NCPA - National Center for Policy Analysis

Don't Die in New Jersey

February 10, 2011

If you have more than $675,000 to your name and you die in New Jersey, about 54 percent may go to the IRS and the tax collectors in Trenton.  Better not take your last breath in Maryland either.  The tax penalty for dying there is half of a lifetime's savings.  That's the combined tab from the new federal estate tax rate of 35 percent and Maryland's inheritance and death taxes.  This perverse confiscation also applies to some 20 other states, thanks to a quirk in December's GOP-White House tax compromise, says the Wall Street Journal.

  • The new law applies a top federal death tax rate of 35 percent with a $5 million exemption for 2011 and 2012.
  • But it also changed a federal credit for state death tax rates into a federal deduction.
  • The credit allowed a dollar-for-dollar reduction in federal taxes for state levies as high as 16 percent.
  • This meant that every dime from state tax collections came from Uncle Sam; it was essentially a free tax for states.

New research indicates that high state death taxes may be financially self-defeating. 

  • A 2011 study by the Ocean State Policy Research Institute, a think tank in Rhode Island, examined Census Bureau migration data and discovered that "from 1995 to 2007 Rhode Island collected $341.3 million from the estate tax while it lost $540 million in other taxes due to out-migration."
  • Not all of those people left because of taxes, but the study found evidence that "the most significant driver of out-migration is the estate tax."
  • After Florida eliminated its estate tax in 2004, there was a significant acceleration of exiles from Rhode Island to Florida.

Source: "Death Tax Ambush," Wall Street Journal, February 8, 2011.

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