Wednesday, August 21, 2013
In reaction to the 40% federal estate tax, Indiana, North Carolina, Ohio, and Tennessee recently eliminated their estate taxes, leaving 18 states and the District of Columbia still imposing a state estate tax. After accounting for deductions, the combined federal and state estate tax rate is around 50% in these 18 states.
According to studies by President Obama’s former chief economist Larry Summers, 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.” A state estate tax may be a disincentive for wealth creation to residents in these states. And a state estate tax may encourage residents to flee to one of the other 32 states in order to cut their estate tax liability up to $8 million. If enough residents move to avoid their state’s estate tax, residents making less than $1 million may have to pay extra taxes to make up for the possible net revenue loss.
See The Die Harder States, The Wall Street Journal, Aug. 20, 2013.
Special thanks to Tom Weede for bringing this article to my attention.