Death & Taxes: What Effect Could President Trump’s Proposed Elimination of the Federal Estate Tax Have on State-Level Estate Taxes?


Estate Picture

The estate tax, or as it is commonly known, the “death tax,” is a tax imposed on the total value of a person’s assets at death if the estate is worth a certain amount. President Trump’s most recent tax reform proposal calls for the repeal of the “death tax.” But what effect would the federal repeal of this tax have on state-level estate taxes? 

In California, federal repeal of the estate tax may lead to the tax’s state-level revival.  In 1982, California voters enacted a state constitutional amendment prohibiting the imposition of an estate tax. However, in light of Trump’s plan to eliminate the estate tax, there has been a call to reinstate the state-level tax.  

This legislative session, California State Sen. Scott Wiener (D) has proposed S.B. 726, which “would ask voters to repeal [the] 1982 state constitutional amendment” and impose a state-level estate tax, according to Bloomberg BNA’s Laura Mahoney (subscription required). The newly revived California estate tax would mirror the federal tax.

But this bill has not been without opposition. Jon Coupal, president of the Howard Jarvis Taxpayers Association, called the proposed legislation “‘[a] foolish, unnecessary tax’” and predicted that “‘citizens will be skeptical’”, according to the non-profit CalWatchdog’s Steven Greenhut.

However, despite California’s proposed legislation, Bloomberg BNA’s Chreasea Dickerson noted in November 2016 that recent trends in legislation indicated “shift away from the state estate tax.” Currently only 14 states and the District of Columbia impose an estate tax on their residents. Beginning in 2018, that number drops to only 13 with New Jersey’s recent repeal of its estate tax this past October.

This trend may have to do with the estate tax’s popularity. Despite the fact that only a very small fraction of individuals accumulate enough wealth during their lives to be subject to an estate tax—only an estimated 5,500 estates will be taxed for those dying in 2017, according to the Tax Policy Center—the imposition of the estate tax is largely unpopular. Fifty-four percent of Americans are in favor of the tax’s elimination, according to a March 17, 2016, Gallup poll.

If the federal estate tax is eliminated, only time will tell if that triggers a newfound push for estate taxes on the state level.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn:  What effect would the federal repeal of the estate tax have on estate taxation on the state level?

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