NCPA - National Center for Policy Analysis

As Federal Estate Taxes Phase Down, States Step In To Demand A Greater Share

December 17, 2002

States are swiftly adopting new estate taxes, creating headaches and higher tax bills for the wealthy and their heirs. The federal estate tax is scheduled to phase out completely by 2010, but then return in 2011 unless Congress acts to extend the repeal.

For years, state taxes have been deducted from federal tax bills, but the 2001 Tax Relief Act -- which phases out the federal estate tax -- reduces the state tax credit by 25 percent per year.

  • States are scheduled to lose their portion of the tax by 2005.
  • But at least 11 states and the District of Columbia have enacted laws aimed at securing what they consider their share of estate revenues -- and more are expected to follow next year.
  • Estates valued at $1 million or less are exempted from federal estate taxes and spouses can inherit an unlimited amount tax free.
  • States such as Wisconsin, New Jersey, Massachusetts and Minnesota have lower exemptions, however.

State revenues from the tax vary widely. Pennsylvania, for example, collected $197.5 million in 2000, while Maine took in only $14.4 million that year.

As a whole, states collected $5.3 billion in estate taxes in 2000.

Source: Sandra Block, "Wealthy Heirs to Pay More State Taxes," USA Today, December 17, 2002.


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