A hot topic at recent budget committee hearings as lawmakers continue to closely evaluate the $33.8 billion budget Gov. Chris Christie has put forward for the next fiscal year has been the tax the state levies on the estates of people who die in New Jersey.
The estate tax is assessed in addition to the transfer-inheritance tax, and together the two taxes will bring in an estimated $715 million during the current fiscal year, the fourth-largest source of revenue. That number is set to increase to $755 million during the fiscal year that begins July 1, with legislative analysts saying the distribution between the two taxes is just about even.
New Jersey is one of only two states to levy both an estate tax and a transfer-inheritance tax. Maryland is the other. And New Jersey’s $675,000 estate-tax exemption is the lowest among all states (which means that it kicks in sooner). It also is far below the federal threshold of $5.43 million.
That means New Jersey can capture revenue from a broader pool of estates than other states and the federal government, but it has also opened New Jersey up to concerns that the low exemption is forcing its wealthiest residents to consider relocating to lower-tax states in their retirement years -- taking a toll on income-tax collections as a result.
The history of New Jersey’s estate tax dates back to legislation enacted in 1934. But the most important development likely occurred in 2002 when New Jersey “decoupled” its tax from the federal version, setting the exemption at $675,000 with no indexing to inflation.
As the federal exemption has since soared to over $5 million, New Jersey lawmakers have talked about increasing the state’s exemption in phases, but so far a measure to do so has yet to clear both houses of the Legislature. The estate tax has also come up during negotiations between Democratic legislative leaders and Christie, a Republican, on a new source of revenue for the state Transportation Trust Fund, possibly as a trade-off for an increase of the state’s 14.5-cent gas tax. But the leaders have yet to strike such a deal.
The latest data reviewed by lawmakers during budget committee hearings last week indicated that, even with the state’s low estate-tax exemption, only roughly 5 percent of deaths in New Jersey have estate-tax implications. And much of the $325 million collected by the tax comes from New Jersey’s wealthiest estates. Of the 3,266 returns counted during the 2013 fiscal year, roughly 3 percent, or the estates of the richest 109 -- those valued over at $5 million -- paid 42 percent of the total estate-tax revenue. The bottom 40 percent of estates subject to the tax, those between the $675,000 exemption and $1 million -- nearly 1,300 -- accounted for less than 9 percent of the total estate-tax revenue. Here is the list of the 15 states that levy an estate tax, ordered by the size of their respective exemptions. (All dollar amounts are from the Office of Legislative Services.)
*identical to federal estate exemption