Don't laugh, it has happened in the past:
In the summer of 2004 something very strange happened in Australia. The birthrate plummeted sharply in June. Then on a single day in July more babies were born than on any other day in the prior thirty years of Australian history. July 1, 2004 was a very popular day to be born.
What caused this dip and surge in births? Seven weeks before July 1, the Australian government announced a change in the tax code that would give families a $3,000 baby-bonus starting on the first day in July. It appears that as many as 1,000 births were "moved" until after the baby bonus kicked-in, according to a 2009 studyby Joshua Gans of the University of Melbourne's Business School and Andrew Leigh of the Australian National University's Research School of Social Sciences.
"We estimate that over 1,000 births were "moved" so as to ensure that their parents were eligible for the Baby Bonus, with about one quarter being moved by more than one week," Gans and Leigh write.
According to the researchers, most of this temporal shift was due to changes in the timing of induction and cesarean section procedures. When they looked at an increase in the baby bonus that took effect two years later, on July 1, 2006, they found that the same pattern—births moving from June to July.
Now, some of this could be due to fudging the dates, so that births occurring just prior to the eligibility date were recorded as taking place afterward. But Gans and Leigh found evidence that babies really were held-in-uteri until they were eligible for the tax break. Babies born after the eligibility date, for example, had higher birth weights than those born earlier.
This isn't just something peculiar to Australia. Economists Wojciech Kopczuk of Columbia University and Joel Slemrod of the University of Michigan studied how mortality rates in the United States were changed by falling estate taxes. They note that while the evidence of "death elasticity" is "not overwhelming," every $10,000 in available tax savings increases the chance of dying in the low-tax period by 1.6 percent. This is true both when taxes are falling, so that people are surviving longer to achieve the tax savings, and when they are rising, so that people are dying earlier, according to Kopczuk and Slemrod.
"Death elasticity" does not necessarily mean that greedy relatives are pulling the plug on the dying or forcing the sickly to extend their lives into a lower taxed period. According to a 2008 paper from University of Pittsburgh Medical Center Doctor G. Stuart Mendenhall, while tax increases give potential heirs large economic incentives to limit care that would prolong life, distressed patients may "voluntarily trade prolongation of their life past the end [a low tax period] for large ﬁnancial implications for their kin.
"Whether these incentives are explicitly speciﬁed in wills or communicated to their power of attorney over the dinner table, they are clearly present and affect the ability of all involved parties to make unbiased decisions," Mendenhall writes.
Now I'm not suggesting that in every single instance, folks are either pulling the plug on Grandma, or sticking a cork in pregnant mom. I do think that in some instances, those that will be affected the most by changing tax rates are the same folks willing to go to extreme measures to preserve (or create) wealth. If the tax rates on estates roll back from a $5 million threshold to a $1 million threshold, I bet we'll see statistically significant "blips" on the radar. It's happened for things as basic as seeing a new millennium, why wouldn't $4,000,000 have a similar impact?
In 2010, after a year in which the estate tax was zeroed out altogether, Congress passed a law that set the estate tax at 35 percent and exempted all estates under $5 million, adjusted for inflation. That law expires in January 2013 when the exemption will fall to $1 million and the tax will rise to 55 percent.
Many families are faced with a stark proposition. If the life of an elderly wealthy family member extends into 2013, the tax bills will be substantially higher. An estate that could bequest $3 million this year will leave just $1.9 million after taxes next year. Shifting a death from January to December could produce $1.1 million in tax savings.
It may seem incredible to contemplate pulling the plug on grandma to save tax dollars. While we know that investors will sell stocks to avoid rising capital gains taxes, accelerating the death of a loved one seems at least a bit morbid—perhaps even evil. Will people really make life and death decisions based on taxes? Do we don our green eye shades when it comes to something this serious?
There is good evidence that there is some "elasticity" in the timing of important decisions about life and death.
It's well-known that people can delay death, for example, in order to live through significant dates—birthdays, holidays, anniversaries. In the first week of 2000, local New York City hospitals recorded an astonishing 50.8 percent more deaths than in the last week of 1999, according to the New York Times. Apparently, a significant number of people delayed their deaths in order to see the new millennium.