Stateline reports that states governments are choosing to eliminate the estate tax.
In 2001, every U.S. state imposed either an estate or inheritance tax. But that year, the federal government eliminated its income tax credit for such payments — and the repeals began. By 2018, only 17 states will have an estate tax, an inheritance tax or both.
In recent years, Tennessee (2016), Georgia (2014), Indiana, North Carolina and Ohio (all in 2013) also have eliminated their estate or inheritance taxes.
Earlier this year, Minnesota increased its estate tax exemption from $1.8 million to $2.1 million, retroactive to Jan.1. The exemption increases to $2.4 million in 2018, $2.7 million in 2019, and $3 million in 2020.
The reasons vary and, Stateliness notes, many of the repeals are accompanied by boosts in other taxes. In New Jersey, which repealed the estate tax late last year,
They packaged the eventual abolition of that tax with a bunch of other tax hikes, including a huge increase in the gasoline tax that brought New Jersey from the second-lowest gas tax in the nation to the eighth-highest…New Jersey will retain its inheritance tax, which is assessed on individual bequests rather than on overall estates.
That’s been the pattern in many states that have scrapped the estate tax or increased the amount of the estate that is exempt: By eliminating the estate tax as part of a package that raises revenue from other sources or puts money into other priorities, such proposals have won the support of both Republicans and Democrats.
We’ve previously cited Washington’s highest-in-the-nation estate tax.
Tax Foundation analyst Morgan Scarboro reports that states are backing away from the taxes.
Indiana repealed its inheritance tax in 2013. Tennessee repealed its estate tax in 2016. New York raised its exemption level to $5.25 million this year and will match the federal exemption level by 2019. The District of Columbia is set to conform to the federal level this year after meeting its revenue triggers. New Jersey will fully phase out its estate tax by 2018.
Among the reasons cited for moving away from the tax:
Estate and inheritance taxes are burdensome taxes that disincentivize business investment.
Jared Walczak, senior policy analyst for the Tax Foundation, a conservative group that generally believes in lower taxes on a broader base, said that tradeoffs often do make the difference on tax policy…
Walczak explained that the estate tax is a relatively small source of revenue — in fiscal 2016, state inheritance and estate taxes raised $5.1 billion, accounting for 1.4 percent of state tax collections in the states that have the taxes. It is also a volatile revenue source, since it depends on when someone dies.
In New Jersey, the effect on small business also came into play.
Michele Siekerka, president and CEO of the New Jersey Business & Industry Association, said she had talked to lawmakers many times about its members’ concerns about the estate tax. A small-business owner, for example, told her if they got hit by a bus tomorrow, their children wouldn’t have the liquidity in the business to pay the estate taxes, she said.
Washington lawmakers passed an estate tax in 2005. Initiative 920, a 2006 attempt to repeal the legislation, was rejected 38-62