fbpx

Latest Posts

Home

Facebook

Twitter

Search
About

Minnesota should abolish its estate tax. Rep. Gomez wants to raise it

This morning, I was at the capitol to testify against a bill, HF 2557, which would raise the top rate of estate tax in Minnesota. Here is my testimony.

My name is John Phelan and I am an economist with the Center of the American Experiment, a think tank based in Golden Valley. I am here to speak in opposition to this bill.

Minnesota taxes estates more heavily than most states. It is one of only fourteen states plus the District of Columbia to levy an estate tax. Eight of those fourteen states and the District of Columbia have a higher exemption. The state’s starting rate of estate taxation—12 percent—is higher than any of the other jurisdictions that levy one. Its top rate is 16 percent. Only the state of Washington has a higher top rate.

“Incentives do make a difference”. So said our former governor, Mark Dayton, when discussing what state governments could do to attract investment. You raise taxes on cigarettes because you think it will incentiveize people to stop smoking. Look at wine taxes, as we’ve just discussed. You have to apply that logic consistently, even in the case of the estate tax.

Some individuals will take steps to avoid paying the estate tax. There are many legal avenues open to those who wish to do this. They can divest assets prior to death by sale or donation. They can also leave the state for a jurisdiction with a lower rate or no estate tax at all. This is very easy in the U.S. There is a wealth of evidence that all of these methods are utilized to lower estate tax burdens.

In 2013, the Minnesota Society of Certified Public Accountants surveyed their members and found that “more than 86 percent of respondents said clients had asked for advice regarding residency options and moving from Minnesota.” Ninety-one percent said the number of clients asking about moving increased from previous years.

Minnesota’s estate taxes brought in $183 million in revenue in 2016, 0.8 percent of the state’s total income. But this revenue effect has to be measured against the incentive effect of tax revenues lost as people leave Minnesota to avoid the estate tax.

Using survey evidence and official data, we are able to estimate the income tax and sales and excise tax revenue the state of Minnesota loses when people leave to avoid the estate tax. If two thirds of 55 to 65 year olds and 80 percent of those over 65 who left because of state taxes left because of the estate tax, then the tax was a net revenue loser for the state government in every year from 2012- 2013 to 2015-2016. Over that period, the estate tax cost Minnesota’s government $69.1 million in lost revenue, $47.3 million in 2015-2016 alone.

The 2017 tax bill raised the federal estate tax exemption from $5.6 million to $11.2 million. This has intensified the competition between states, New Jersey and Delaware repealed theirs in 2018. It has put pressure on those, like Minnesota, with estate taxes at high rates, either to abolish them or, at least, raise their exemption to the new federal level. This bill goes in totally the wrong direction.

It is sometimes said that taxes such as this are “fair” because they negatively impact a relatively small number of people. But, if we see taxes as a way to fund government activities and not simply as a way to hurt a few people in the name of social engineering, this is not the case. This bill proposes to do nothing at all for the poor. It will raise nobody’s wages. It only affects ‘the rich’.

I would like to close by citing these wise words

The whole business thing is predicated a lot on the tax laws…It’s why we rehearse in Canada and not in the U.S. A lot of our astute moves have been basically keeping up with tax laws, where to go, where not to put it. Whether to sit on it or not. We left England because we’d be paying 98 cents on the dollar. We left, and they lost out. No taxes at all.

This sage was Keith Richards of The Rolling Stones.

John Phelan is an economist at the Center of the American Experiment. 

Comments

Subscribe

Categories

Upcoming Events

  • Morning in Minnesota: St. Cloud

    Location: St. Cloud

    Sign up HERE! Courtyard by Marriott St. Cloud 404 West Saint Germain Street St. Cloud, MN, 56301 Please join Center of the American Experiment on Tuesday, July 21 for breakfast with Center policy fellow and education expert Catrin Wigfall as she explains K-12 education in the state and its persistent disparities despite decades of increased spending. Following her presentation, Catrin will lead a Q&A session. 7:30 AM Check In and Breakfast 8:00 AM Presentation 9:00 AM Conclude   Catrin Wigfall is a Policy Fellow at Center of the American Experiment. She is also the director of EducatedTeachersMN and EmployeeFreedomMN. Catrin’s…

    Register Now
  • Kristi Noem: The Courage to Reject a Shutdown

    Location: Online

    Sign up HERE! Join us Wednesday, July 8th for an interview with South Dakota Governor Kristi Noem over Zoom. In response to COVID-19, Noem defied the norm of a statewide shutdown and let South Dakotans choose for themselves what safety precautions to take. Tune in to this live online event to hear how Governor Noem preserved her state’s economy while still keeping citizens safe. Wednesday, July 8th at Noon CT Sign up HERE!  

    Register Now
  • Morning in Minnesota: Marshall

    Location: Marshall Golf Club

      Sign up for this event HERE! Please join Center of the American Experiment on Thursday, July 16 at Marshall Golf Club for a breakfast with Center economist, John Phelan, as he discusses Minnesota’s economic future. Following his presentation, John will lead a Q&A session. 7:30 AM Check In and Breakfast 8:00 AM Presentation 9:00 AM Conclude John Phelan is a graduate of Birkbeck College, University of London, where he earned a BSc in Economics, and of the London School of Economics where he earned an MSc. He worked in finance for ten years before becoming a professional economist. He…

    Register Now