The Fiscal Cliff Connection Between Death and Taxes

The familiar old saying is that the only two things that are certain in life are death and taxes. In many countries, including the US, the two are linked together by the inheritance tax, which is a widely used scheme to redistribute wealth. When you die, the government gets some of your estate and your heirs get the rest. There is typically a minimum amount of wealth, however, below which taxes are not collected. If you aren't very wealthy, the government won't tax your estate. The big question is--what is that minimum? This is one of the issues involved in the so-called "fiscal cliff" that Congress set up for itself to resolve before the end of 2012, but so far has chosen not to resolve. NBC News has figured out the consequence of inaction:

In 2010, after a year in which the estate tax was zeroed out altogether, Congress passed a law that set the estate tax at 35 percent and exempted all estates under $5 million, adjusted for inflation. That law expires in January 2013 when the exemption will fall to $1 million and the tax will rise to 55 percent.

Many families are faced with a stark proposition. If the life of an elderly wealthy family member extends into 2013, the tax bills will be substantially higher. An estate that could bequest $3 million this year will leave just $1.9 million after taxes next year. Shifting a death from January to December could produce $1.1 million in tax savings.

So, we know especially from the work of David Phillips at UCSD that people are capable of delaying their death day, at least a little bit. But can we speed things up without a bit of outside help? Will we have a spate of late night suicides on the 31st? Would we do that for sake of tax savings for our heirs? It will take a few months to know for sure whether there was, in fact, a statistically significant jump in deaths over the last few days of December 2012, so we will have to revisit this question later.