When a million isn't enough
Less
than a week after a report from the Institute
on Taxation and Economic Policy [ITEP] showed that Rhode Island has
a regressive tax structure that benefits the top one percent of earners at the
expense of the lowest 20% of earners, members of the Rhode
Island Senate introduced a bill, S2064, to lower the taxes paid by
dead millionaires.
From the band Dead Billionaires
If signed into law, the bill would increase the net taxable estate exemption to $4 million for deaths that occur on or after January 1, 2025. It is supported by Senators David Tikoian, Ryan Pearson, Hanna Gallo, John Burke, Matthew LaMountain, Valerie Lawson, Walter Felag, Dawn Euer, Frank Lombardo, and Frank Ciccone, all Democrats.
Note that this bill is being introduced at
a time when Governor Daniel
McKee, Senate President Dominick
Ruggerio, and Speaker of the House K.
Joseph Shekarchi have announced a period
of fiscal
belt-tightening following the end of
Covid-era federal relief dollars.
So what is the estate tax?
The estate tax is paid by dead millionaires. No one in Rhode Island who dies with an estate worth less than a million dollars pays the estate tax. No living person has ever paid one penny in estate tax.
When a millionaire dies, their estate typically consists of real estate, stocks and bonds, mutual funds, and other financial assets. Before these assets are passed onto their inheritors, a tax is assessed, but only if the estate is worth more than $1.5 million.
Race
Increasing the taxable estate exemption is racially problematic if not outright racist. It will benefit the wealthiest families in Rhode Island, and these families are overwhelmingly white.
Lowering the tax burden of dead millionaires raises the burden on the rest of us, and as the ITEP report shows, Rhode Island already has a regressive tax structure that unfairly burdens the poorest Rhode Islanders.
At a time when state leaders are calling for belt-tightening,
essential programs that benefit the poorest in the state can be cut. The burden
of poverty is felt more profoundly by our non-white residents.
As American
Progress notes, when writing about Republican
efforts to repeal or scale back the federal estate tax, “repealing or scaling
back the estate tax will have a devastating effect on the racial wealth gap.”
Right-wing lies
Right-wing
economists and their state rankings, such as ALEC’s Economic
Outlook Ranking and the SBEC’s Small
Business Policy Index “punish a state for
imposing either an inheritance or an estate tax” writes
economist Peter Fisher. But the estate tax has
nothing to do with economic growth.
The idea being
pushed by right-wing economists, and apparently believed by gullible Senate
Democrats, is that to avoid paying an estate tax, rich people will move away,
and take their assets elsewhere. Via this process states with an estate tax are
losing “enormous amounts of accumulated wealth,” and this wealth would have
“created jobs, alleviated poverty, and increased tax revenue...”
This idea is not supported by evidence. As Andy
Boardman showed, “the rich aren’t fleeing
Rhode Island.”
“Here’s the upshot,” wrote Boardman in
2019, “there is no discernible exodus of high-income Rhode Islanders. On
average, households moving out of Rhode Island are poorer, not richer, than
households that stay put.” In a separate
piece, Boardman noted that “a bump in the
estate tax threshold would help the heirs of about 300 large estates.”
“The wealth held by retirees typically is
not the kind of capital normally used in job creation,” wrote
economist Peter Fisher. “The wealth that drives
prosperity consists of real assets: natural resources, plant and equipment,
public infrastructure, human capital, [and] technological knowledge. By
contrast, large estates typically consist of real estate, stocks and bonds,
mutual funds, and other financial assets [that] could be located anywhere in
the world. The future use of those assets is unaffected by where the person who
owned them died.
“Finally, the
heirs’ decisions as to if, where, and how to invest the inherited assets [are]
unaffected by the location of the estate. For example, if a wealthy individual
decided to move from Tennessee to Florida in the closing years of his or her
life, it would not affect how much the household’s heirs, who could be located
anywhere in the world, invest in businesses in Tennessee.”
So
ask yourself - Why do ten Senate Democrats want to lower taxes on dead
millionaires? Better yet, ask these Senators. I’ve reached out to Senator Euer
and Majority Leader Pearson. As of this writing, neither has responded. I’ll
try connecting with them and other Senators in person when the Senate convenes
tomorrow. Meanwhile, look out for the House bill.
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