If you die in Virginia and your estate (the net worth of your home, savings, business, investments, vehicles, etc.) is less than $5.3 millions you won’t pay any estate tax (“death tax”).
But if you die in Maryland you’ll pay 16 percent on everything in your estate above $1 million and the attorney’s, accountant’s, appraiser’s and other costs necessary to file the tax often exceed the tax, itself.
Is Maryland’s death tax causing wealthy individuals to flee the state? At first blush it doesn’t seem so, 2010 Census data shows Maryland’s population increased 9 percent (447,066) to 5.7 million during that decade. But a closer look tells a different story.
All of Maryland’s 9 percent population gain was due to the arrival of 321,000 immigrants boosting their share of the state’s population from 9.8 percent to 14.3 percent, and a plus in births over deaths. These increases masked Maryland’s net “domestic migration” loss, the movement of American citizens between states. During that decade 1,401,000 U.S. citizens left Maryland while only 1,335,000 U.S. citizens moved in, a net loss of 66,000.
“Not to worry”, say Maryland’s death tax defenders, Maryland still has more millionaires per capita (7.7 percent of Maryland households) than any state in the nation. But a growing body of data indicates that wealthy Marylanders are fleeing to no-death tax states like Virginia, Florida and the Carolinas.
Maryland’s net loss of 66,000 US taxpayers during the 2000-2010 decade cost the state a taxable income net loss of $5.5 billion. And a new Gallup poll indicates that Maryland in no longer “the land of pleasant living” to many of its residents.
According to Gallup’s national survey taken during the last half of 2013, 47 percent of Maryland’s residents would relocate to another state if they could. Only two states (Illinois and Connecticut) had higher dissatisfaction rates. Even more shocking were Marylanders’ responses when asked if they were “likely (either extremely, very or somewhat) to leave the state in the next 12 months.” Seventeen percent of Marylanders answered “yes.” Only three states (Nevada, Illinois and Arizona) did worse.
And why are so many Marylanders intent on moving? Jobs, work and family came in first, weather and location came in second but “taxes” came in third. Only in New York did “taxes” rank higher as the reason for leaving. Here’s Gallup’s poll analysis, “Nevada, Illinois, Maryland, Louisiana, Mississippi, New York and Connecticut all appear particularly vulnerable to losing population in the coming few years ... taxes are a uniquely important factor in New York, Illinois and Maryland.”
Some Maryland elected officials have finally grown alarmed. The surprise of this year’s General Assembly session was Democrats lining up behind estate tax reform, a perennial Republican measure that the Dems always quashed. Apparently Senate President Mike Miller cut a political deal, a minimum wage increase to $10.10 per hour in exchange for estate tax reform. Just to be sure, Miller bottled up the minimum wage bill in the Senate until his estate tax reform passed the House.
And Miller’s reason for raising the estate tax exemption to the federal level over the next five years? “We’re having a net loss of revenue to our sister states with regard to people who are being advised by their accountants and estate planners that they can save money for their heirs if they maybe say they live outside the state of Maryland. ... We’re losing to Delaware, were losing to Virginia, North Carolina, were losing to Tennessee. I wish those states hadn’t abolished their estate tax, but they have. We’re in competition to keep our Marylander’s home.”
Miller’a bill drew rebuke from the usual suspects who view wealth as evil: “It’s conservative propaganda to suggest we have to pass this bill to hold onto millionaires,” Del. Heather Mizeur said. “Passage of this measure would be a grave injustice ... helping the very few at the expense of many,” Progressive Maryland said.
Only those folks would call it a “tax break” to forgo taxing someone’s income twice — once when they earn it and, again, when they die. And only liberals would contend that governments, not someone’s heirs, have a greater claim to a deceased person’s estate. This is Maryland’s first meaningful tax cut in nearly 20 years, too bad you have to be dead to enjoy it.
For once, reason prevailed over rhetoric in Annapolis and estate tax reform passed 119 to 14 in the House and 36 to 10 in the Senate. Starting next year, estates below $1.5 million will escape Maryland’s death tax. In 2016 the exemption rises to $2 million, in 2017 to $3 million, in 2018 to $4 million and in 2019 to the federal level expected to be $5.9 million.
If you plan on living until 2019, stick around. But if you can’t hold on until then, start looking for a less expensive place to die.
Blair Lee is chairman of the board of Lee Development Group in Silver Spring and a regular commentator for WBAL radio. His past columns are available at www.gazette.net/blairlee. His email address is firstname.lastname@example.org.