FedEx President, Chairman and CEO Fred Smith said today that economist Arthur Laffer must have misunderstood him last week in Memphis because Smith said he’s “never taken a position” on Tennessee’s estate tax and has no plans to leave Tennessee.
From the Rick Locker report: Smith, founder of FedEx, responded today to public remarks made Monday by Laffer to a state legislative committee during Laffer’s testimony in support of legislation to phase out Tennessee’s inheritance and estate tax by 2016. Laffer is a leader in the lobbying effort to pass the bill and made a 25-minute talk to the House-Senate Fiscal Review Committee Monday in support of the bill.
Laffer gained fame as a supply-side advocate in the administration of former President Ronald Reagan and moved a few years ago from California to Nashville, where he is chairman of Laffer Associates, a consulting firm. He dropped several names during his presentation Monday, including Reagan and California anti-tax activist Howard Jarvis.
At one point, in response to a question about the economic impact on the state of repealing the inheritance tax, Laffer said: “I spent about two hours with Fred Smith three days ago up in Memphis, and he said he’s gettin’ out of this state if it doesn’t happen. And now we don’t want to lose FedEx. Fred Smith’s a couple of classes behind me at Yale and he’s a good friend.”
FedEx on Monday night said the company doesn’t comment on Smith’s personal matters. But Smith issued a statement today saying Laffer must have misunderstood him.
Economist Arthur Laffer urged Tennessee lawmakers on Monday to follow up repeal of the state inheritance tax — a bill that has already assured of passage — with a cut to the state’s tax on gifts, which he said curbs economic growth.
From Chas Sisk’s report: Laffer told the legislature’s Joint Fiscal Review Committee that the state’s gift tax should be eliminated immediately. The Nashville-based economist has been pushing for repeal of Tennessee’s estate and gift taxes, which he says cause rich retirees to move to states where they can pass on their wealth to heirs tax-free.
“Tennessee’s performance has been very poor, and the reason it’s been poor in my view … is because of the gift and estate tax,” he said. “You’re taking that very small group of people, the crème de la crème of the job creators, and forcing them to leave. By doing that, you’ve really held down the growth rate.”
….Laffer told lawmakers Monday that they should continue with repeal of Tennessee’s gift tax, which kicks in whenever a Tennessee resident gives a family member goods and cash worth more than $13,000 in a year or a nonrelative more than $3,000. The tax starts at 5.5 percent, tops out at 16 percent, and brings in about $15 million a year.
House Finance Committee Chairman Charles Sargent, who has filed legislation to repeal the gift tax, indicated he would like to pursue the idea. Speaking as if a gift-tax repeal were a foregone conclusion, Sargent, R-Franklin, asked Laffer when the state would see the benefit.
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.