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June
25, 2002, 8:45 a.m.
Death
to Death-Tax Repeal
Government
bean counters are forecasting for your last dime.
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n"fortune"ately,
it looks like the repeal of the "death tax" is dead — meaning,
come 2010, it will be reinstated at levels that will confiscate wealth.
Within the next eight years, the estate-tax rate will gradually decline
to zero and then be reset to the old 55% rate. Ugh.
Most politicians who are against repeal of the death tax argue that the
government will lose tax revenue if they don't confiscate rich people's
assets. Well, at least that is the argument they use against repeal. Steve
Entin, president of the Institute for Research on the Economics of Taxation,
pointed out the error committed by Congress's Joint Committee on Taxation
in a recent Wall Street Journal editorial:
. . . the JCT did not use a "dynamic" scoring model that
correctly estimates the economic and budget gains of repeal [of the
estate tax]. This is the sort of mistake often made in the past. For
example, JCT suggested that raising the capital-gains tax rate by nearly
50% in 1987 would increase revenues from about $26 billion in 1985 to
about $65 billion in 1991. The actual figure [capital gains tax collections]
in 1991? A mere $25 billion.
In other words, the JCT really believes that, in the extreme, if the
government were to increase all of our tax rates to 100%, there would
be a huge budget surplus because the amount of taxes collected would be
enormous. The problem is that the JCT's basic accounting is just plain
wrong. Any reasonable accounting practice would include an estimate for
changes in behavior based on changes in the tax rate. That's what dynamic
accounting is all about. When corporations are accused of faulty accounting
practices, the outcries fill the airwaves. When the government does it,
nobody says "boo."
Entin goes on to unmask the Enron-like qualities of government accounting:
In [the above] case, JCT increased the cost of repealing the estate
tax by coming up with an implausible scenario under which, after repeal,
everyone would dodge their capital gains taxes. How? By parking their
assets, free of gift tax, with an elderly relative who was likely to
die soon, and who would then return the assets as a bequest with the
advantage of a lower capital gains tax rate . . . in short, the JCT
assumed highly unlikely behavior changes that raised the apparent cost
of the provision, and ignored far more certain changes in behavior that
would have reduced its cost.
While Congress is muddling over legislation to alter corporate-accounting
policies, they should also delve into the murky world of bean counting
over at the JCT. At least they should get them to report their forecasts
on both a static and dynamic basis.
And if Congress won't do something as sensible as repealing the death
tax, Americans with estates need to take matters into their own hands.
If they don't, they face eventual poverty at the hands of the government
confiscators.
Here's one strategy: Marry down. Huh? Here's the deal: When 2010 and
the reinstatement of the full death tax closes in, all you wealthy old
folks who have lost partners should pick out a new partner — one
that is at least twenty years younger. Get married and keep your assets
out of the government coffers for a few more years. Then, after you've
passed on, your younger spouse should remarry using the same strategy.
As long as there are no unfortunate accidents, your estate will be safe
down through the years. And if you don't trust the motives of a younger
unrelated spouse, marry a cousin.
Of course, this scenario is reaching a bit. But somebody else is reaching
— for most of your hard-earned wealth.
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