Estate Tax Can Pay Off for States, Even if the Superrich Flee

If the rich can avoid taxes by moving to the lower-tax state or country next door, states and countries will race to cut taxes to poach one another’s wealthy. Such competition is the main reason European countries have all but abandoned wealth taxes, Mr. Zucman said.

Still, Mr. Moretti and Mr. Wilson pointed out that for most states the race to the bottom is probably pointless: The typical estate tax of 16 percent yields more revenue than the income tax that the states would have collected in the interim from the billionaires who fled.

In states without an income tax, like Florida and Texas, the argument for the estate tax is straightforward: There is no income tax revenue to lose if billionaires leave. But even in Arkansas, which stopped collecting an estate tax in 2005 and was home to five billionaires in 2017, the income tax revenue lost would be only about half of what the state would reap with a 16 percent estate tax, Mr. Moretti and Mr. Wilson estimate.

While the estate tax could generate additional losses if departing billionaires took their companies, investments and charitable contributions with them, Mr. Moretti argues that it is not likely that an aging Mr. Bezos moving to, say, Texas, will take Amazon with him. And estate taxes decades down the road seem unlikely to influence where young entrepreneurs decide to live.

The Moretti-Wilson argument doesn’t apply only to billionaires. In all but eight states, a 16 percent tax applied to estates larger than $5.5 million (the federal threshold before the 2017 tax law) would generate more money than would be lost in forgone income taxes. And if the merely rich were only half as likely as Forbes billionaires to cross state lines fleeing the estate tax, every state would gain from imposing one.

If all states imposed an estate tax, of course, the rich would have no choice but to pay it. Mr. Zucman suggests that an easy way to maximize states’ estate tax revenues would be to reintroduce the federal credit, eliminating interstate tax competition.

Article source: https://www.nytimes.com/2019/10/20/business/economy/estate-tax.html?emc=rss&partner=rss