New York Times: Some States Are Moving to Loosen Their Estate Taxes, by Paul Sullivan:
For most of the United States, the estate tax is now something only the very wealthy have to plan for. The federal exemption for an individual this year is now $5.34 million, or $10.68 million for a married couple. And that amount is indexed to inflation, so it will continue to rise.
The exception is in the 16 states, mostly in the North, where state estate taxes remain and ensnare middle- and upper-middle-class residents — the very people the high federal exemption was supposed to protect.
The worst for taxpayers is New Jersey, with the lowest exemption in the country, $675,000 a person, and a rate that tops out at 16 percent. (Rhode Island is second.) New Jersey also has an inheritance tax — for bequests to, say, a niece or friend — which starts to be applied at $500. The rate is 15 percent until the amount reaches $700,000 and then it rises to 16 percent. (One concession: The estate pays the higher of the two taxes, not both.)
This week, New York’s governor, Andrew M. Cuomo, took a step toward bringing the state’s estate tax in line with the federal one. And he is not alone among governors of cold-weather states (along with the District of Columbia) that have realized affluent residents are moving to states without estate taxes (and in some cases, income taxes) and in doing so, depriving their old state of the other taxes they paid, like property, sales and income tax. ...
New York’s current exemption is $1 million a person with a top rate of 16 percent. Governor Cuomo proposed raising the exemption to $5.25 million by 2019, indexing that to inflation and lowering the top rate to 10 percent. (That tax is still in addition to the 40 percent federal estate tax rate.)
New York is not alone in re-evaluating this. Indiana repealed its inheritance tax, and Ohio ended its estate tax. Tennessee is in the process of phasing out its inheritance tax, and Maryland and the District of Columbia are reviewing their estate taxes.
Wall Street Journal Tax Report: States You Shouldn't Be Caught Dead In: Investors Need to Contend With Growing State Estate and Inheritance Taxes, by Laura Saunders:
Nineteen states and the District of Columbia, home to just over one-third of the U.S. population, levy an estate tax on the assets of people who die or an inheritance tax on heirs receiving assets. Maryland and New Jersey have both, although each allows offsets to prevent double taxation. ...
In January, Congress voted to keep Uncle Sam's inflation-adjusted estate exemption above $5 million per individual ($10 million per married couple). The change excluded almost all Americans from the federal levy, so state-level taxes loom larger by contrast. (This year, the federal exemption is $5.25 million.)
Many states also have far smaller exemptions than Uncle Sam's. The threshold is $1 million for estate taxes in Massachusetts, New York, Oregon and Minnesota, and just $675,000 in New Jersey. Pennsylvania's and Iowa's inheritance taxes have no exemption in some cases. However, all states allow surviving spouses to inherit tax-free from their partners. ... Only Delaware and Hawaii track the U.S.'s $5 million-plus exemption. ... Rates can be high as well. The top rate often is double digits, with Washington state's the highest: 20%. Most state exemptions aren't indexed for inflation, extending the tax's reach over time. ...
Are these taxes effective—that is, do they raise more revenue than they lose when residents ... decide [to] go elsewhere? Economists are divided, and so are the states.
January 27, 2014 in Tax | Permalink
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