Death and Taxes

Over the past few years, conservative members of Congress have devoted considerable energy to efforts to repeal the Estate Tax. An expensive PR campaign has hammered at the awful unfairness of the “Death Tax.” People unfamiliar with the tax and its application have been led to believe that heirs are routinely having to sell the family farm to pay confiscatory taxes. They’d probably be surprised to learn that 99 percent of estates pay no estate tax at all. 


Among the 1% of estates that do pay these taxes, the "effective" tax rate — that is, the actual percentage of the estate that is paid in taxes — averaged about 20 percent in 2005 (the latest year for which IRS data are available), far below the statutory rate of 48 percent. 


Although few families pay, the Center on Budget and Policy Priorities calculates that repeal would reduce tax revenues by a trillion dollars in the first ten years. That’s because the 1% of Americans who do pay the tax are very, very wealthy.


Meanwhile, as policymakers have argued whether the Estate tax imposes an unfair burden on our wealthiest citizens, they have been shockingly unmoved by a far more confiscatory and widespread “death tax”—the requirement that elderly citizens entering nursing homes impoverish themselves before Medicaid will pay for their care.


Millions of older Americans who have worked and paid taxes their whole lives cannot afford the ever-escalating costs of long-term care. Very few insurance policies cover these costs, and those that do are far too expensive for most middle-class retirees.


Before these vulnerable Americans can receive the services they need, federal law requires that they “spend down” their assets. That is, they must apply virtually everything they have to payment of the initial nursing home charges. Once they no longer have assets, medicaid will pick up the costs. There are few exceptions: prepaid funeral expenses, or a home that remains occupied by a spouse. Over six million elderly Americans are currently receiving Medicaid. All of those seniors have thus paid the “tax”—i.e. the spend-down. Its “effective rate” is 100%. 


My mother spent her last years in a nursing home. Many of the residents had worked hard their entire lives. Like the wealthy, most had hoped to pass their possessions and savings on to their children and grandchildren. Unlike the wealthy, they couldn’t afford estate planners and lawyers to help them shelter their assets and minimize the impact of federal rules. Their savings were gone, and all too often their pride and independence had vanished with the money.


Some wealthy Americans believe this state of affairs is wrong. They include Warren  Buffett, George Soros and William Gates, Sr. They have urged Congress to reject President Bush’s push to repeal estate taxes, arguing that "repealing the estate tax would enrich the heirs of America‘s millionaires and billionaires while hurting families who struggle to make ends meet."


In other words, agonize less over burdening George Soros, and worry more about wiping out Mr. Average Citizen.