph:
The latest defence White Paper recommends buying 100 advanced F-35 jet fighters and 12 powerful submarines equipped with cruise missiles, a capability which no other country in the region is believed to possess.
The “potential instability” caused by the emergence of China and India as major world powers was cited as the most pressing reason for this military build-up. In particular, Australian defence planners are believed to be concerned about China’s growing naval strength and America’s possible retreat as a global power in the decades ahead.
Chinese officials say their country’s growing power threatens no-one. Behind the scenes, Beijing is thought to be unhappy about Australia’s White Paper, with one Chinese academic saying it was “typical of a Western Cold War mentality”.
But the Chinese navy has almost doubled the number of secret, long-distance patrols conducted by its submarines in the past year. The reach of its navy is extending into Australian waters. China is also acquiring new amphibious assault ships that can transport a battalion of troops.
So instead of calling Washington to deal with Beijing, the Australians are building up their own navy. Novel approach! Now, how can we implant a bit of the Aussie character in America’s other friends around the globe?
Some Center-Left Governments Are Prepared to Promote Trade
Not to brag, but my homeland has a pretty good record when it comes to trade liberalization. Even the center-left Labor party is supportive of multilateral trade negotiations, although they have historically been less enamored of bilateral and regional preferential deals. (A completely respectable view, by the way). Indeed, the most substantial unilateral trade liberalization efforts in Australia’s history occured under Labor governments.
Simon Crean, the current (Labor) Minister for Trade recently confirmed that commitment in the face of trade union opposition. In a statement that could have come directly from Cato’s Center for Trade Policy Studies, he said:
People seem to think that jobs can be protected by reverting to protectionism. The exact opposite is the case. If the country and the world reverts to protectionism, it costs jobs and lowers living standards.
Minister Crean then went on to make mildly mercantalist noises about how many Australian jobs are “trade related” — and you can be sure he is not referring to imports — but, really, I shouldn’t nit-pick. If more governments, including those of the center-left, were as supportive of free trade and as skeptical of protectionism, the global economy would be better off.
HT: our friends over at the Club for Growth.
The Problem with the EU in Afghanistan
President Barack Obama, like President George W. Bush before him, has gone hat-in-hand to the Europeans to request (beg?) for more troops for Afghanistan. Alas, the European governments gave him the back of their collective hand: they may like President Obama more than his predecessor, but that doesn’t mean they, or their peoples, want to do any more in Afghanistan.
But then, it’s not clear that getting more European troops would help much. Reports the (Australia) Herald Sun:
When asked by the Britons to attack Afghan rebels, the commander of a [Czech] special operations unit (SOG) said “we’re not going to, it’s dangerous,” then ordered his men to get in trucks and return to the base.
On another occasion, an SOG commander decided that the task the Britons had set ran counter to the unit’s mission.
Yet another time, a commander said he could not help as his soldiers were on vacation.
“I find it hard to recover from the news I get about this unit. It harms the reputation of the army,” Czech Defence Minister Vlasta Parkanova told the daily.
Some help.
Obviously, some European troops, including Czechs, fight hard and well. But most of the countries deploy their forces to ensure that they don’t have to fight. NATO provides precious few benefits for America in Europe or elsewhere. After 60 years, the U.S. should leave NATO to the Europeans.
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