Democratic leaders have agreed to reduce Maryland’s high estate tax by recoupling it to federal standards for taxing a dead person’s assets. The “death tax” is considered one of the reasons that wealthy retirees choose to leave Maryland for states with lower taxes.
“We’re going to phase out the estate tax,” Senate President Mike Miller not quite accurately told a conference of the Maryland Economic Development Association Thursday, “and raise it to the federal level.”
“I hope we’re going to move forward on the inheritance and estate tax,” Miller said.
House of Delegates Speaker Michael Busch, speaking on the same panel of Assembly leaders, said, “I think we have to recouple with the federal government … I think it is a fairness issue.”
The move would have cut Maryland taxes by $14 million this fiscal year and by as much as $87 million four years from now. The estate and inheritance tax represents less than 2% of all Maryland revenues, about $227 million this year. Very few estates actually pay any taxes.
Only 14 states tax estates
Maryland is one of only 14 states that taxes the assets left by deceased residents, and one of only seven states that taxes inheritance, the levy heirs must pay on the money left to them, according to an October report by legislative staff. New Jersey and Maryland are the only two states that impose both a tax on the deceased’s assets, and a tax on any money given to heirs.
Maryland now taxes estates worth over $1 million at 16%. The federal government now excludes the first $5 million of estates from taxes, but takes 40% of anything over that. Maryland and other states had long followed the federal standards on estate taxes. In 2002, as Congress sought to reduce federal death taxes, Maryland chose to “decouple” its estate tax from the higher federal exclusion.
Gov. Martin O’Malley said Thursday he hadn’t considered any change in the estate tax, but “I’m glad to talk with them [Miller and Busch]” about it. He would like to see “some compelling evidence that we’re losing more than we gain” by taxing estates differently than the federal standard.
In 2012, O’Malley signed legislation setting the estate limit on family-owned farms at $5 million. Senate Republican Leader David Brinkley, who is a financial advisor, said, “I applaud the idea of trying to recouple with the federal government.” House Minority Leader Nic Kipke said he was “happy to hear about reducing taxes.”
House Republicans are proposing to cut personal income taxes by 10% this year.