In a March 24 editorial, the Wall Street Journal declared Gov. Bill Haslam “the main obstacle to reform” of Tennessee’s inheritance tax. Now Haslam has replied with a letter to the editor of the publication that appears under the headline, “I’m Not the Problem on Death Tax Reform.” The governor has, of course, now embraced the idea of complete repeal of Tennessee’s inheritance tax.
Here’s an excerpt from the editorial:
A November 2011 study of tax return data by economists Arthur Laffer and Wayne Winegarden shows how people avoid state death taxes. The study compared Florida and Tennessee high-income returns. Both states have no income tax, but Tennessee is one of only two states that imposes an estate and a gift tax. (Connecticut is the other.)
The authors point out that this year there is a $5 million exemption on the federal estate tax and gift tax (a once-in-a-lifetime wealth transfer for the living), but in Tennessee the exemption is a meager $13,000 for estates and gifts. With a gift and death-tax rate that reaches 9.5%, a Tennessean with a $5 million estate would pay $462,000 more estate tax than someone living in the 29 states with no such tax, such as Florida. Tennessee is a very expensive state to die in.
The Tennessee tax really does cause the rich to flee. The authors found that in 2010 Florida had nearly twice as many federal tax returns with taxable estates (per 100,000 population) as did Tennessee. The average estate is also larger in Florida–$7.4 million versus $4.4 million in Tennessee.
Here’s the kicker: Because wealthy people avoiding the estate tax take their businesses and spending with them, the study concludes that “had Tennessee eliminated its gift and estate tax 10 years ago, Tennessee’s economy would have been over 14% larger in 2010.” They also find the estate tax cost Tennessee state and local governments over $7 billion in tax collections. Could there be a more self-defeating tax?
The main obstacle to reform in Nashville is GOP Governor Bill Haslam, who earlier this year acknowledged damage from the tax, saying “There’s a whole lot of people who used to live in Tennessee who don’t anymore because it’s cheaper to die in Florida.” But he now says the state needs the revenues, however imaginary they might be. This mistaken logic is also being used to block repeal in Nebraska.
Here’s the Haslam letter:
Regarding your editorial “Death Tax Defying” (March 24): In early January I proposed legislation to raise the exemption level on Tennessee’s estate tax from the current rate of $1 million to the federal exemption level of $5 million during my time in office. (Note: Actually, the bill did not originally raise the exemption level to $5 million, though the governor declared that as a goal.)
Just last week, I cemented that proposal by recommending doing so in the next three years and worked with House Finance Committee Chairman Charles Sargent to completely repeal the tax in year four.
This is a thoughtful and realistic approach to eliminate a tax that chases capital out of our state as Tennessee slowly recovers from the economic downturn that we continue to carefully manage our way through.
Tennessee is a low-tax state, and I’m working with the General Assembly to lower taxes even further.