The case for ending taxation after death in Maine
When it comes down to it, Maine is an amazing place to live and raise a family. The large blue sign you see upon entry to the state isn’t a stretch; Maine really is the way life should be. However, the forces at work in the legislature and state government pose a serious threat to the inhabitants of the Pine Tree State.
Whether it is the anti-prosperity attitude emanating from lawmakers or the bureaucrats who want over-regulate the simplest aspects of life, there is no denying that state government is making it exceedingly difficult to enjoy what Maine has to offer.
One of the bills considered by lawmakers last session was LD 420, “An Act To Amend the Maine Exclusion Amount in the Estate Tax.” The estate tax, or death tax, is essentially a tax between eight and 12 percent that is levied on the value of a deceased person’s estate before it is distributed to their heirs or descendants. In other words, the state of Maine levies taxes on individuals up until and after death.
Maine’s estate tax law includes an exclusion amount, and currently the tax is not levied on estates worth $5.7 million or less. Currently, the estate tax is not levied on estates worth $5.7 million or less. However, this could change substantially when the legislature reconvenes. Under LD 420, the exclusion amount is reduced to $2 million, and the bill eliminates the annual adjustment that increases the exclusion with the cost of living.
First and foremost, LD 420 would create an environment that is unattractive to people who want to migrate to Maine. The state of Maine borders only one other state, New Hampshire, which does not levy an estate tax, income tax or sales tax. An individual, family or business that is considering a move to Maine may reconsider if this bill passes, especially if their estate would be worth more than $2 million upon death. Most other states do not levy an estate tax, making them a more attractive destination for wealth and job creators. It’s not a coincidence that New Hampshire has more than twice the number of millionaires compared to Maine; their state fosters an economic environment much more conducive to wealth creation.
As of 2018, only 12 states and the District of Columbia levied an estate tax on their residents. Most state legislatures have started to move away from collecting revenue through the estate tax or have significantly raised the exemption levels to encourage people to migrate to their state. Simply put, the estate tax harms states and their residents far more than it benefits them.
A 2015 report by The Heritage Foundation noted that individuals whose estates are likely going to be “partially confiscated” at death are moving to other states to avoid the burden. An example of this is Rhode Island, which “collected $341.3 million from the estate tax while it lost $540 million in other taxes due to out-migration.” In addition, a study from the National Bureau of Economic Research asserts that “the number of federal estate tax return filers reported as residing in each state is negatively influenced by the level of taxes imposed on high-income and high-wealth people in that state.”
There are some who believe lowering the estate tax exemption will benefit Maine and its residents. The Maine Education Association testified in favor of LD 420 by stating that Maine children and families have needs, and the state needs to tax the “wealthiest among us” to meet those needs. While Maine’s children and families certainly do have needs, lowering the exemption for the estate tax is shortsighted and would have dire implications for the state.
In an April Op-Ed published in the Portland Press Herald, Amanda Rand, CEO of Spinnaker Trust, outlined the perspective of individuals in the wealth management field. “Maine’s estate tax exemption would drive higher-net-worth Mainers to other states and further shift the tax burden to the middle class,” she wrote.
Ms. Rand’s perspective is invaluable because it illuminates the advice wealth managers and advisors give to high-net-worth clients regarding their tax burden, and whether they should relocate. Forbes recently published an article titled “Where Not to Die in 2019” and, unfortunately, Maine made the list.
Perhaps the biggest flaw of the estate tax is that the revenue it generates is unreliable and cannot be accounted for while budgeting. Between 2012 and 2016, the estate tax revenue varied despite having the same tax structure and an exemption of $2 million. In 2013, the state of Maine collected $79 million whereas only about $24 million was generated the next fiscal year. If state government cannot make accurate projections regarding the amount the estate tax will generate, there is little incentive to continue collecting the revenue aside from proponents’ cries to “tax the wealthy.”
| Revenue Generated From The Estate Tax | |
| Fiscal Year | General Fund Revenue |
| 2012 | $44,865,567 |
| 2013 | $79,083,058 |
| 2014 | $23,961,911 |
| 2015 | $31,196,286 |
| 2016 | $27,198,153 |
| 2017 | $11,717,686 |
| 2018 | $13,801,409 |
In an attempt to make the bill more palatable, Senator Nate Libby introduced an amendment to the bill that would exempt farmland from the estate tax. However, there is a caveat to this — the land must remain farmland for at least five years after the owner’s death. While the amendment was likely well-intentioned, it is insensitive (and perhaps unrealistic) for lawmakers to expect the grieving parties to ensure the land is still used as farmland for the five years following the family members’ death.
If families cannot produce the amount levied through the estate tax, they are forced to sell their land and assets, in whole or part, that their family member(s) worked so hard to build and maintain. For example, if a descendant who earns $40,000 annually cannot produce the taxes assessed on the estate, they would have to sell some or all of the assets they inherit.
Having to sell land and assets can be difficult for family members, particularly if they have an emotional attachment to the estate. They would be subject to this tax solely because the government demands that they hand over more revenue to state coffers. Is this something families, affluent or not, should have to worry about? The human component too often gets lost when class warfare is used as an argument for taxing high net worth individuals.
Sadly, this progressive urge to “tax the rich” or raid the bank accounts of the “one percenters” will have a negative impact on the state of Maine.
Join MHPC and Mr. Pete Sepp, President of National Taxpayers Union for an evening reception on August 21 at Portland Country Club where he will discuss tax issues relating to the federal level and the state of Maine.