A few days ago, I wrote about legislation to reinstate Virginia’s estate tax. The Tax Foundation has informed me that the tax contained in the bill would affect fewer households than in most of the states that still have an estate tax. (Most states no longer have an estate tax at all).
This matters, because I incorrectly wrote that the tax would “affect the inheritances of many middle-class people.” Well, it turns out it’s not that many. That’s because the bill indirectly incorporates by reference a $10 million exclusion — even though that is not mentioned anywhere in the language of the bill itself.
As the Tax Foundation told me, after I emailed them my blog post, the bill’s language “could be clearer” about that, and “probably should be,” but it apparently does have the effect of incorporating a $10 million exclusion. So unless you have a relative with $10 million, it probably won’t affect you.
(Because the bill itself did not mention such an exclusion, many commenters at Richmond Sunlight and elsewhere had assumed that it would affect many Virginia households, especially in northern Virginia, where homes are quite expensive, and a typical home in many neighborhoods costs over a million dollars)
Only 12 states have an estate tax; most states have abolished theirs. As the Tax Policy Center notes, “Delaware and New Jersey repealed their estate taxes on January 1, 2018. Kansas, North Carolina, Ohio, Oklahoma, and Tennessee also recently repealed their estate taxes.
In 2007, the Virginia legislature allowed the state’s estate tax to expire. Legislators cited arguments by the Tax Foundation and others that death taxes are harmful to a state’s fiscal health. The Tax Foundation says death taxes “reduce investment,” “drive wealthy taxpayers out of state” (cutting their income tax revenue), and consume time and money through “estate planning and tax avoidance strategies” that “create dead-weight losses.”
Virginia is a much more liberal place now than it was in 2007. So the legislature might conceivably change its mind about the death tax. The legislature was Republican in 2007, and Republicans supported eliminating the death tax — as did a number of moderate Democrats.
Now, the Democrats control both houses of the state legislature. Many of the moderate Democrats who supported repealing the estate tax in 2007 are gone from the legislature, replaced by progressives. And a sponsor of the bill to reinstate the estate tax is the chair of the House Finance Committee, and thus a very influential figure.
Finally, neighboring Maryland and the District of Columbia, unlike most of the country, have death taxes. So Virginia legislators may assume that wealthy people in northern Virginia can’t so easily flee across the border to escape the estate tax. Having to flee a longer distance to escape the tax may reduce the number of rich people who leave the state (although some will still leave for distant states like Florida that have no estate tax). That might well reduce the state’s lost income tax revenue from imposing an estate tax.There are currently no comments highlighted.