To Live and Die in Tennessee
Governor Haslam now endorses death-tax repeal.
More good news from the states. After our Saturday editorial on states eliminating the death tax, Tennessee Govenor Bill Haslam called to say he has seen the light and favors doing the same in the Volunteer State. He had campaigned in 2010 to repeal the tax but once in office he got worried about the revenue loss. Then this week he sealed a deal with the GOP state legislature to phase out the 9.5% estate tax entirely over four years.
“The evidence is clear that the tax makes Tennessee uncompetitive and moves capital out of the state,” Mr. Haslam says. He’s right. State death taxes are economically self-defeating because tax return data confirm that the wealthy in America often arrange to die tax-free in states like Florida or Texas.
Advocates say death taxes break up family dynasties and prevent a class of trust-fund babies who live idly off inherited wealth. In reality, most revenue from the tax doesn’t come from $1 billion or even $100 million fortunes; those families have lawyers to keep the IRS away.
Most of the money is snatched from those who die with assets of less than $10 million. The average taxable estate in Tennessee is $4.5 million. After a life of hard work and savings, this level of assets hardly makes one a malefactor of great wealth. Family farms and businesses that a parent wishes to pass on to a son or daughter can be devastated by the tax. It’s not uncommon for family-owned businesses to be sold at auction to pay the federal and state estate-tax bill. Could there be anything more un-American?
As is true in most states with the tax, Tennessee’s estate and gift tax is fiscally trivial, raising only 1% of state revenue. Even on static terms the $75 million or so raised each year won’t be missed in Nashville, but a study by Laffer Associates finds that when taking into account the flight of capital and families, state and local governments in Tennessee lost $7 billion in sales, income, property and other tax revenues over the past decade.
Nashville has never imposed an income tax, so by abolishing the estate tax Tennessee will make itself even friendlier to investment and to retirees who might otherwise flee to Naples or Palm Beach. The wonder is that 20 states still impose this unfair and counterproductive tax.