ANNAPOLIS – Two legislative committees simultaneously weighed a proposal Wednesday that would raise the estate tax exemption. But opponents of the measure told lawmakers that the proposal amounted to a tax break for Maryland’s wealthiest citizens.
The state currently imposes a 16 percent tax on estates worth more than $1 million. But, if passed, the proposal sponsored by Senate President Thomas V. “Mike” Miller Jr. and House Speaker Michael E. Busch, would raise the tax threshold in three annual increments of $1.75 million, $2.5 million and $3.5 million before reaching the Federal level, which currently stands at $5.34 million, by Jan. 1, 2017.
With Maryland being one of only 14 states plus Washington, D.C., to impose the estate tax, supporters of the bill say the threshold increase will help make the state more nationally competitive. Proponents of the measure said the state’s estate taxes play a large role in forcing people to move away when they retire.
“We are in competition with the sister states,” Miller told the Senate Budget and Taxation Committee. “All of the states we’re in competition with have eliminated the estate tax.”
Lawmakers in the House Ways and Means Committee also considered the proposal Wednesday.
According to IRS data, Maryland lost $7.04 billion in annual adjusted gross income between 1992 to 2010, of which $4.16 billion went to Florida, $1.35 billion went to North Carolina, $1.3 billion went to Virginia, $1.09 billion went to Pennsylvania and $714.66 million went to West Virginia — none of which impose estate taxes on their residents.
Citing a Forbes financial magazine article titled “Where Not To Die In 2013,” which listed Maryland, Miller said the message of the piece published last year was: “If you want to save money, move. … You won’t have to pay this tax if you cross over the line into Virginia.”
However, Kate Planco Waybright, executive director of nonprofit advocacy organization Progressive Maryland, told lawmakers that this logic is a myth.
“Conservatives have repeatedly made the false claims that liberal states lose billions of dollars each year due to tax flight. They’ve been so convincing, that now some members of the left have adopted these claims,” Planco Waybright said. “But research … shows that tax flight is simply a well-debunked myth.”
In addition to Planco Waybright, representatives from organizations such as Citizens for Tax Justice and the Maryland Center on Economic Tax Policy came to testify against the legislation. Many of these witnesses argued that giving tax breaks to the state’s wealthiest residents — less than 3 percent of the population — would take away valuable funds from the state budget.
“If you want an innovation economy, you have to pay for it,” Richard Phillips, a research analyst for Citizens for Tax Justice told the committee. “You have to pay for universities, you have to pay for the education system. The estate tax raises millions of dollars to pay for those things.”
Planco Waybright agreed with this notion, adding that the legislation could also affect income inequality on the state.
“Obviously [the exemption increase] takes away funds from Maryland’s budget … that pays for programs that middle and lower class families depend upon, like education, public services, transportation [and] safe roads and highways,” she said in an interview. “At a time in which we know that reducing income inequality is such a priority for Americans and for Marylanders, it’s unfathomable to us that a priority of so many Democrats here in Maryland is to reduce the taxes paid by the wealthiest 3 percent.”
In addition to sponsors Miller and Busch — both Democrats — 56 Democratic delegates and 23 Democratic senators co-sponsor the legislation. Eight Republican senators are also co-sponsors.
“What that says to me, is that the Democrats who have signed up to support these proposals are out of touch with those that they represent back home in their districts,” Planco Waybright said.