Josh Goodman is a former staff writer for GOVERNING..
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Finance
Rebirth Of The 'Death Tax'
States Are Turning Back To Estate Taxes
Reports Of The Demise Of State Death Taxes Have Been Greatly Exaggerated.
This Year Connecticut And Washington Approved Versions Of The Levies. Their Actions Signal A Reversal Of The State Trend Toward Moving Away From Taxes On The Property Of The Deceased.
For Most States, The Demise Of Estate Taxes Stems From Federal Tax Cuts Approved In 2001. That Law Mandated A Gradual Phase-Out Of The Federal Estate Tax And With It The Exemption That Allowed Some Money From The Tax To Be Diverted To The States Without Any Additional Cost To Taxpayers. Rather Than Adopt Their Own Estate Taxes, Many States Abandoned The Concept.
In Connecticut, The New Estate Tax Was Passed To Raise Money For An Expected Revenue Shortfall. It Was A Compromise Between The Legislature's Democratic Majority, Which Preferred To Raise The State's Income Tax For Wealthy Residents, And Republican Governor Jodi Rell, Who Proposed A Variety Of Sin Taxes. Ultimately, They Agreed On The Estate Tax. "Our Concern Was That We Have A Fairly Regressive Tax System," Says Connecticut Representative Cameron Staples, Co-Chairman Of The Finance, Revenue And Bonding Committee. "The Estate Tax Was One Of Those Taxes That Would Increase Progressivity In Our Tax Code."
Washington's Tax Was Enacted To Fund Education. It Had The Support Of Governor Christine Gregoire And Her Fellow Democrats In The Legislature.
While Estate-Tax Proponents Tout The Fairness Of The Levies Because They Target The Rich, Opponents Say That Wealthy Residents Flee States With Estate Taxes, Thereby Undermining The Tax's Revenue-Generating Potential. "It's Not Just The Sunshine That Brings Retirees Down To Florida," Says Dick Patten, Executive Director Of The American Family Business Institute.
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