Testimony on L.D. 423 and L.D. 1147, bills to weaken or eliminate Maine’s Estate Tax

With this Legislature currently facing an $840 million revenue shortfall, now is not the time to pass these bills or any other that unnecessarily weakens the estate tax. Maine’s best hopes for quick economic recovery and prosperity requires maintaining critical investments in our people and quality of place, not in repealing progressive tax policies that help fund those core investments.

MECEP has three main concerns with any bill that attempts to weaken or repeal the state estate tax. First, the estate tax is a tax that is imposed on a very small number of very wealthy estates but which benefits all Maine people. Under current law, approximately 550 to 600 Maine estates are likely to be affected by current estate tax levels in 2013, the first year in which the LePage Administration has called for increasing the exemption level from $1 million to $2 million.

Yet, the estate tax raises significant revenue that benefits all Mainers, including those individuals fortunate enough to have accumulated sufficient wealth to have left an estate subject to possible estate taxation. Estate tax revenues accrue to the General Fund, which supports core investments in K-12 education, higher education, health care, environmental protection, and public safety. The estate tax raised $31.2 million in Fiscal Year 2010 and is projected to raise $43 million in Fiscal Year 2011. The loss of such revenue will likely force the State to cut vital services further. Such cuts threaten to shift costs to municipalities and property taxpayers, further amplify a growing trend of underinvestment in our people and infrastructure, and negatively impact job creation and retention measures. This will also diminish Maine’s chances at quick economic recovery.

Second, the out-migration issues raised by proponents of estate tax reform are overstated. The non-partisan Center on Budget and Policy Priorities (CBPP), a well-respected federal and state fiscal policy organization, noted that “studies find that estate taxes have a small effect on the residence decisions of the very wealthy elderly — few people are likely to be affected and the size of the effect is small.”1 As the author then noted, the corresponding impact on a State’s economy of such migration decisions is likely to be small.

The Maine State Planning Office (SPO) reached a similar conclusion in its 1999 report “A Golden Opportunity II.” The SPO noted that “it was the belief of many at the beginning of this research that we were experiencing far more out-migration of retirees than in-migration. But in reality – the reverse is true! . . . . From examining tax records of the more affluent retirees, we’ve found that the number of retirees moving into Maine is double the number moving out.”

Moreover, estate tax revenues have remained relatively stable over the last three years: $39.9 million in Fiscal Year 2008, $31.8 million in Fiscal Year 2009, and $31.2 million in Fiscal Year 2010. Migration effects do not seem to offset the revenue gained.

Third, the estate tax has a negligible effect on small businesses and family farms. According to the Tax Policy Center, only about 110 small businesses and family farms nationally would have been subject to the federal estate tax in 2011 at 2009 federal levels ($3.5 million exemption).2 It is largely a myth that the current estate tax harms Maine’s small businesses and family farms.

Because the estate tax is imposed on a few wealthy estates but benefits all Mainers through its funding of core infrastructure and other investments, the revenue gained is not offset by migration effects, and small businesses and family farms are largely unaffected, MECEP urges this Committee to reject any bill, including LD 423 and LD 1147, that weakens or repeals the estate tax. 

Dan Coyne, Fiscal Policy Analyst, testifying in front of the Joint Standing Committee on Taxation in opposition to LD 423, “An Act to Eliminate Maine’s Estate Tax,” and LD 1147, “An Act to Conform Maine’s Estate Tax to the Federal Estate Tax.”