States Repeal The Estate Tax

A number of states have either repealed or are in the process of repealing their respective estate tax. Numerous polls show that Americans agree that the government should repeal the estate tax because many consider the tax to be unfair.

On economic grounds, the estate tax is not a particularly good revenue tax, mostly because it is simple to avoid the tax. The effort to avoid the estate tax has created some interesting but not surprising effects. States with higher estate tax rates have seen a decrease in the number of wealthy citizens living in the state. Wealthier citizens move to states without the estate tax to receive better tax treatment. Often, these people take their finances and businesses with them. Therefore, this movement affected the economies of the two states involved in unanticipated ways. For example, twice as many federal income taxes and estate taxes are filed in Florida– a state without an estate tax, than in Tennessee– a state with the highest estate tax. Because many people have left Tennessee for the more beneficial tax in Florida, some estimate that the economy of Tennessee would be 14% larger if Tennessee did not have an estate tax. Furthermore, the administrative costs of implementing the estate in Tennessee has largely outweighed any collection from the tax. Therefore, from the evidence presented, it appears that the estate tax is a self-defeating tax. For now, we’ll see where the states will decide to go in the future.

See Death Tax Defying, Estate Tax Repeal Gains Momentum In The States, The Wall Street Journal, Mar. 23, 2012. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.