Elimination of the death tax might make Gram and Gramps a little wary. Here is an imagined scene from a family vacation to the Grand Canyon in April 2010:
SON, standing near the edge of the North Rim precipice: "Granny! Come look! The colors are much more beautiful here."
FAMILY MATRIARCH/GRANDMOTHER, who has paid for the vacation trip: "But the sign says 'Do Not Approach the Edge.' "
SON: "That's just the nanny state talking! Come a little closer. I think we can see the Colorado River from here. ... Look! There are some white-water rafters!"
Watch out, granny. Watch out, grandpa. En garde, each and every member of the so-called Greatest Generation, with your trillions of dollars of net worth. This is going to be your Year of Living Dangerously.
Why? Because 2010 is the year that Congress, in its wisdom, eliminated the estate tax. That means Junior and Sis, who are now rapacious baby boomers in their late 50s, can inherit your house and your bank accounts tax-free.
"If you're going to shoot your grandfather, this might be the year to do it," says Laurence Kotlikoff, an economics professor at Boston University.
"Just make sure your accountant is OK with it."
Of course he is joking. In case he isn't, old people, this might be the year your retirement community wants to pay someone to taste your food before it is served. You can't be too careful.
The recent history of the estate tax, rechristened the "death tax" by conservative Republicans, is comical. For years, an ever-increasing amount of loot — last year it peaked at $7 million for a couple — has been exempt from the estate tax. Decades ago, the tax became unpopular with the Little House on the Prairie people. A family farm might be worth a couple of million dollars, the thinking went, and it would be bad social policy to prevent Ma and Pa Greenjeans from passing on the old homestead to their kids.
But the estate tax loophole isn't just for farmers any more. It turns out that urban boomers like the idea of inheriting their parents' five-bedroom, home tax-free, just as much as the farmer's kids want to save the barn. Furthermore, ditching the estate tax evolved from being a free-market, rock-ribbed Republican idea to being consensus politics. Majority Leader Harry Reid's Democratic Senate could have reinstated the tax last year but instead left things just the way George W. Bush wanted them. Maybe they'll address the death tax in the next few months, and maybe they won't.
Its disappearance is bad for the U.S. Treasury and bad social policy as well.
Over 90 percent of U.S. households receive no inheritance. Guess who gets the larger bequests, the ones that would normally qualify for the estate tax? The well-to-do, of course. Even rich people like Bill Gates's father and Warren Buffett support the estate tax. The irony is that rich Democratic senators don't. Almost all senators are filthy rich, and they have children, too.
Wall Street started lobbying against the estate tax about 20 years ago, when studies emanating from Cornell University and Boston College announced that baby boomers were about to receive between $10 trillion and $41 trillion in inheritance from their parents, quickly hyped as the largest wealth transfer in recorded history. "That was a completely bogus analysis that never added up," says Kotlikoff. "Our parents are living longer, which in some cases means a negative inheritance, and there are more of us baby boomers, so we are getting less per person."
Wait, it gets worse. "There is no reason for us to expect to finance our retirement via inheritances," Kotlikoff says. "We ourselves have a longer retirement to look forward to, and we can't count on dying on time."
In death, taxes, and death taxes, timing is everything.
Beam is a Boston Globe columnist.