The New Jersey Business & Industry Association said Wednesday repealing the estate tax must be part of any new legislative compromise on tax fairness.
“Those who say the estate tax matters only to the wealthy are dead wrong,” said Michele Siekerka, NJBIA President and CEO. (Click here for NJBIA chart “Estate Tax: Myth vs. Fact.”)
“It’s a middle-class issue as well because if you own a home, earn the median state income, and have life insurance policy or a 401K, the chances are your estate is already at $675,000 and your children will be saddled with an estate tax,” Siekerka said.
Siekerka noted only spouses are exempt from the New Jersey estate tax, so children and other heirs face a tax of up to 16 percent on the estate’s assets if it exceeds the current $675,000 threshold. It is not unusual for children or other heirs to be forced to liquidate an estate because they can’t pay New Jersey’s estate tax, she said.
NJBIA urged legislative leaders and the Governor, who are meeting privately this week to hammer out a tax reform proposal in connection with the Transportation Trust Fund’s renewal, not to be misled by the false narrative being used to obfuscate the estate tax issue.
“It’s not about the number of estates that are subject to this tax, it’s about the thousands of people whose assets New Jersey is unable to tax at all because, as part of their estate planning, they are choosing to leave New Jersey,” Siekerka said.
Ironically, more than 60 percent of the revenue New Jersey derives from the estate tax comes from estates that aren’t even worth enough to be subject to federal taxes, Siekerka noted.
The federal government doesn’t tax an estate unless its assets exceed $5.45 million, a 700 percent difference from New Jersey. There is no estate tax levied at all in Pennsylvania, and New York affords a much higher threshold that is scheduled to match the federal threshold in 2019.
“The unfairness of the estate tax drives the outmigration problem in New Jersey, and when the state loses a net $18 billion in adjusted gross income – as it has over the past decade – that is a problem that affects us all and requires action,” Siekerka said.
Siekerka said the 20,000 NJBIA member companies, who provide 1 million New Jersey jobs, report year after year in the association’s Annual Business Survey that the estate tax is a key factor in their succession planning and makes them less likely to expand or retire here. Accountants, as part of their fiduciary responsibility, are routinely advising their clients to avoid New Jersey’s death taxes by moving to one of the 34 states that impose neither an estate tax nor an inheritance tax, she said.
“As more New Jersey residents and small business owners opt to avoid death taxes by moving out, it hurts our state’s economy, and the state’s ability to balance its budget,” Siekerka said. “Outmigration motivated by avoiding death taxes directly impacts state income tax revenues and the overall state economy.”
Siekerka noted most businesses in New Jersey are small businesses, many of them family-owned. New Jersey’s 802,000 small businesses care very much about the estate tax repeal, which had been part of the original bipartisan agreement to make the state’s tax system fairer, she said.
In addition to the repeal of the estate tax, the original bipartisan legislative plan would have also allowed seniors to keep more of their pension and retirement income by raising the income tax exclusion threshold for retirees. This too would have helped stop the outmigration of New Jersey residents to states that don’t tax retirement income, Siekerka said.
Income tax deductions for charitable contributions and raising the earned income tax credit for low-income families had also been part of that original tax fairness plan.
“We know that the ongoing talks to hammer out a new compromise acceptable to the Senate, Assembly and Governor is going to require some give and take on the part of all sides, but the estate tax repeal absolutely must be part of any new agreement,” Siekerka said.
