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FiveThirtyEight

Politics

Because of a law that the Congress passed in 2001, the estate tax, which at is 45 percent this year with an exemption up to $3.5 million in assets, will be entirely repealed in 2010 before abruptly returning to its former rate of 55 percent rate in 2011.

Think there might be a few rich grannies pulled off a few respirators on December 31, 2010?

A pair of Australian economists, who studied the repeal of that country’s inheritance tax in 1979, seem to think there very well could be. They found (.pdf) evidence of so-called “death elasticity”: statistically significant aberrations in reported death rates in Australia on and around June 30, 1979, when the repeal of the estate tax took effect. A relatively high number of Australians who would have been subject to the tax found a way to postpone their deaths until after the 30th. (Or, just as plausibly, their relatives found ways to conceal the moment of passing on their death certificates).

Postponement of one’s death, of course, isn’t such a problem. But because of this one-year glitch in the tax code, it will actually incentivize dying in 2010 instead of 2011. And it’s undoubtedly much easier to speed up one’s date of death than to slow it down. Talk about perverse incentives.

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