Maryland Threatens Broad Prosperity by Weakening Estate Tax

Maryland has more millionaires per capita than any other state, and asks less of them when it comes time to support the public good through schools, hospitals and transportation.

Maryland was one of just 14 states that had the foresight to preserve its estate tax when the federal tax was rolled back in 2001. Initially Maryland’s tax applied to all estates of more than $1 million, but since then policymakers have raised the exemption, opting to give another tax break to the state’s richest people.

In 2014, the state began phasing out the estate tax for all but the very wealthiest of wealthy residents. If, instead, Maryland  maintained the estate tax at the current level (estates over $2 million), it would preserve an important source of revenue to support schools, hospitals, safe communities, and other essential services across the state that help create jobs and build a strong economy.

The vast majority of Marylanders will never be subject to an estate tax, even with the current exemption. Only a small share of wealthy families – who are most able to afford it – pay the taxes. While Maryland used to ask the top 3 percent of estates to pay the tax, now only estates with assets greater than $2 million pay the estate tax, a level that will rise to over $5.5 million by 2019 to match the federal exemption level. If that exemption had been in effect in 2014, just 0.16 percent of estates – about 70 families – would have had to pay any tax.Maryland has more millionaires per capita than any other state, and asks less of them when it comes time to support the public good through schools,

States that use the current federal exemption level, as Maryland is on track to do, collect one-third to one-half less revenue than they would if they taxed all estates of $1 million or more, according to a new report from the Center on Budget and Policy Priorities. The federal exemption level was $1 million when Congress altered the estate tax in 2001. Maryland’s estate tax raised $243.4 million in fiscal year 2015.

Several provisions in Maryland’s law that protect families from undue hardship. No money or property a surviving spouse inherits is subject to the estate tax. If heirs pay Maryland’s separate inheritance tax, estates receive a credit for that tax that lowers the amount of estate tax they owe. And the 10 percent inheritance tax does not apply to property transferred to spouses, parents, children and other lineal heirs; siblings; or domestic partners.

Estates that include farms further benefit from several aspects of current law. First, agricultural property already receives a much larger exemption, up to $5 million. Second, agricultural property is taxed at a much lower rate than other property — 5 percent versus 15 percent. Third, qualified heirs can defer paying the estate tax on property for three years if it remains in agricultural use. There are no verifiable cases of families losing a farm due to Maryland’s estate tax.

In addition to providing revenue the state needs for public investments that promote a strong economy, the estate tax helps ensure everyone pays their fair share by taxing certain types of income that would otherwise be untaxed  when it is passed on to a multimillionaire’s heirs. Middle-class people pay taxes on their earnings; it isn’t right that wealthy people can avoid taxes on assets that gained in value by owners who died and left those assets to someone else.

Ensuring that we can afford all the things our state needs requires a sensible approach to revenue. If Maryland continues on the current path, it will mean we have substantially less to invest in helping communities thrive.