State-Level Estate Taxes Spur Some Billionaires to Move
Some billionaires seek low-tax states, but raising state estate taxes is still likely to raise total revenue collections in most states.
While death and some taxes may be certain, US state-level estate taxes can be avoided by moving to one of the 36 states that do not collect them. Some very wealthy individuals do just that. In Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy (NBER Working Paper 26387), Enrico Moretti and Daniel J. Wilson attempt to quantify how state estate taxes affect the residential choices of the very rich, and to estimate whether, when states increase their estate tax rates, the increased revenues collected from those who remain in the state exceed the revenues lost as some well-to-do citizens move away. They use data from the Forbes 400 list of the richest Americans to study the location choices of the very rich.
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The impact of state-level estate taxes on the total taxes paid by the estates of wealthy decedents changed significantly in 2001 as a result of new tax legislation. Prior to that year, the federal estate tax included a credit for state estate tax payments. This credit offset virtually all state estate tax payments for very high net worth individuals, making these taxpayers’ state of residence largely irrelevant for their total estate tax payments. The researchers point out that because the asset threshold for state and federal estate taxes can differ, even before 2001, individuals with enough wealth to pay state estate taxes, but who were not ultra-wealthy, could face tax differences linked to their state of residence. But these differences were largely irrelevant for the ultra-rich, with wealth many times greater than the taxable threshold.
— Linda Gorman
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