A recent lead editorial in the Wall Street Journal chimes in against the estate tax. More importantly, at least from my perspective, they cited my recent Rhode Island migration study in their editorial. Here is what they had to say:
New research indicates that high state death taxes may be financially self-defeating. A 2011 study by the Ocean State Policy Research Institute, a think tank in Rhode Island, examined Census Bureau migration data and discovered that “from 1995 to 2007 Rhode Island collected $341.3 million from the estate tax while it lost $540 million in other taxes due to out-migration.”
Not all of those people left because of taxes, but the study found evidence that “the most significant driver of out-migration is the estate tax.” After Florida eliminated its estate tax in 2004, there was a significant acceleration of exiles from Rhode Island to Florida . . .
Proponents argue that the death tax has minimal incentive effects because people can’t change their behavior after they die. But every day people make decisions to minimize their tax bills before they die. In other words, estate taxes don’t redistribute income among taxpayers. They redistribute income among states.
Unfortunately, the federal estate comes back in 2012 including the state “pick-up” tax which creates a huge financial incentive for states to adopt their own estate tax. If we return to a pre-2001 estate tax world, then this new found tax competition between the states will end. Even if the federal estate tax comes back, federal lawmakers should make sure that the “pick-up” tax never comes back–the federal government should not be in the business of encouraging states to have certain types of taxes. The U.S. is a federal system . . . or at least use to be.
In the meantime, if you live in one of these states and possess significant assets . . . you may want to get out.