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Christie’s Call to Cut Estate Tax Sets Grounds for Larger Tax Debate

Those who want to see estate tax rolled back say it hurts middle class; anti-poverty advocates argue it prevents super-rich from hoarding wealth


Gov. Chris Christie’s call last week for a repeal of New Jersey’s estate tax came as no surprise, given he’s in the middle of a push for the Republican Party’s presidential nomination. Supporting tax cuts is a core position for the GOP field this year.

But in New Jersey, the strong statement Christie made against the estate tax in last week’s State of the State address has also set the stage for an upcoming debate over state tax policy that many expect will take off once Christie proposes a new state budget next month.

And advocates on all sides of the issue are already staking out their positions.

To those who agree with Christie, a second-term Republican, New Jersey’s estate tax is far too aggressive. They say it no longer takes amassed wealth away from just the very rich, but now hits small-business owners and even modest, middle-class families as well.

But proponents of maintaining the status quo say the estate tax, in an era of extreme income inequality, is still serving its purpose of preventing the rich from hoarding wealth. They also fear a tax cut could lead to funding reductions for state programs that benefit the poor at a time when poverty is also on the rise in New Jersey.

And still others say Christie isn’t pushing far enough. They want to see a repeal of the state’s inheritance tax as well, arguing that the tax is discriminatory and regressive, hitting lower-income heirs the hardest.

New Jersey right now is one of only two states in the country to have both taxes on the books. The inheritance tax in New Jersey goes back to the late 1800s, while the estate tax was first established in the 1930s.

New Jersey’s estate tax is levied on a resident’s amassed wealth upon death if the estate is larger than $675,000, while the inheritance tax depends on how closely the heir is related to the decedent and the size of the inheritance.

Both taxes were cited as factors in a new ranking of states with the highest state and local tax burdens that was released this week by the conservative Tax Foundation. During the 2012 fiscal year, New Jersey residents paid a little more than 12 percent of their incomes in state and local taxes, the third highest among U.S. states, the Washington, D.C.-based organization found.

Taken together, the two New Jersey taxes are expected to generate an estimated $755 million for the state budget this fiscal year, which began July 1. According to data released by the state Department of Treasury, $436.5 million has been collected from the estate and inheritance taxes through the end of December, which is the midpoint of the fiscal year.

At $675,000, New Jersey’s estate tax threshold hasn’t been changed in over a decade. It’s also the lowest in the country among the states that levy an estate tax, according to the Tax Foundation. It is also far below the $5.45 million exemption that’s been set this year by the IRS for the federal version of the estate tax.

Christie, in his speech to lawmakers last week, said New Jersey’s estate tax is forcing many residents to flee the state in their later years for those with less punitive tax policies. And he said since homes are generally considered part of someone’s estate it’s more than just the wealthy who are getting hit.

“It’s penalizing middle-class families who want to pass down the family home to the next generation,” Christie said.

His call was immediately applauded by Republican lawmakers and business-lobbying groups. It also echoed concerns that have been raised by business owners and certified public accountants in recent surveys. A New Jersey Business & Industry Association survey conducted late last year found the business decisions of nearly 70 percent of the members who responded are being affected by the estate and inheritance taxes. And a similar survey conducted for the New Jersey Society of Certified Public Accountants ranked estate and inheritance taxes behind only property taxes as a top concern.

“We need to fix this now,” Christie said. “We need to stop punishing the next generation and hurting middle-class families.”

But Christie didn’t say in his speech just how he plans to cover the loss of revenue that would be the result of eliminating the estate tax. It could be as much as $375 million to $400 million using current budget estimates. A fuller explanation could come during his upcoming budget address, which is scheduled for February 16.

Some Democratic lawmakers, meanwhile, have begun entertaining the concept of easing the estate tax burden, possibly through a phasing out of the tax over several fiscal years instead of in just one. That idea has been gaining momentum as Democrats look for a bargaining chip to use to secure Republican votes for a hike of state fuel taxes that they’re readying to propose as part of broader plan to renew the Transportation Trust Fund.

But opponents of a policy change that affects the estate tax fear there’s no way New Jersey could absorb a loss of revenue without doing significant harm to other areas of the budget, which totals $33.8 billion. And they argue the estate tax right now is still hitting its intended target, which is the very rich.

Last year, the state Office of Legislative Services, the Legislature’s nonpartisan research arm, released data that showed of the roughly $325 million that was raised by the estate tax during the 2013 fiscal year, $202.6 million was generated from those with estates worth $2.5 million or more. And $136 million -- or 42 percent of the total collected from the tax that year -- was raised from just 109 estates that were worth at least $5 million.

“This is another terrible proposal,” said Ann Vardeman, program director for New Jersey Citizen Action, during a conference call with reporters that was held earlier this week. “Just another giveaway to the super rich.”

And Susan Barbey, a Ridgewood resident who has personally lobbied lawmakers for more than a year to ease the inheritance-tax burden, suggested Trenton right now is really focused on the wrong tax.

It’s the inheritance tax that’s a bigger burden on all income brackets, she argues, because the state’s current inheritance-tax exemptions are as low as $500 for those who aren’t directly related to the person they receive an inheritance from. And as fewer people are choosing to get married and have children, it also discriminates, Barbey said.

Parents, grandparents, spouses, children, and charities are exempt from the inheritance tax, but siblings, cousins, nieces, nephews, and many others are not. The tax rates for the inheritance tax are also as high as 15 percent or 16 percent, again regardless of the wealth of the person who is giving or receiving the inheritance.

a“It would be unconscionable for New Jersey to not repeal both the inheritance and estate taxes,” Barbey said yesterday.

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