Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Tuesday, October 22, 2019

Estate Tax Can Pay Off for States, Even if the Superrich Flee

EstatetaxEnrico Moretti of the University of California, Berkeley, and Daniel J. Wilson of the Federal Reserve Bank of San Francisco recently conducted research on the likelihood of wealthy individuals remaining in states with estate tax by the time that they die. As expected, the older the wealthy get, the less likely they are to continue to live in states that charge estate taxes. But there is still a definite upside to state estate tax, and thus a possible reason for them to continue: estate taxes raised more money for states that had them than they lost in income-tax revenue when billionaires left to avoid the estate tax.

Many of the Democratic presidential candidates are proponents of imposing a wealth tax or even lowering the exemption amount on federal estate taxes. Unlike state estate taxes, the wealthy cannot simply move out of state to avoid the federal tax on their estate. Before President George W. Bush’s tax-cut package of 2001, the government offered a federal tax credit to cover the state tax liability, and as such many states passed estate taxes that exactly matched the available federal credit. Now, as of 2017, only 13 states impose their own estate taxes.

If all states imposed an estate tax, of course, the rich would have no choice but to pay it. Gabriel Zucman, an economist at the University of California, Berkeley, who has advised Elizabeth Warren on taxation issues, suggests that an easy way to maximize states’ estate tax revenues would be to reintroduce the federal credit, eliminating interstate tax competition.

See Eduardo Porter, Estate Tax Can Pay Off for States, Even if the Superrich Flee, New York Times, October 20, 2019.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law), Naomi Cahn (Harold H. Greene Professor of Law, George Washington University School of Law), and Matthew Bogin, (Esq., Bogin Law) for bringing this article to my attention.


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