Starting in 2015, Maryland will gradually raise its $1 million estate tax exemption until it matches the federal estate tax exemption, which is estimated to be $6 million in 2019.
Supporters of the new law believe it is necessary because Marylanders are fleeing the state in retirement age to escape the state’s estate tax. Opponents worry that Maryland will lose substantial revenue because of the new law.
In this interview, the Comptroller of Maryland, Peter Franchot, offers some insight into the new, increased estate tax exemption and explains why he believes the state ultimately will benefit from its adoption.
Comptroller Franchot has been in office since elected in 2006. Prior to his election, he represented Montgomery County, Maryland in the Maryland House of Delegates, where he served as member on the Appropriations Committee and various subcommittees.
Bloomberg BNA: What do you believe was the main force or theory behind changing the estate tax regime in Maryland through the Estate Tax – Unified Credit Bill?
Franchot:There was considerable concern that Maryland was outside the norm in its decoupled relationship with the federal estate tax. There was an increase in anecdotal evidence that residents were leaving Maryland because of the estate tax. People with resources, force and philanthropic tendencies in the community were moving out-of-state.
Bloomberg BNA: How does this bill affect Maryland taxpayers?
Franchot: I believe that it is a highly emotional issue. The estate tax and recoupling with the federal government allows our citizens to make a much more objective, rational decision about retiring and whether they want to live in Maryland. We obviously very much want our citizens to stay here, retire in Maryland and participate in the community.
The new law will have a major calming effect on what was becoming a problem – individuals leaving the state. It was not just anecdotal, but it was starting to show up in the data. It’s a good resolution to a difficult, complicated problem.
Bloomberg BNA: What are your predictions regarding the effect of this bill on the Maryland budget?
Franchot:Because it is phased-in (i.e., the estate tax exemption gradually increases from 2015 until 2019, when it equals the federal exemption amount) it has a predictable impact on state revenue. I want to emphasize that the importance of this legislation for Maryland is not the revenue or state budget, but the fact that we are preventing considerable damage to the state’s economy by providing an incentive for people who would leave the state. The state’s economy, in my view, benefits, even though the state’s budget has to absorb a reduction. Whatever the dollar amount that the state budget loses will be compensated with a benefit to the Maryland economy by the fact that these folks with resources remain in our state. Maryland will generate more economic activity because of these individuals’ resources.
Bloomberg BNA: Are there any particular upsides or downsides to the enactment of this bill?
Franchot:There is a revenue impact on the state budget, but there was bigger impact on the state’s economy from individuals with resources who were moving out-of-state and changing domicile. Nonetheless, there is a revenue impact, which is why [the higher estate tax exemption] is phased in. Maryland is not fully re-coupled until tax year 2019.
Bloomberg BNA: Do you have any other comments regarding the Maryland bill?
Franchot:I believe it is a very important economic initiative for the state, and I applaud the Governor and the [Maryland] Legislature for moving forward and passing this legislation. I believe it will solve a problem that was growing from year-to-year. Now it’s been resolved, and the state can get back to having a normal relationship with its retirees.
I hope not only that our people don’t move, but that people from other states move to Maryland.
*Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn: Will Maryland’s new increasing estate tax exemption retain its residents as anticipated?
For more information about Maryland’s new estate tax exemption, check out Bloomberg BNA’s Estates, Gifts and Trusts Navigator by signing up for a free trial of the Bloomberg BNA Premier State Tax Library today.
By: Sarah Mugmon
Follow BBNA on Twitter at: @BBNATax.
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