Dying for Taxes

The source: “Toying With Death and Taxes: Some Lessons From Down Under” by Joshua Gans and Andrew Leigh, in The Economists’ Voice, June ­2006.

A curious thing happened in 1979 as Australia prepared to repeal its estate tax. During the final week the tax was in effect, the death rate declined. When the tax was eliminated, the rate ­rose.

The U.S. congressional calendar this year has been con­sumed by efforts to repeal the American estate tax, or as its opponents say, the death tax. The tax is no small matter, having accounted for $25 billion in revenue in 2005. Could the Grim Reaper possibly be kept on hold to save on taxes? And could an estate tax repeal create an unpleasant surprise for the U.S. Treasury by slashing projected revenues during the final days of ­taxation?

As its ongoing American counterpart has already done, the Aus­tral­ian campaign to repeal the tax took years, according to Joshua Gans and Andrew Leigh, of the University of Melbourne and the Australian National University, respectively. About nine percent of Australian estates were large enough to owe the tax. On June 30, 1979, estates of $1 million (Australian) or more paid 27.9 percent in taxes, with lesser rates for some legacies great­er than $100,000. On July 1, the tax was zero. Death certificates showed that about five percent fewer people died during the tax’s last week than during that period in previous years, and that the death rate rose a similar amount the next week. The researchers assumed that everybody whose death was “postponed” from June to July would have been required to pay the ­tax.

“Over half of those who would have paid the estate tax in its last week of operation managed to avoid doing so,” Gans and Leigh ­write.

Popular medical writing is full of anecdotes of patients who temporarily cheated ­death—­staying alive for a festival, a wedding, or a birthday. De­spite these examples, however, a huge scientific study of cancer victims from 1989 to 2000 found no evidence of any ability to time one’s death to stay alive for important holidays such as Thanks­giving or Christmas. ­Tax-­averse Australians are apparently an exception to this finding. Even the ­super-­rich, the authors write, cannot postpone death forever, but some may be able to stay alive long enough to avoid the estate ­tax.