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 In July, Delaware’s Democratic Gov.
John Carney signed a bill repealing the state’s estate tax, effective in 2018.
And pursuant to a bipartisan agreement reached in October 2016, New Jersey’s
repeal of its estate tax will take effect in 2018.
While New Jersey will retain its inheritance tax, both states are just the
latest in a nationwide trend to repeal death taxes at the state level. Illinois,
however, still levies an estate tax, and it’s hurting the state’s already
sluggish economy by exacerbating Illinois’ wealth flight.
In 2001, all 50 states had either an estate tax or an inheritance tax – and in
some cases, both. But by 2018, that number will have dropped to only 17,
according to reporting by Stateline and research by the Tax Foundation.
The estate tax, commonly called the
death tax, is a tax applied on wealth transfers from estates after death. The
federal government applies an estate tax that as of 2017 applies to estates
worth $5.49 million or more. However, current tax reform legislation could
change that, as the U.S. House of Representatives Committee on Ways and Means
has released a tax package that would phase out the estate tax by 2024,
according to an article in Forbes.
The repeal of the estate tax at the federal level would make Illinois stick out
like a sore thumb.
The Land of Lincoln applies 20 separate estate tax brackets, ranging from 0.8
percent to 16 percent, starting at $4 million of assets transferred. This might
seem like a lot, but the $4 million threshold means an Illinois farm of just
over 500 acres is potentially subject to the state’s death tax, and that’s only
considering the value of the land.
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The estate tax is
especially hard on farmers not only because they tend to be
asset-rich and cash-poor, but also because they are attached to
Illinois and can’t avoid the tax. Meanwhile, business owners in
industries like finance can more easily move their residences and
assets to other states to avoid the tax.
And it’s not just a
partisan issue. In 2007, then-Virginia Gov. Tim Kaine signed a
proposal that put Virginia’s estate tax out to pasture.
So why have so many
states moved away from levying estate taxes?
For one, according to the Tax Foundation, “[e]state and inheritance
taxes have large compliance costs, have been shown to suppress
entrepreneurship, and are among the most harmful taxes to economic
growth.”
Another reason is a change to the federal tax code. In 2005, the
federal government got rid of a credit against federal estate tax
liability for state inheritance and estate taxes paid, according to
the Tax Foundation. The credit shielded residents of states that
imposed their own inheritance and estate taxes. Since the
elimination of that credit, an increasing number of states have
ended their state estate and inheritance taxes.
Unfortunately, Illinois is not among them.
Having a state-levied estate tax makes Illinois even less
competitive for investment. Illinois already has a wealth-flight
problem, and cannot afford to be left even farther behind.
The estate tax is an additional burden on family farmers and small
businesses, an impediment to investment and economic growth, and a
driver of out-migration. It’s time lawmakers repealed Illinois’
estate tax.
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