Saturday, 25 May 2019
BREAKING NEWS

Efforts to broaden the ‘death tax’ in Maine will backfire – The Maine Wire

The estate tax, often referred to as the “death tax,” is assessed by the government when property exchanges ownership after the original owner’s death. Maine’s estate tax exemption is $5.6 million, meaning if the value of an inherited estate is less than this amount, the state does not enforce the tax on the change in ownership.

Under current law, the exclusion amount also receives an annual adjustment for inflation. For estates of descendants dying on or after Jan. 1, 2019, the exclusion is $5.7 million.

After the death of a loved one, a family is sometimes forced to sell their business or significantly reduce capital equipment to pay the estate tax liability, oftentimes resulting in the loss of private sector jobs. For others, it means the loss of the family farm.

For a state like Maine, the death tax puts small businesses in danger when a loved one dies. As highlighted in a 2014 report by the Heritage Foundation, this is because many small business owners are asset rich but cash poor, meaning their wealth comes not from stocks and bonds, but rather physical assets like buildings, land and machinery.

“Mainers with significant liquid assets only need to change their residency to escape our oppressive estate tax,” former Governor Paul LePage said in 2016. “Our business owners and farmers, who have fixed assets in Maine, are the ones that retain their residency and whose families are burdened by the estate tax.”

Further, the Heritage report reads, “Jobs and vital community investments are likely to disappear when companies such as Hancock Lumber, a sixth-generation family business in Casco, Maine, or the Drummond mining company in Sipsey, Alabama, are forced to pay the death tax.”

In a prepared statement to the U.S. Senate’s Finance Committee in 2007, Kevin Hancock, owner of Hancock Lumber, wrote:

“When my mother dies, the estate tax will be a major event for both the business and my entire family. Because we have no liquid assets within the business or outside it, pay­ing the death tax will be very difficult. We are spending $75,000 a year on life insurance, but we have been advised that this will not be enough [to pay the estate tax]. This means that to pay the death tax, we will be forced to sell part or all of the business, depending on the valuation of the company. Either way, some of the forestland will likely be the first to go, since we can more easily recoup those losses than our mills or retail stores.”

This week, lawmakers on Maine’s Committee on Taxation are holding a work session on LD 518, a bill that would bring the state backwards by changing the exclusion in which the estate tax does not apply from $5.6 million to $1 million for estates of descendants dying on or after January 1, 2020.

As of 2017, only 14 states and the District of Columbia had an estate tax in place. In general, the estate tax is a disincentive for individuals to move to Maine, especially since most other states have nixed the estate tax altogether. Decreasing the exemption amount will further discourage in-migration by high earners and business owners, preventing the state from collecting other taxes during their lifetimes. While the state does not have this revenue yet, we could be missing an opportunity to attract it to Maine.

For example, a 2015 Heritage study found that individuals whose estates are likely going to be “partially confiscated” at death are moving to other states to avoid the burden. An example of this is Rhode Island, which “collected $341.3 million from the estate tax while it lost $540 million in other taxes due to out-migration.”

What makes this noteworthy is the structure of Governor Janet Mills’ proposed budget, which relies extensively on projected revenues over the next biennium. A substantial reduction in the estate tax exemption could result in a flight of wealth from Maine, leaving a small hole in the rosy revenue projections the governor has proposed using in her massive expansion of state government.

In addition, a study from the National Bureau of Economic Research asserts that “the number of federal estate tax return filers reported as residing in each state is negatively influenced by the level of taxes imposed on high-income and high-wealth people in that state.” If LD 518 is passed, it will likely result in the out-migration of individuals with liquid assets, leaving only small business owners – many of whom are staples of their community – left to face the burden.

It is clear that expanding who is affected by the estate tax could result in losses in revenue over time due to out-migration, as well as create an unattractive business environment relative to other states. For those reasons, LD 518 should be soundly rejected by the Taxation Committee.

Source: https://www.themainewire.com/2019/03/efforts-to-broaden-the-death-tax-in-maine-will-backfire/

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