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Estate taxes: States will want their cut, too

Nineteen states already have estate taxes. Expect them to raise rates and other states to impose estate taxes.

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Baby boomers, the oldest just now reaching retirement age, can expect to receive inheritances equaling more than $8 trillion over their lifetime.

It's a record intergenerational transfer of wealth. It also provides a welcome financial boost to the federal government and the 19 states and the District of Columbia that also impose inheritance taxes on the estates of the well-to-do.

Indeed, increasing the estate tax – or introducing one – would be a good way to help ease the budget crises in many states, says Lee Farris, an expert at United for a Fair Economy (UFE), a coalition of national and state organizations that aims for a more equal distribution of wealth and income.

Existing state estate taxes typically raise 1 to 4 percent of total state revenues. State legislators may find raising estate taxes tempting.

The state levy can be substantial. In Massachusetts, an estate worth more than $1 million is subject to the tax. Since a good Boston suburb may have many houses valued at, say, $500,000 to $900,000, it doesn't take too much in other assets to reach $1 million.

And the tax is progressive. It can be as much as 16 percent of the value of a huge estate.

That tax comes on top of any federal estate tax. The deal reached in December by President Obama and Republican leaders set the federal rate at 35 percent for the next two years on estates worth more than $5 million. With Republicans in control of the House, there are already four or so proposals to repeal the estate tax completely.

With new House rules, there would be no need to raise revenues elsewhere to offset that loss of revenue of perhaps $20 billion in the next two fiscal years.

Unless Mr. Obama again makes a deal with Republicans to win another piece of legislation he considers important, the present 35 percent rate is expected to survive until 2012 when the Obama-Republican tax deal expires.

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