How Did the Deaths of Four People Cost the U.S. Government $6.5 Billion? | Hacker News Reader

How Did the Deaths of Four People Cost the U.S. Government $6.5 Billion?

freakonomics.blogs.nytimes.com

26 pointscwan40 comments

When I saw "the Deaths of Four People Cost the U.S. Government $6.5 Billion" I imagined the government taking 6.5 billion from taxpayers and spending it extremely inefficiently. But I am not a journalist living in New York City (if the blogger wrote the headline or an editor for the New York Times if an editor wrote the headline of the blog post)! What the headline is really talking about is the government's failing to collect death taxes that it could have collected if Congress had voted differently.

So apparently according to this journalist every time the government fails to collect X dollars that it could have collected through the legitimate operation of elections, Congressional votes, etc, that failure "costs" the government X dollars. I am having trouble escaping the implication that the headline writer believes that any money that Congress could have voted to collect rightfully belongs to the government, and if the money remains in private hands, maybe that is worth a blog post in the New York Times!

Hi, can we please stop using the phrase "death tax"? It's called estate tax. Legally. Calling it a death tax does not change any of the underlying mechanics or reasons to support/oppose it.

Signed, George Orwell

Death tax is a term introduced by Republicans wishing to change the public perception of estate taxes. Obviously an effective move. Apparently it is hard to get people to vote against an estate tax.

It is scary how effectively Republicans are able to manipulate language and steer political discussion. The Democrats suck pretty badly at this.

Calling it a death tax does not change any of the underlying mechanics

Yes.

or reasons to support/oppose it.

Obviously, no :-)

That's why you're calling for people to stop using this emotionally loaded and inaccurate phrase. Calling it something it's not absolutely changes the reasons to oppose it, which is why we also have phrases like "Death Panels" and "Baby Killers" to describe Canada's (obviously horrific) health care system.

Sure, but I did it because the OP did it. Also, there's a good chance that Orwell would have just as much of a problem with "estate tax" as with "death tax", "estate tax" being the choice of people with an agenda after all.

It's taxing estates, not deaths. Every other tax is named after what it taxes. Income tax, sales tax, gasoline tax.. get the picture?

And that person with an agenda was Teddy Roosevelt who implemented it almost 100 years ago, back in simpler times when the lying in politics was mostly about people's mothers' moralities and lineages.

There was lots of corruption back in the day.

Let's say you are running a business which sells FooWidgets and you charge $100 for them.

Then for the holidays, you decide to only sell them for $50 each.

Doesn't the $50 in savings which you are passing on to your customers also represent $50 in potential revenue that you are not collecting, since you decided to be generous?

It's not that simple; you have to take into account the customers who would not have purchased at $100 but did at $50. Failing to account for price sensitivity is a major elementary economic mistake.

http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Cha...

Perhaps, but I doubt many choose to time their death to minimise estate taxes ;-)

I was only talking about how the metaphor is actually radically more complicated that the thing it is putatively explaining. People mostly aren't timing their deaths (though history has shown it isn't quite the zero you might expect: http://www.nber.org/papers/w8158), and government taxing simply occurs, there's no customer participation. The metaphor, by introducing those concepts, actually goes wrong.

I am not an accountant - but that scenario sounds more like a decrease in revenue rather than an increase in costs.

Really poor title for the NY Times. The deaths didn't cause the government to lose money. It's not the government's money to begin with, it's the property of the people who died.

It's distressing to see the country's premier newspaper resort to linkbait.

Really poor title for the NY Times.

I'm pretty sure Dubner posts these without review, so it's really his wording, not anything attributable to the NYT.

It's not the government's money to begin with, it's the property of the people who died.

This is one (perfectly valid) model of property. Another would include the fact that the institutions that make the ownership of a baseball team or oil corporation feasible (stock markets, banking, legal courts, law enforcement) exist because of the social contract the person entered by deciding to live in the US. Estate taxes (or death taxes, if you wish) are the other side of that social contract: when you die wealthy, you have to pay your dues to the society which made accumulation (or maintenance) of wealth possible.

when you die wealthy, you have to pay your dues to the society which made accumulation (or maintenance) of wealth possible.

They did pay their dues as defined by the tax code in place at the time of their deaths.

And the tax code that, you know, taxed them while they were alive. It's not like their net worth is pre-tax, and if it was pre-tax, that it would stay that way when capital gains tax hits when an heir sells property, etc.

No, if the appreciated asset was pre-tax, at their death, then their heir's get to immediately sell it without paying capital gains.

If you do not have to file a federal estate tax return, then your basis in the inherited property is its appraised value on the date of passing for state inheritance or transmission taxes. Otherwise the property inherited from a descendent usually has its value or basis determined in one of the following four ways:

  The appraised fair market value as of the date of passing. 
  The fair market value on the alternate valuation date if a personal representative of the estate chooses to use alternate valuation. 
  A special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. 
  When the land that is part of the decedent's estate is a qualified conservation easement, then it may qualify for an adjusted cost basis.
  http://www.money-zine.com/Financial-Planning/Tax-Shelter/Capital-Gains-Tax/

PS: This loophole still exists for the untaxed portion of an inheritance.

This isn't a question of "should we collect this tax or not" in isolation. Any tax in isolation would be nice not to have.

The question is, given a need to raise revenue, does it make more sense to tax large inheritances after the first few million, or to abolish that tax and correspondingly raise taxes on someone else. Deficits are just deferred taxes. (and if you say cut spending -- fine, different discussion. Once we balance the budget we can debate which taxes to cut.)

"Deficits are just deferred taxes."

That has to be one of the most depressing things that I have read this week. The logical leap off a cliff surprises me. To think that someone simply believes that government deficits are simply because the government hasn't collected enough taxes is enough to sign up for Prozac.

http://www.paulgraham.com/disagree.html

Deficits are money that the government owes. Which will have to be paid.

Where do you think the money will come from to pay those debts?

It was more the boiling down of the argument, then limiting the responses with the statement, we can talk about cutting spending in another discussion that I found trouble with. Since there are only two options for governments to take care of deficits, cutting spending or taxing more, assuming that you simply have not spent money that you never had, when you limited the argument by not allowing cutting spending as a response, I was troubled with the implication that taxes would have to be raised. And frankly, I don't think there is much room for conversation with someone that feels raising taxes is an acceptable solution.

And frankly, I don't think there is much room for conversation with someone that feels raising taxes is an acceptable solution.

Glad to see you've got an open mind.

Even if you think we can plug a hole this size without raising taxes (which suggests to me you don't know very much about the budget) -- cutting spending is still irrelevant. Let's say we cut the budget by the current deficit plus a little. Do you cut taxes on estates, or cut taxes on income/sales/whatever? It's still a choice about where to tax, when you're talking about revenue.

Cutting spending is never irrelevant. The entire reason we are in the this situation is because the government spent money that they did not have. Hence the deficit.

If you think that cutting spending is irrelevant then how do you think raising taxes will help? Until the government stops spending and printing money, how can we ever trust them to do the right thing with more money from more taxes?

The only reason people are as concerned as they are about the federal deficit is because most people have already concluded that there will be no meaningful spending cuts. There can't be. Neither party has enough power to force anything truly distasteful to the other's ideology down their throat.

The biggest drain on our country is defense spending. But the Republican Party will not allow defense spending to be cut. Medicare is off the table because it is part of health care reform recently passed by the democrats, and because the GOP's base is proportionally uninformed elderly boomers who are about to receive S.S.

You can't have a conversation at a legislative level about what roles that government should and shouldn't perform. Until we agree on that, spending cuts of any meaningful kind are not going to happen. The only way out, then, is to increase government revenue, which implies more taxes.

Semantically, if they paid nothing because they were not required to pay anything, then I don't think you can say they "paid their dues".

Is it really link bait?

The amounts in question are tax revenue that the government would have collected in other years which were not collected this year due to the one-year-only-exemption.

How is missed revenue opportunity not lost money?

The question comes down to semantics of how you interpret a missed chance at revenue, we can probably leave the question of the fairness of the inheritance tax out of it (for now).

The tax code is what it is. The deaths of the four people did not cause the government to lose the money. The structure of the tax code did.

Dubner's point here is that the timing of the deaths did in fact cause the government to miss out on some tax revenue. I agree he's being a bit cute about the wording, but it is just a blog post - not a NYTimes cover news story. He's trying to make a point about the quirks and odd facets (some might call them ridiculous) of our tax code.

Or, maybe not. You see, this year, you not only get to avoid the death tax but you also miss out on the step-up in tax basis. So, you can pass assets down to your heirs tax free but they then have a much larger tax bill if they ever realize the gains on those assets.

" The structure of the tax code did."

Then the decision of the Republicans to structure the tax code so that the kids of billionaires get tax-free windfall income has cost other taxpayers billions.

FTFY: ...so that the kids of billionaires get tax-free windfall income just like the kids of non-billionaires...

The billionaire kids won't have been saddled with the cost of supporting their ailing parents.

The two situations are not just like each other.

Also, there's a benefit to society in avoiding a hereditary concentration of wealth in a quasi-aristocracy of Paris Hilton-class morons.

I'm a bit unclear what "link bait" would be but I do think that the title is a tad misleading and sensationalistic but in a good way. It's like pitching a VC your problem statement. You'd be a fool to be pedantic about it. You want to catch their interest so that they'll listen to the rest of your pitch. The title does the same thing. No one would read the blog post if it was titled "How 4 Deaths Delayed an Indeterminant Amount of Government Revenue for an Indeterminant Amount of Time."

Agreed that titles are meant to attract but this specific case I believe goes beyond that. It left me with a negative impression of the NYT. A feeling that I had been misled.

You can say it's the property of the people who died if you have an ancient Egyptian view of the afterlife. Everybody else says you can't take it with you. What happens to someone's former property after death is a public policy question.

And meanwhile, the government spent over a trillion dollars more in FY 2009 than it had received in revenue.

Over half of government spending is in three areas that will not be touched by members of either party: Defense, Social Security, and Medicare & Medicaid.

Whining about the loss of a piddly $6.5 billion one year is like going on about cutting pork or "waste" - a demonstration that one wants to appeal to peoples' anxieties about unsustainable government spending while being utterly uninterested in doing anything about the problem.

http://en.wikipedia.org/wiki/United_States_federal_budget

When the death of a citizen benefits the government, the citizen should seek the death of the government.

The government is supposed to be for the benefit of the citizen not the other way around.

When the death of a citizen benefits his heirs, should the citizen seek the death of his heirs?

You are not forced to give your inheritance to your children. You are forced to give it to the government. That's why your rephrasing does not work.

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