In Life, Baseball and the Estate Tax, Timing is Everything

By :: July 14th, 2010

I came of age as a Royals fan, and I agree with George Brett’s comments at his Hall of Fame induction ceremony, “I don’t like those Yankees still”. George Steinbrenner’s Yankees tortured my beloved Royals in the late 1970s and early 1980s. I’ll never forget my dad flipping across news channels so my family could watch Brett tear out of the dugout over and over after umpires nullified his home run because Steinbrenner’s Yankees objected to the amount of pine tar on his bat. Ridiculous.

What’s also ridiculous is that the timing of Steinbrenner’s death makes such a difference to his heirs. I’m sure if you asked any of them, they’d give anything for one more hour of light. But I’m also sure that they won’t complain that their inheritances will be much larger because Steinbrenner died this year and not a year earlier or later. You see, 2010 is that magical year when, for one year only, the estate tax disappears. Had Steinbrenner died in 2009 when the estate tax was 45 percent on wealth over $3.5 million, the New York Times estimates his heirs would’ve lost about $500 million to federal taxes on an estate estimated by Forbes to be worth $1.1 billion . His estate would’ve been one of only 5,500 returns paying the tax that year—less than one-quarter of one percent of all deaths. If he hadn’t died until next year, when the estate tax is scheduled to revert to pre-2001 rules, his estate would’ve joined a much larger crowd paying the tax – but still tiny in comparison to the entire population—44,200 estates. According to my colleague Bob Williams, Steinbrenner’s dying in 2011 might have cost his heirs about $100 million more than if he’d died in 2009. Some basic estate planning could have cut the taxes a lot in either year.

Of course, Steinbrenner’s estate may end up owing tax. Many members of Congress want to restore the estate tax retroactive to the beginning of 2010, an action that will employ lots of lawyers to argue whether that’s constitutional. Regardless of retroactivity, in the face of our huge budget gap, Congress can’t afford to forgo the $14 billion an estate tax at the 2009 level would collect this year.

We could argue all day about whether or not the pine tar rule made much sense—I say it didn’t. And it took the New York State Supreme Court’s Appellate Division to get Steinbrenner to finish the game as Major League Baseball ordered. But there’s not much argument that letting a tax disappear for exactly one year makes sense. Congress should just restore it.


  1. Anonymous  ::  8:32 pm on July 14th, 2010:

    Estates should not be taxed – income to heirs should be taxed as normal income as part of a tax reform which raises the floor on taxation to $50K for individuals and $100K for joint filers. Of course, part of the plan I propose includes a VAT and expanded business income taxes – so in some sense estate income would be paid on the first dollar received. Consumption taxes greatly level the playing field for unearned income, since the merchant you use cares not whether the income came from playing the lottery, from your father's estate or from an honest days work – the VAT is still the same.
    A VAT has interesting implications for inherited income – since spending it overseas won't help with VAT avoidance if the article is shipped here OR if you go to overseas to an OECD country, since most such nations also have a VAT.
    The one exemption for income taxes on inherited income would be for sales of a firm or its stock to a qualified ESOP. Such a rule would change how the Yankees operate – and in a good way – and may also change how the venues they play in operate as well. If ESOP rules were changed so that retirees could still vote their shares rather than being forced to sell them, it would certainly change the incentives for teams when salary negotiations happen – especially if ESOP stock distributions were uncoupled from income. I am not advocating that stadium workers and team members fall under the same ESOP, however each should have their own and the venue's take should be large enough to make working in that industry a good job.

  2. Anonymous  ::  2:41 pm on July 27th, 2010:

    I miss the good old days when Steinbrenner was still alive and kicking butt!
    The Baseball Blogger