.

Tax Flight Called Myth as Lawmakers Mull Break in Estate Taxes

Lawmakers are considering a raise in the state's estate tax exemption. Opponents say that will cost revenue that can be spent on education, roads and transportation.

Lawmakers are considering a raise in the state's estate tax exemption. File|Patch
Lawmakers are considering a raise in the state's estate tax exemption. File|Patch

By SARAH TINCHER

Capital News Service

Two legislative committees simultaneously weighed a proposal Wednesday that would raise the estate tax exemption. But opponents of the measure told lawmakers that the proposal amounted to a tax break for Maryland’s wealthiest residents.

The state currently imposes a 16 percent tax on estates worth more than $1 million. But, if passed, the proposal sponsored by Senate President Thomas V. “Mike” Miller Jr. and House Speaker Michael E. Busch, would raise the tax threshold in three annual increments of $1.75 million, $2.5 million and $3.5 million before reaching the federal level, which currently stands at $5.34 million, by Jan. 1, 2017.

With Maryland being one of only 14 states plus Washington, D.C., to impose the estate tax, supporters of the bill say the threshold increase will help make the state more nationally competitive. Proponents of the measure said the state’s estate taxes play a large role in forcing people to move away when they retire.

“We are in competition with the sister states,” Miller told the Senate Budget and Taxation Committee. “All of the states we’re in competition with have eliminated the estate tax.”

Lawmakers in the House Ways and Means Committee also considered the proposal Wednesday.

According to IRS data, Maryland lost $7.04 billion in annual adjusted gross income between 1992 to 2010, of which $4.16 billion went to Florida, $1.35 billion went to North Carolina, $1.3 billion went to Virginia, $1.09 billion went to Pennsylvania and $714.66 million went to West Virginia — none of which impose estate taxes on their residents.

Citing a Forbes financial magazine article titled “Where Not To Die In 2013,” which listed Maryland, Miller said the message of the piece published last year was: “If you want to save money, move. … You won’t have to pay this tax if you cross over the line into Virginia.”

However, Kate Planco Waybright, executive director of nonprofit advocacy organization Progressive Maryland, told lawmakers that this logic is a myth.

“Conservatives have repeatedly made the false claims that liberal states lose billions of dollars each year due to tax flight. They’ve been so convincing, that now some members of the left have adopted these claims,” Planco Waybright said. “But research … shows that tax flight is simply a well-debunked myth.”

In addition to Planco Waybright, representatives from organizations such as Citizens for Tax Justice and the Maryland Center on Economic Tax Policy came to testify against the legislation. Many of these witnesses argued that giving tax breaks to the state’s wealthiest residents — less than 3 percent of the population — would take away valuable funds from the state budget.

“If you want an innovation economy, you have to pay for it,” Richard Phillips, a research analyst for Citizens for Tax Justice told the committee. “You have to pay for universities, you have to pay for the education system. The estate tax raises millions of dollars to pay for those things."

Planco Waybright agreed with this notion, adding that the legislation could also affect income inequality in the state.

“Obviously [the exemption increase] takes away funds from Maryland’s budget … that pays for programs that middle and lower class families depend upon, like education, public services, transportation [and] safe roads and highways,” she said in an interview. “At a time in which we know that reducing income inequality is such a priority for Americans and for Marylanders, it’s unfathomable to us that a priority of so many Democrats here in Maryland is to reduce the taxes paid by the wealthiest 3 percent.”

In addition to sponsors Miller and Busch -- both Democrats -- 56 Democratic delegates and 23 Democratic senators co-sponsor the legislation. Eight Republican senators are also co-sponsors.

“What that says to me, is that the Democrats who have signed up to support these proposals are out of touch with those that they represent back home in their districts,” Planco Waybright said.

Justin Banks March 07, 2014 at 06:52 PM
Correct, the population is growing, but the WEALTH is leaving as anyone with a modicum of economics understanding would realize. Clearly, Kate Planco Waybright could not demonstrate a higher level of cluelessness. Everyone does whatever possible to protect their wealth and the financial security of their heirs. Of course it's competitive with surrounding states. Everyone I know with $$ is fleeing MD, including my wife and I.... A lifetime of our earnings and investments that have already been absolutely taxed to death (no pun intended) only to be subjected to taxes again? No thanks. It will be taxed when our heirs spend it. And to be clear, I trust our HEIRS ability to spend more wisely than a bloated, behemoth, ever-growing, wasteful, out-of-control government that has presented zero evidence of responsible financial stewardship. Personally, I’d rather my heirs blow it all on a 12-1 shot at Saratoga….ANYTHING they decide to do with it will be more responsible in my view than pissing it away with the gov’t.
Grace B. March 07, 2014 at 08:37 PM
The State of Maryland is destined to become an extension of Baltimore City. Those who can afford to leave will leave, and the tax base will slowly desolve as those who remain, by and large, will be those that either don't pay taxes, or don't pay enough taxes to keep their cities/counties functioning. We had our first/starter home in the city, stayed there a few years and left. We now have less than 10 years before we retire and are already making plans to take our pensions and savings out of Maryland. We have also ramped up our savings efforts, hoping to have enough, if need be, to help our daughter and her family flee with us. They can't possibly stay here until they retire. If the taxes don't kill them, the crime will. Our liberal state legislature at work.
Nadia Biznis March 08, 2014 at 07:49 AM
Don't worry...soon they will pass a law making it illegal to move out of Maryland. Problem solved! Yay, Liberalism!!! Yes, that was sarcasm - if you couldn't tell. But hey, if they can tax the rain, maybe they'll try this too.
Henry L March 08, 2014 at 11:53 AM
Tax Flight may be a "debunked myth", but I have never seen the actual numbers of former Maryland residents who have left compared to the number who have stayed as a socio-economic study. I have seen income tax level numbers but they do not have breakdowns as to if the number of higher income families are long term residents or new residents. I can say I know many policemen, firemen, teachers, doctors, dentists, military retirees, and corporate leaders who have moved because they believe they are paying too much in taxes. Many military retirees move to NC because military pensions are not taxed there. They maintain a MD residence, but not for tax purposes. I have clients who have moved to DE, FL, NC, PA, and VA for tax purposes, some in convoluted ways, but all to avoid dying in MD or paying the higher tax rates. Not only is a tax based gone (from a group that needs fewer services), but the "institution" memory of what made Maryland such a great place to grow up and raise a family is lost.

Boards

More »
Got a question? Something on your mind? Talk to your community, directly.
Note Article
Just a short thought to get the word out quickly about anything in your neighborhood.
Share something with your neighbors.What's on your mind?What's on your mind?Make an announcement, speak your mind, or sell somethingPost something
See more »