Suicide is tax-less

December 31, 2012 | Capital Gains, Death, Health care, Mortality, Real estate taxes, Suicide, Taxation

Suicide is painless
It brings on many changes
And I can take or leave it if I please

–”Suicide is Painless,” Johnny Mandel and Michael Altman


As we count down to the undiscovered countryof the ‘fiscal cliff’, we approach one of the largest tax discontinuities in decades – where the tick of a clock can make a difference of over a million dollars, and when that happens, as analyzed in this story from CNBC (December 27, 2012), life or death decisions become more visibly economic:


Will this be your last supper, my lord?


Will ‘Fiscal Cliff’ Accelerate Millionaire Deaths?

By John Carney, Senior Editor, 

Short answer: Yes.  And why is anyone surprised? 

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% 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%. 

Any time the government makes a prospective change in tax law, the result is a flurry of pre-change activity.  Going back three and a half decades, I’ve been through several of these tax curtains (1975’s expiration of ‘pre-admission losses’ for real estate partnerships, 1984’s demise of cash-to-accrual mismatching of accrued but unpaid note interest), and now the 2012 demise of the larger estate tax exemptions.  Indeed, my US for-profit company recently did quite a bit of work providing expert opinions of value on partnership interests on behalf of larger developers/ owners who were moving assets among beneficiaries and generations so as to cleanse them of potential future estate tax liability risk. 

Kills 99% of tax under $5,000,000 

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. 

A life is roughly 30,000 days, and it is a sad fact that as death approaches, the remaining days get worse and worse. In the last few years, I’ve seen my aunt, my stepfather, and my mother all die of what in another era we called ‘old age,’ and in each of their cases, there came a moment when he or she decided further living was not worthwhile. It’s not that any of them chose to die; they just chose not to keep striving to live – and when that happens, as Robert Graves wrote in I Claudius, “When life’s no longer wanted it takes but a touch … to let it flow away.”


A man who saw a lot of World War 1


It may seem incredible to contemplate pulling the plug on grandma to save tax dollars.  

Spare me the naivete.  

You all get more if I go, don’t you? 

Years ago, when I was 22 or 23, I was working on a troubled property in danger of foreclosure, which would trigger a huge capital gain with no associated cash, except for transferee investors that had elected to step up their basis using Section 754 of the code.  I took a phone call from an extremely elderly gentleman, who dispite the thick phlegm evident in his gravelly voice had retained all of his acerbic wit as we discussed the workout plan and what we were doing to prevent foreclosure (and hence the tax).  “Heh,” he chuckled, “I just hope this project makes it longer’n I do.” 

A brave man once requested me
To answer questions that are key
Is it to be or not to be
And I replied ‘Oh, why ask me?’
–”Suicide is Painless,” Johnny Mandel and Michael Altman

To be, or what?  I’ve got 25,000 more days to look forward to

If you find the thought that rational elderly people would choose to end their lives earlier so as to bequeath millions more to their heirs, perhaps you’ll be less bothered by the converse: timing the blessed event of birth. 

In the summer of 2004 something very strange happened in Australia. The birthrate plummeted sharply in June. Then on a single day in July, more babies were born than on any other day in the prior thirty years of Australian history. July 1, 2004 was a very popular day to be born. 

Gee, were people holding their breath, as it were? 

Seven weeks before July 1, the Australian government announced a change in the tax code that would give families a $3,000 baby-bonus starting on the first day in July. It appears that as many as 1,000 births were “moved” until after the baby bonus kicked-in, according to a 2009 study by Joshua Gans of the University of Melbourne’s Business School and Andrew Leigh of the Australian National University’s Research School of Social Sciences, “with about one quarter being moved by more than one week,” Gans and Leigh write. 

According to the researchers, most of this temporal shift was due to changes in the timing of induction and caesarean section procedures. 

Can we get this done in time? 

As technology enters into the life-and-death decisions, they become more readily schedulable.  (I have read, to my disgust, that caesarian sections have become much more common, in part because they enable doctors to schedule vacations and golf games, but this is unproven.) 

When they looked at an increase in the baby bonus that took effect two years later, on July 1, 2006, they found that the same pattern—births moving from June to July.

If you think birth differs from death in terms of people’s decision-making, then let’s consider the happier case, where the death is delayed because delay saves money:

Let’s just think about this rationally, shall we?

 An earlier paper by Gans and Leigh looked into another natural experiment. In 1979, Australia abolished its federal inheritance taxes. Official records show that approximately 50 deaths were shifted from the week before the abolition to the week after.

 “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,” Gans and Leigh write.

The evidence is thus persuasive that in fact both birth and death do move, at least in micro and sometimes in medio, in response to rational economic choices.

 While we know that investors will sell stocks to avoid rising capital gains taxes, accelerating the death of a loved one seems at least a bit morbid—perhaps even evil.

Perhaps even evil?  ‘Accelerating the death of a loved one’ sounds to me like Obamacare-speak for ‘killing,’ but then I’m old-fashioned, and if it’s sanctioned by a panel of doctors, why then I’m sure it meets the highest, the highest ethical standards.

You won’t  get Obamacare reimbursement for that

 Will people really make life and death decisions based on taxes?

To quote Les Grossman, Yes.

Let me get this straight. You want me to let my client of fifteen years, one of my best friends, die .  In the jungle, alone.  For some money and a G5?
[Pause before replying]
A G5 airplane?
Yes.  And lots of money.

 Do we don our green eye shades when it comes to something this serious?

To quote Les Grossman, Yes.

I know you want the goodies!

 There is good evidence that there is some “elasticity” in the timing of important decisions about life and death.

 There comes a point when staying alive takes effort, will, and suffering. 

Remind me again why I’m staying alive

The game of life is hard to play
I’m gonna lose it anyway
The losing card I’ll someday lay
So this is all I have to say
–”Suicide is Painless,” Johnny Mandel and Michael Altman

It takes so little to let the clock stop.

 It’s well-known that people can delay death, for example, in order to live through significant dates—birthdays, holidays, anniversaries.

 There’s a reason that a person’s testamentary document is called his or her last will, because at the end of life, living takes will.

 In the first week of 2000, local New York City hospitals recorded an astonishing 50.8% more deaths than in the last week of 1999, according to the New York Times. Apparently, a significant number of people delayed their deaths in order to see the new millennium.

Worth reading, or at least peeking into

 Wouldn’t you?

This isn’t just something peculiar to Australia. Economists Wojciech Kopczuk of Columbia University and Joel Slemrod of the University of Michigan studied how mortality rates in the United States were changed by falling or rising estate taxes. They note that while the evidence of “death elasticity” is “not overwhelming,” every $10,000 in available tax savings increases the chance of dying in the low-tax period by 1.6%. This is true both when taxes are falling, so that people are surviving longer to achieve the tax savings, and when they are rising, so that people are dying earlier, according to Kopczuk and Slemrod.

In short, higher taxes will kill you.

Not if I move to Belgium!

“Death elasticity” does not necessarily mean that greedy relatives are pulling the plug on the dying or forcing the sickly to extend their lives into a lower taxed period. According to a 2008 paper from University of Pittsburgh Medical Center Doctor G. Stuart Mendenhall, while tax increases give potential heirs large economic incentives to limit care that would prolong life, distressed patients may “voluntarily trade prolongation of their life past the end [of a low tax period] for large financial implications for their kin.”

That’s merely an extension of the inter-generational altruism that normally characterizes human families.

“Whether these incentives are explicitly specified in wills or communicated to their power of attorney over the dinner table, they are clearly present and affect the ability of all involved parties to make unbiased decisions,” Mendenhall writes.

Dr. Mendenhall has an interesting definition of ‘unbiased,’ as if the medical judgment from outside the individual is more important than the multi-dimensional judgment of the dying person herself.

The only way to win is cheat
And lay it down before I’m beat
And to another give my seat
For that’s the only painless feat
–”Suicide is Painless,” Johnny Mandel and Michael Altman

For myself, I want to live as long as my brain works – at least that’s what I say, typing here in good health and with no reaper on the horizon.  But suppose I were in pain, the cost of alleviating which was a million dollars a day – would I still want to impoverish loved ones just for another day of immobility?

Through early morning fog I see
Visions of the things to be
The pains that are withheld for me
I realize and I can see
–”Suicide is Painless,” Johnny Mandel and Michael Altman


You want a black capsule?

We had something of a natural experiment in death and taxes in 2010, when the estate tax was eliminated for one year. Many predicted that this would result in many fewer deaths at the end of 2009 and a surge in deaths prior to taxes rising in 2011.

My own research hasn’t uncovered any formal academic work on this period. Perhaps it is too recent. Or perhaps the setting of the exemption at $5 million made the sample size of those that could achieve significant tax savings by dying in 2010 rather than 2011 too small.

But based on past reactions to changes in taxes, it at least seems likely that some deaths that might otherwise have occurred shortly after January 1 will occur shortly before. Death may slip in ahead of the tax man for some with estates worth over $1 million.


For those of you planning to read this blog tomorrow, Happy New Year.


Now go, and blog some more