Report warns lawmakers against raising estate tax exemption

PROVIDENCE – The Center on Budget and Policy Priorities on Wednesday released a report warning state lawmakers against raising the estate tax exemption, saying tax breaks on the wealthiest individuals would negatively impact state revenue and further perpetuate taxpayer inequality.
Rhode Island state lawmakers last year raised the estate tax exemption from $921,655 to $1.5 million, and the House Finance Committee is currently considering new legislation that would raise the threshold again to $2 million. The CBPP, a Washington-based, progressive-leaning think tank, argues that raising the threshold simply allows the very wealthy to shelter assets and avoid paying a fair share.
The report has caught the attention of Rachel Flum, executive director of the Rhode Island-based Economic Progress Institute, who says the state has a choice:
“We can either invest in the things that help our communities thrive and all of us prosper, or hand out yet another tax break to a few of our state’s wealthiest people,” she said.
The EPI estimates raising the current threshold to $2 million would benefit the heirs of fewer than 100 estates. But advocates say it unnecessarily prompts affluent residents to retire in more tax-friendly states. About 32 states, including Florida and New Hampshire, have no estate tax, which is also known as the inheritance tax, or – more morbidly – the “death tax.” Proponents of raising the threshold say the exemption would curb the exodus of retirees, keeping the residential tax base in-state, and allows retirees to protect their descendants from having to pay the tax after they die.
“None of us like to think about dying,” Rep. Robert E. Craven Sr., D-North Kingstown, told Providence Business News last year. “But when you sit down and look at it with an estate-planning lawyer and you see the numbers projected for your estate, those become real numbers. People say, ‘I can’t afford this. I’d like to leave something for the kids and grandchildren.’ ”
Craven is sponsoring the legislation that would raise the exemption to $2 million,, bringing it in line with the current exemption in Connecticut. The Massachusetts threshold stands at $1 million.
CBPP, however, argues that the estate tax is important because it provides revenue to promote a strong economy, appropriately taxes capital gains realized on assets at the state level and reduces taxpayer inequality. “Despite opponents’ claims, small, family-owned farms and businesses owe estate tax in very few instances. And by increasing the share of their income that the wealthiest must pay, estate taxes can make state tax systems — which now require the lowest-income families to pay the most — more equitable,” according to the report.
“You can’t get something for nothing,” wrote Elizabeth McNichol, author of the report. “States that have reduced or eliminated their estate taxes have less money for public investments, so they are seeing higher tuition at public colleges; cutbacks in teachers at K-12 schools; and deteriorating roads, bridges, water treatment facilities and other public infrastructure.”
About 55 percent of taxable estates filed in 2012 and 2013 were at or below the state’s current $1.5 million threshold and the estimated lost revenue to the state in the fiscal 2016 budget totaled about $15 million, according to PBN research. The EPI estimates lost state revenue totaled $8.4 million in 2015 and $6.1 million already in 2016, according to a press release. Although, estimating the total amount year-to-year is a bit of a moving target, as it’s difficult to predict which estate owner of what worth will die in any given year.
Douglas Hall, director of economic and fiscal policy at EPI, said Rhode Island should keep its estate tax exemption at its current level.
“Preserving the estate tax at its current levels gives us revenues needed to give Rhode Island working families a boost, strengthen our economy and invest in education and infrastructure, while making our tax structure more fair and preventing those most able to pay from avoiding taxes on their accumulated assets,” Hall said.