New York is now one of only 14 states still imposing any tax on estates — the cash, land, houses, financial assets and other property left by deceased residents. The state estate tax, also called the “death tax,” is triggered once assets exceed $1 million. By contrast, the federal government only taxes estates worth more than $5.34 million, a figure that will rise with inflation every year.
The result is that New York, as of 2012-13 alone, taxed roughly 3,500 estates that didn’t owe a penny to the feds. An estate just below the threshold will owe Albany $431,000 in taxes — and bigger estates will owe much, much more. It all adds up to a pretty strong incentive to “move to die,” as Gov. Andrew Cuomo has put it.
As a corrective, Cuomo has proposed the most significant reform and reduction of the New York Estate Tax in 17 years. He’d raise the state death tax threshold to match the federal level, and he’d reduce the tax rate from 16 to 10 percent. This would eliminate tax liability for 90 percent, and it would be a giant step toward ultimate repeal.
This is one reason why you hear Cuomo now being attacked for supposedly favoring “millionaires and billionaires.” But the number of New Yorkers with sufficient assets to fall under the estate tax is by no means limited to the much-vilified “1 percent.”
As of 2013, New York was home to 429,153 households with “investable assets” of $1 million or more, according to a report by Phoenix Marketing International, a private research firm. That’s nearly 6 percent of all households in the state, and more than 10 times the number of New York tax filers reporting annual incomes of $1 million of more.
Because it doesn’t include land and home values, even this figure underestimates the true number of millionaire households in New York. For example, federal statistics show more than 3,000 New York farms were worth more than $1 million as of 2007, and the number has no doubt risen along with agricultural property values since then.
Homes and land aside, many New Yorkers also own small businesses. Depending on the industry, even small firms generating a relatively modest net income for their owners can be worth a total of more than $1 million. And middle-class New York couples who don’t own a business can amass net assets of $1 million simply by following the standard advice to save sufficiently for retirement.
Beyond the death tax’s impact on individuals and families, many economists believe the tax discourages savings and investment by older wealthy people. Repealing the tax could ultimately boost the state’s net economic output by $5.6 billion — five times the revenue it currently generates — and lead to the creation of nearly 10,000 additional jobs, according to an analysis by the Beacon Hill Institute of Boston.
The wealthiest households can most easily afford to find legal means of minimizing the tax. They are also more likely to move to reduce their tax, research has found — and they’ve got plenty of options. State death taxes are no longer imposed in much of the Midwest, almost all of the South, the entire Southwest, and California.
The moral case for and against the death tax has been debated nationally for decades. But the strongest argument for Cuomo’s proposal is an eminently practical one: Why perpetuate yet another growth-sapping competitive disadvantage for New York, when we’re already losing so many people to the rest of the country?