Minnesota House Passes Death Tax Reform

Published May 28, 2015

The Minnesota House of Representatives has approved an omnibus tax bill cutting government revenue by $2 billion.

In addition to revenue cuts and tax breaks, the bill proposes gradually raising the minimum threshold of wealth subject to the state’s estate tax, phased in over a three-year period. By 2018, the estate tax will apply only to estates larger than $5 million.

Under current Minnesota law, all estates larger than $2 million are subject to the state’s estate tax.

Cold Numbers

Heritage Foundation Research Fellow Curtis Dubay says Minnesota should repeal its estate tax entirely, instead of merely limiting it.

“It just makes no sense that a state that has such cold weather for so much of the year has an estate tax,” Dubay said. “Minnesota shouldn’t have this tax at all. They should just abolish it. It’s a lot of money to give up just for the privilege to die in the state.”

Dubay says the estate tax affects small business owners more than other demographic groups.

“The estate taxes hit closely held family businesses the hardest, like farmers or car dealers, or people who own a few small bars or restaurants,” he said. “The tax man will come in and value every phone, desk, every car or tract of property, and then hand the survivors a bill and demand that the family pay it.”

Dying to Leave

Center of the American Experiment Director of Public Policy Peter Nelson says his research suggests people actively work to avoid the estate tax.

“We looked at federal estate tax collections across every state, and what that showed is that the state [tax] collections in states that don’t have an estate tax grew relative to states that still have the estate tax,” Nelson said. “That suggests people are changing their official domicile to states without an estate tax before passing away. There may be other reasons for the disparity, but nothing else explains the dramatic change that we’re seeing right now.”

Nelson says maximizing estate tax revenue may reduce other sources of government revenue, such as the income tax.

“There is research out there that shows that this tax brings in far less revenue on net than one might think, because all of the steps people can take to avoid the tax end up eroding other tax intake,” Nelson said. “It reduces things like the take on income taxes, because if you move your official residence, you are no longer paying income taxes to the state of Minnesota.

“Also, if elderly people transfer their property or businesses to a child, that child is likely in a lower tax bracket and will be paying less in income taxes. When you add up all these factors, it turns out that, on net, Minnesota might actually lose tax revenue as people work to avoid the estate tax,” Nelson said.

Warner Todd Huston ([email protected]) writes from Streamwood, Illinois.

Internet Info:

Edward J. McCaffery, “Grave Robbers: The Moral Case against the Death Tax,” Cato Institute: https://www.heartland.org/policy-documents/grave-robbers-moral-case-against-death-tax/