The Death Tax States

Washington finally declared a truce on the death tax this year, with estates now taxed at 40% with an exemption of $5 million. President Obama insisted on preserving this tax to spread the wealth, though it raises less than 2% of federal revenue and discourages lifetime savings, as even a 1981 study by Mr. Obama’s former chief economist Larry Summers showed.

Now the death-tax debate has shifted to state capitals, with mixed results depending on which party runs the state. Prior to 2001, states could impose an estate tax of up to 16% with no extra burden on their residents because a federal tax credit offset state estate taxes. That policy has ended and now state death levies are paid out of the assets of the deceased.

Four states—Indiana, North Carolina, Ohio and Tennessee—have reacted wisely by eliminating or phasing out their estate taxes. This leaves 18 states plus the District of Columbia that still impose a gift or estate levy. (See the nearby list.) Most of them still apply a 16% rate—as if federal rules haven’t changed.

The grand prize for self-abuse goes to Minnesota, which this year enacted a new 10% gift tax with a $1 million exemption. A gift tax is a levy on money given away while still alive. This tax is in addition to Minnesota’s 16% estate tax. The new law is all the more punitive because it applies the 16% estate tax (6% on top of the earlier 10% gift tax) to any gift within three years of death.

This is essentially a clawback tax, or more taxation without respiration. Democratic Governor Mark Dayton, who signed the law, is the heir to a department store fortune and knows a lot about inheriting wealth but not much about creating it.

Studies by Mr. Summers and many others conclude that successful people who have built up wealth continue to invest in the enterprise and save money in their later years in order to leave a legacy to their heirs. This accounts for the trillions of dollars of wealth passed from one generation to the next. The higher the tax rate the more this incentive for wealth creation is reduced. The combined federal and state death tax rate now approaches 50% in many states (after accounting for deductions). This explains why estate tax planning and avoidance is a booming industry.

State death taxes are especially futile because residents subject to the tax can avoid it by fleeing before they die. No less an ardent liberal than the late Senator Howard Metzenbaum moved to Florida from Ohio to avoid estate taxes after he retired from politics. A successful New York business owner with, say, $50 million of lifetime savings can move his family and company to Florida, Georgia, Texas or 29 other states and cut his death-tax liability by up to $8 million.

Thousands of Minnesota snow birds move to Florida during the winter months already, and so the new tax adds an extra financial incentive not to return. The Center for the American Experiment, a Minnesota research group, found that $3 billion of income has been lost to the state since 1995 after Minnesotans relocated to Florida and Arizona.

The think tank’s conclusion should be required reading for policy makers in every state still imposing a death tax: “If enough people move away and stop paying Minnesota taxes, then Minnesota will experience a net revenue loss due to the estate and gift tax.” This will mean that people making less than $1 million a year will be left paying the tab. So much for spreading the wealth.

If You Enjoy Articles Like This - Subscribe to the AMAC Daily Newsletter
and Download the AMAC News App

Sign Up Today Download

If You Enjoy Articles Like This - Subscribe to the AMAC Daily Newsletter!

Notify of
Oldest Most Voted
Inline Feedbacks
View all comments
8 years ago

The citizens of MN can look in the mirror to find the agent of indentured servitude to whom they have become victim. Besides having to endure weather colder than a well digger’s ass, they can also be assured of being dead and broke when they take their final exit. It’s become very clear (many of us already knew) that America’s downward spiral has accelerated to hyper drive. The impenereable wall at the end of the Dead End is approaching fast (and furious).

8 years ago

I live in Kentucky. I guess when I get close to death I will move in with my brother in Tennessee. If you call death lucky, my father died in January and he lived in Tennessee, thank goodness.

8 years ago

I live in the blue Mid-Atlantic states. Fat chance ours will ever be eliminated. We have no sales tax but they tax everything else to the hilt to make up for it.

8 years ago

We have no one to blame but ourselves. vote informed instead we get voter ignorance.

8 years ago

I watched in the 60’s as the dem’s took the federal government to court about S.S.(Social Security) at that time called old age pension ..Supposedly a lock retirement that both the person and the employer paid into ..When the results was announced from OHIO federal court it was ruled a tax NOT a RETIREMENT .Johnson became president push thru the new deal a war against poverty. so less than 2 years later SS was busted and nothing but IOU since ..For before it had more money than the US treasury..They could not stand for money they couldn’t spend to be gaining ..IF they had left it alone each retire today would be DRAWING between 4000 and 6000 each month not 600 to 2200 ..
AND You still vote dem a commie Lord help this nation.. Just a few facts on taxation

8 years ago

I was just watching a show last week of a man in Texas who was dividing a huge ranch that had been in existence for a hundred plus years because of death tax but I don’t see Texas on the list.

8 years ago
Reply to  Kim

Kim, That is federal tax not state tax. We have no income tax here in Texas..

8 years ago
Reply to  Kim

That was about federal taxes, not state.

8 years ago

Interesting that no southern states are listed, unless you want to count KY, which is actually a border state. We live in such a greedy country. Washington won’t be happy until they get all our money and we’re given only enough to sustain life…OH…wait a minute…that’s happening to a lot of our oldest senior citizens now.

8 years ago

It’s just so disheartening to spend a lifetime building up and estate, paying taxes over and over again throughout your life and not being able to leave the balance to your children without the government taking so much of it. We hear about the waste every day, waste into the billions and billions of dollars and instead of cutting back they simply distribute more money and take more from the people who have worked so hard. I never thought I would see the day that I hated my government but, that day has come.

Would love your thoughts, please comment.x