Are State Estate Taxes Doing More Harm Than Good?

In reaction to the 40% federal estate tax, Indiana, North Carolina,Ohio, and Tennessee recently eliminated their estate taxes, leaving 18 states and the District of Columbiastill imposing a state estate tax.  After accounting for deductions, the combined federal and state estate tax rate is around 50% in these 18 states. 

According to studies byPresident Obama’s former chief economist Larry Summers, successful people “whohave built up wealth continue to invest in the enterprise and save money intheir later years in order to leave a legacy to their heirs.”  A state estate tax may be adisincentive for wealth creation to residents in these states.  And a state estate tax may encourageresidents to flee to one of the other 32 states in order to cut their estatetax liability up to $8 million.  Ifenough residents move to avoid their state’s estate tax, residents making lessthan $1 million may have to pay extra taxes to make up for the possible netrevenue loss.

See The Die Harder States, The Wall StreetJournal, Aug. 20, 2013.

Special thanks to Tom Weede for bringingthis article to my attention.