Senate Democrats propose bill to lower taxes on dead millionaires

No one in Rhode Island who dies with an estate worth less than a million dollars pays the estate tax. No living person has ever paid one penny in estate tax.

Less than a week after a report from the Institute on Taxation and Economic Policy [ITEP] showed that Rhode Island has a regressive tax structure that benefits the top one percent of earners at the expense of the lowest 20% of earners, members of the Rhode Island Senate introduced a bill, S2064, to lower the taxes paid by dead millionaires.

If signed into law, the bill would increase the net taxable estate exemption to $4 million for deaths that occur on or after January 1, 2025. It is supported by Senators David Tikoian, Ryan Pearson, Hanna Gallo, John Burke, Matthew LaMountain, Valerie Lawson, Walter Felag, Dawn Euer, Frank Lombardo, and Frank Ciccone, all Democrats.

Note that this bill is being introduced at a time when Governor Daniel McKee, Senate President Dominick Ruggerio, and Speaker of the House K. Joseph Shekarchi have announced a period of fiscal belt-tightening following the end of Covid-era federal relief dollars.

So what is the estate tax?

The estate tax is paid by dead millionaires. No one in Rhode Island who dies with an estate worth less than a million dollars pays the estate tax. No living person has ever paid one penny in estate tax. When a millionaire dies, their estate typically consists of real estate, stocks and bonds, mutual funds, and other financial assets. Before these assets are passed onto their inheritors, a tax is assessed, but only if the estate is worth more than $1,774,583.

According to data provided by the Economic Progress Institute (EPI), based on information from the Rhode Island Department of Taxation, Rhode Island's estate tax threshold, which was raised to $1.5 million in 2015, is now at $1,774,583 due to annual inflation adjustments. In FY2022, the estate tax brought in $39.3 million in state revenue, and the preliminary number for FY23 is $82.3 million. The estimate for the current fiscal year is $42.4M. Eliminating the estate tax would mean the loss of this revenue, and weakening it would result in a major decline in revenue.

“Any tax relief should be targeted to those who need it most. Increasing the state’s Earned Income Tax Credit, which lags behind our New England neighbors, or making the state child tax credit permanent would truly benefit low- and modest-income Rhode Islanders.” -Weayonnoh Nelson-Davies, Economic Progress Institute, Executive Director

Race

Increasing the taxable estate exemption is racially problematic if not outright racist. It will benefit the wealthiest families in Rhode Island and these families are overwhelmingly white. Lowering the tax burden of dead millionaires raises the burden on the rest of us. As the ITEP report shows, Rhode Island already has a regressive tax structure that unfairly burdens the poorest Rhode Islanders. At a time when state leaders are calling for belt-tightening, essential programs that benefit the poorest in the state can be cut. The burden of poverty is felt more profoundly by our non-white residents.

As American Progress notes, when writing about Republican efforts to repeal or scale back the federal estate tax, “repealing or scaling back the estate tax will have a devastating effect on the racial wealth gap.”

Right-wing lies

Right-wing economists and their state rankings, such as ALEC’s Economic Outlook Ranking and the SBEC’s Small Business Policy Index “punish a state for imposing either an inheritance or an estate tax” writes economist Peter Fisher. But the estate tax has nothing to do with economic growth.

The idea being pushed by right-wing economists, and apparently believed by gullible Senate Democrats, is that to avoid paying an estate tax, rich people will move away, and take their assets elsewhere. Via this process states with an estate tax are losing “enormous amounts of accumulated wealth,” and this wealth would have “created jobs, alleviated poverty, and increased tax revenue...”

This idea is not supported by evidence. As Andy Boardman showed, “the rich aren’t fleeing Rhode Island.”

“Here’s the upshot,” wrote Boardman in 2019, “there is no discernible exodus of high-income Rhode Islanders. On average, households moving out of Rhode Island are poorer, not richer, than households that stay put.” In a separate piece, Boardman noted that “a bump in the estate tax threshold would help the heirs of about 300 large estates.”

“The wealth held by retirees typically is not the kind of capital normally used in job creation,” wrote economist Peter Fisher. “The wealth that drives prosperity consists of real assets: natural resources, plant and equipment, public infrastructure, human capital, [and] technological knowledge. By contrast, large estates typically consist of real estate, stocks and bonds, mutual funds, and other financial assets [that] could be located anywhere in the world. The future use of those assets is unaffected by where the person who owned them died.

“Finally, the heirs’ decisions as to if, where, and how to invest the inherited assets [are] unaffected by the location of the estate. For example, if a wealthy individual decided to move from Tennessee to Florida in the closing years of his or her life, it would not affect how much the household’s heirs, who could be located anywhere in the world, invest in businesses in Tennessee.”

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So ask yourself - Why do ten Senate Democrats want to lower taxes on dead millionaires? Better yet, ask these Senators. I’ve reached out to Senator Euer and Majority Leader Pearson. As of this writing, neither has responded. I’ll try connecting with them and other Senators in person when the Senate convenes tomorrow. Meanwhile, look out for the House bill.

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