Proposed NJ ‘Death Tax’ Compromise: Keep it, But Only on the Very Wealthy
Among the compromises that might be made as New Jersey officials hammer out a plan for transportation funding is a reduction instead of a complete elimination of the estate tax.
New Jersey is one of 16 states that taxes some estates of people who die, and it starts at the lowest threshold — assets worth $675,000 — of any of the states that do. It is one of two states that applies both that tax and the related inheritance tax, levied on some people who are bequeathed money or assets.
Lawmakers are talking about cutting the estate tax as part of a bargain that would include raising the gas tax to replenish the near-broke Transportation Trust Fund. That could cost the state a half-billion dollars a year in tax collections. And though proponents say that would be made up when people stop leaving the state and keep paying taxes here, not all lawmakers are convinced.
“I’m just a little apprehensive with something that I know is a tangible number versus, I think, to me what still appears to be kind of a hypothetical scenario,” said state Sen. Teresa Ruiz, D-Essex.
It’s not just Democrats with concerns. State Sen. Jennifer Beck, R-Monmouth, said two-thirds of the estates that pay the tax in New Jersey are worth $1.5 million or less and that raising the cap, perhaps to the federal exemption of $5.43 million, might make more sense for the state.
“We have other options, and frankly I think the other options are more reasonable,” Beck said.
The New Jersey Business and Industry Association would support raising the estate-tax threshold even if the tax isn't being eliminated, said Michele Siekerka, its president and chief executive officer.
“We’re not extremists,” Siekerka said. “All we ask for is to keep New Jersey competitive to the states that compete with us for our businesses and for our residents. That’s all. You raise it to the federal level, we’re really no less competitive because people are paying that.”
Acting state Treasurer Ford Scudder said New Jersey’s estate tax trigger is so low that it persuades people to move away.
“All it really takes is to pay off your mortgage to be subject to the estate tax at our threshold level,” he said.
Critics say such assertions are anecdotal and don’t take into account that New Jersey has more millionaires now than it did when New Jersey ‘decoupled’ from the federal estate tax almost 15 years ago.
Scudder points to IRS data, which covers every state and collects data on every estate that pays the federal estate tax, currently at $5.4 million.
Scudder said the average estate in a state without a death tax in 2014 was $14.9 million, while the average in a state with such a tax was $13 million. Nationally, the average estate that paid the estate tax was worth $14.2 million, while in New Jersey it was $10.9 million.
“Clearly that’s showing, given how high the average personal income is in New Jersey, that people are moving to other states,” Scudder said.
“In 1976, there was only one state without a death tax,” Scudder said. “Now, there are over 30. So it makes it very easy for people to move across state lines to avoid this tax.”
A Senate committee advanced a plan Feb. 29 that phases out the estate tax by 2021 by gradually increasing the exemption, then eliminating the estate tax. The inheritance tax would stay on the books. Gov. Chris Christie says it should be phased out faster.
Some lawmakers, including Assembly Speaker Vincent Prieto, D-Hudson, have suggested keeping the estate tax on the wealthiest estates so that state wouldn’t lose all the revenue. It is currently paid by around 5 percent of estates.
“Making real definitive changes that will cut a revenue source without understanding what the detriment of the impact will be to programs and people just worries me,” Ruiz said.
Beck said New Jersey is the only state of the 16 that apply an estate tax that lets people set up a residency in Florida, keep a house in New Jersey, and then don’t pay an estate tax here when their house in New Jersey is sold.
“All the other 15 states, they say, well, when you own property here and you sell it, if your estate is over $2.5 million, you’re paying tax on it,” Beck said. “In New Jersey, we exempt you from tax when you establish your residence outside of the state — which is crazy, because it’s almost an incentive for people to establish their residency elsewhere. Right? It almost encourages them to do that.”