The tax that loses revenue
Minnesota’s policymakers should abolish our estate tax.
Minnesota is one of 12 states and the District of Columbia to impose estate taxes and further impose inheritance taxes. According to the Tax Foundation, estate taxes “disincentivize business investment and can drive high-net-worth individuals out-of-state. … The handful of states that still impose them should consider eliminating them or at least conforming to federal exemption levels.”
The point about driving high-net-worth individuals out of the state is crucial in the context of Minnesota’s looming budget deficit. Minnesota taxes estates more heavily than most states. Seven of the states that levy an estate tax and the District of Columbia have a higher exemption. The state’s starting rate of estate taxation—13.0 percent— is higher than any of the other jurisdictions that levy one. Its top rate is 16.0 percent. Only the state of Washington and Hawaii have a higher top rate.
There is evidence that Minnesotans leave the state in response to these taxes. In 2013, the Minnesota Society of Certified Public Accountants surveyed its members and found that “more than 86 percent of respondents said clients had asked for advice regarding residency options and moving from Minnesota”; 91 percent said the number of clients asking about moving had increased from previous years.
When these people move, they take with them the future payments of income and sales taxes, among others. From the point of view of state government tax revenues, the question is whether the amount the estate tax brings in from those who stay is high enough to more than offset the lost revenues from these other taxes from those who go.
We found they probably aren’t. We estimated that, in 2015-2016 for example, the estate tax cost the state government $232.5 million in lost income and sales tax revenues.
The purpose of taxation is not to bash the rich but to raise revenue to pay for government functions. Minnesota’s estate tax, by costing the state government revenue, actually makes this harder. Our estate tax should be repealed.