Taxes

Is California 'Death Tax' Bill Real or Just More Anti-Trump Spite?

A state senator proposes replacing the federal estate tax with a state tax, if Trump gets his way on repeal.

|

This year's California legislative session has been thus far dominated by two persistent themes: the desire to stand up to the Trump administration and the pursuit of new tax dollars to fund infrastructure and other spending programs. Democrats have supermajorities in both houses of the Legislature, so Republicans have been able to do little more than complain.

A recent proposal by a new state senator from San Francisco captures both of these concepts in one measure. In late February, Sen. Scott Wiener, D-San Francisco, introduced S.B. 726, a direct response to a proposal by President Donald Trump. (Ironically, Wiener has been viewed as a "pro-business" Democrat, at least by Bay Area standards.)

The president wants to eliminate the federal estate tax, which imposes a 40 percent tax on estates valued at $5.5 million or more. A couple of Republican-backed bills to repeal the tax are currently making their way through Congress. Wiener's measure would institute a California estate tax that's identical to the federal estate tax. Under Wiener's bill, the tax would only go into effect if Congress does away with the federal version.

Such estate taxes, often referred to as "death" taxes, don't apply to a huge number of estates, given the large exemption, but they have earned the wrath of the president and many Republicans. Trump called the tax "just plain wrong." President Barack Obama had proposed eliminating an estate-tax "loophole." And Hillary Clinton had proposed raising the estate tax to an unprecedented 65 percent, according to a Forbes analysis.

Republicans dislike such taxes on grounds of "fairness," since many of these estates often are taxed twice and even three times. Such taxes can have a negative effect on small businesses, especially farms, which often struggle to stay afloat after the passing of the owner. Democrats see the tax as a way to find government revenue. They also make social-justice arguments for taxing larger shares of inherited wealth, which they view as exacerbating inequality.

"If Donald Trump and congressional Republicans are hell-bent on cutting taxes for our wealthiest residents, we should counterbalance those tax cuts by recapturing the lost funds and investing them here at home in our schools, our health-care system, and our roads and public-transportation systems," Wiener said in a statement.

Even if his bill passes both houses of the Legislature and is signed into law by Gov. Jerry Brown, it still faces a large hurdle; it would need to be approved by voters on a statewide ballot. That's because voters in 1982 approved two slightly different statewide ballot initiatives (Propositions 5 and 6) that repealed the state's then-existing inheritance and gift taxes and prohibited state or local governments from imposing them in the future.

If Congress repeals the estate tax and Californians impose a new estate tax at the ballot box, then the "death" taxes currently flowing to Washington, D.C., would head to Sacramento instead—to the tune of around $4.5 billion annually. Californians pay 26 percent of the nation's total estate and inheritance taxes, according to Wiener's statements. "Considering that California is generally a donor state to the federal government, that would mean significantly more money would remain in California for critical investments," his office explained.

"A foolish, unnecessary tax," said Jon Coupal, president of the Howard Jarvis Taxpayers Association. "At least they have to go to the voters to do this and I suspect citizens will be skeptical."

Wiener's approach, Republicans say, would leave California, which already has among the highest income-tax rates in the nation, at an even greater competitive disadvantage. California already has high tax rates that drive many businesses to other states. If the estate tax is gone nationwide, some believe it could spark an exodus of wealthy citizens to neighboring states, given that few state legislatures are likely to follow California's approach.

Wiener defends his idea as a means to protect California's progressive tax system, by which wealthier people are taxed at a much higher rate than middle-income and low-income people. "The #Resistance to Donald Trump takes many forms," he wrote in a recent column. "Salvaging a highly progressive form of taxation, keeping the proceeds here in California, and using the funds to repair the damage caused by Trump and company certainly qualify."

But it's not only conservatives pointing to the perverse outcomes of our tax system. Gov. Jerry Brown has repeatedly noted the system's design leads to budget volatility, given that such progressivity leaves California's government dependent on a relatively small number of successful firms.

"In years when the state receives an unexpectedly large amount of tax revenue, state legislators tend to increase spending on programs and employee compensation significantly, believing the high revenues reflect a new normal," wrote Autumn Carter, of U.S. Common Sense. Then after revenues fall, legislators make "sudden" cuts to programs to balance the budget, she added.

Reimposing a California estate tax would only make the state budget much more volatile. And it won't reduce California's income-inequality chasm. Research by the Tax Foundation finds states with steeply progressive tax rates do not typically have lower income inequality than states with more regressive tax systems.

As critics note, high net-worth people often move elsewhere when tax environments become too onerous. Furthermore, progressive tax rates may create an inordinately high demand for government spending. Voting majorities don't pay a large share of the new spending, so there's little personal financial downside for them by backing tax hikes and new programs.

A House Republican tax-reform task force last year called for eliminating the estate tax and a type of gift tax that penalizes people for giving money to their grandkids: "The elimination of the estate and generation-skipping transfer taxes will allow family-owned businesses to transition smoothly from generation to generation, without the burden of the estate tax that currently can leave grieving families with no choice but to liquidate the family business to satisfy the estate tax obligation owed to the government upon the death of their loved one."

Republicans say eliminating such taxes will also reduce an owner's lifetime accounting costs. Some supporters of the estate tax downplay its punitive nature by noting most companies are able to minimize the tax bite through myriad accounting and tax-avoidance measures. They argue the administration ought to leave the estate and gift taxes as they are—rather than complicate an already complex system. But the tax still hits a lot of businesses, or else there wouldn't be so much concern over tapping the revenue source.

California Democrats are sure they are channeling the public's anti-Trump sentiments with many of their recent proposals. But are California voters willing to raise their own taxes—or at least the taxes of their deceased neighbors' families—to make a point to the new administration? We soon may see whether this is a serious measure or just the latest example of anti-Trump venting.

Advertisement

NEXT: From Newspaper Hoaxster to Twitter Hoaxster

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Whats next every time your pet dies you pay a death tax? your car? Your phone battery? It will never end with this people they won’t be happy till every penny is taken and “given” to the “more deserving”

    1. Does your dog have a significant estate to tax?

      I’m sure they have thought of taxing animals, but even California Democrats know you can’t get blood from a stone.

    2. Should 5 percent appear to small….
      Be thankful I don’t take it all…

  2. Inherited or self-made, wealth itself is the problem, because it makes people less dependent on the State. The State is the only repository of insight and wisdom; individuals just fuck things up when their puny brains try to think for themselves.

    So it goes.

    I’ve never quite understood the philosophy that a government paycheck imbues its receivers with the wisdom that the rest of us lack. I can’t figure out if Statists actually believe that, or if it just comes down to them being in power and not somebody else; that as long as there is a chance for them to get voted into higher and higher office, the purity and beauty of the State must be accepted as gospel.

    Politicians are funny people. You might think that with so many of them failing to keep getting promoted by the voters, they’d be angry assholes. Instead, they keep trying to win elections, optimistic to the core. I think it’s not true optimism, but a forced optimism, because they have no other skills, and without believing in their own political skills, they would have nothing to believe in.

    1. There do appear to be a lot of politicians and activists whose goal is to make sure as many people are dependent on the state as possible. And that is troubling.

      But I don’t think that they actually believe that people in government are special to quite the degree you suggest. Honestly, saying that statists think the state is perfect and pure is a bit like saying that free market supporters think that markets always deliver ideal outcomes. Very few people actually believe those things.

      I also don’t think there are all that many full-on commies thinking that wealth per se is really the problem.

      What they do believe is that government redistribution is worth the costs and that rich people owe something to society. That’s the problem. The notion that private property is the eminent domain of the whole country.

    2. Politicians are funny people.

      Most politicians are lawyers. If you’ve ever dealt with lawyers, you have a pretty good understanding of the psychology of politicians. Terrifying.

  3. Let’s propose that Trump did get rid of the estate tax and CA instituted theirs. Wouldn’t the rational response just be for the wealthy to setup residency outside of CA quite likely while still living some period of time in CA?

    1. Lake Tahoe is one of the most beautiful lakes in the world, and it straddles the California-Nevada state line. California has a huge state income tax, 10% at $100K for married couples. People who have a job with a business address inside California can’t move to Nevada to escape the income tax, but income with no address, like investments, is a different matter.

      The Nevada side of the lake is full of expensive homes. If you make $1M a year from investments, you can save $100K or more (top rate is 13.3%) by living in Nevada, and the SF Bay Area is still only 3-4 hours away, with its opera, restaurants, etc.

      So yes. People who retire and have no income with a California address will definitely move out of state.

    2. My dad established residency in Florida to avoid the People’s Republic of Taxachusetts estate tax, car tax, and income tax, as did many other former residents. Think this is the main reason the blue states just keep getting bluer.

  4. They say if you want less of something, tax it. If California wants less rich people (as it seems that it does), it should tax them.

    I can’t say I agree with that but I don’t agree with a lot of what Californians do in California so this feels par for the course.

    1. Recently, Nestle and the parent company of Carl’s Jr both fled Cali. Those are huge companies that are tired of the insane housing costs and taxation.

  5. pretty much all taxes are based on spite.

  6. The paradox of any estate tax is that it is the rich who can easily afford to hire attorneys and accountants to structure their wealth and income to minimize or eliminate any new potential tax. Also, the rich have the resources to move easily and their wealth and sources of income are not tied to any particular geographic place; unlike the middle class whose cash flow mostly comes from their current job and whose wealth is mostly tied up into their house.

    1. The estate tax limit is generally high enough that people with wealth tied up in a house aren’t affected (though I suppose in places with really stupid big-government restrictive zoning and anti-development regulations it can be.) Small businesses, including but not limited to farms, are things that can get hit. Although anyone can die before they’ve done planning.

      1. John,
        Maybe I was not clear. The second part of my comment was more general in scope. I was not saying that those in the middle class or those whose net worth is tied to their homes will be hit by the estate tax. For any tax the rich have access to more options and fewer external barriers to avoid that tax.

        You are right about small businesses. Some do not realize they need to do some estate planning. I remember some years ago here in California a couple had opened a restaurant that became very successful. The family’s net worth was mostly tied to the value in the business which was now enough to subject them to the estate tax (back then I think the exclusion was around $1 million.) When the parents died their adult children had to sell the business to pay the estate tax. The new owners did not have what it takes and the once popular restaurant soon closed.

      2. Interestingly, I’m in the middle of a probate case as an heir to a fellow who died in California. I’m probably only going to receive thousands, while his estate is worth millions. (Still under the $5.5 million level, thankfully) This could easily affect me if it drags on too long, so I hope we get things settled tomorrow like the lawyers have predicted.

    2. The worse part about these types of taxes is it makes unneeded jobs. I really hate tax accountants because their job is 100% pointless. It is a human being producing nothing and making no benefit towards humanity. They are a wasteful job solely created to fill a pointless role made by the government.

      1. A lot of jobs exist solely to deal with problems created by government. Why do you blame the accountants for addressing problems that they did not create? That’s leaving aside, of course, the argument that even a relatively libertarian society might have a tax system that necessitated professional help in certain circumstances.

  7. Just FYI, the estate tax is the most immoral tax a government can impose.

    1. More so than a tax on “Thingy“?

    2. agreed. I loathe it with a passion. I know i am a bit different than most libertarians but i prefer an income based tax and hate wealth or exercise tax. Really…really hate wealth tax. I more so hate exercise because its a double tax with income. Any double taxing or worse triple ect…are evil ass shit.

  8. If Donald Trump and congressional Republicans are hell-bent on cutting taxes for our wealthiest residents, we should counterbalance those tax cuts by recapturing the lost funds and investing them here at home in our schools, our health-care system, and our roads and public-transportation systems

    Translation: If Donald Trump and Congressional Republicans are intent on allowing people to keep and divulge their own property as they see fit when they pass, we should counter by stealing more private property and divert such resources to bloated State spending projects and pensions.

  9. RE: Is California ‘Death Tax’ Bill Real or Just More Anti-Trump Spite?
    A state senator proposes replacing the federal estate tax with a state tax, if Trump gets his way on repeal.

    What?
    California thinking about making a new tax on all the little people?
    Who would’ve thought that?

  10. So when is California going to secede and let us quit reporting on their madness?
    It cannot be too soon.

  11. Is California ‘Death Tax’ Bill Real or Just More Anti-Trump Spite?

    Yes.

  12. Flyable Heart If that time anime boy and girl kiss Magic coffee mug, it usually looks like an ordinary black coffee coffee cup, but after joining the hot water, you will see the boy and girl kiss picture is full of aesthetic and romantic.

  13. my buddy’s mother gets 66 each hour on the internet, she has been out of a job for twelve months.. the previous month her payment was 16114 just working on the internet four hours per day. go here to this
    +_+_+_+_+_+_+_+_+ http://www.moneytime10.com

  14. Not to worry,there are trust and such to hide money. I an sure Wiener knows this and probably has taken advantage of them.
    This is simply class baiting.
    The problem is the less savy get screwed. I’ve seen several farm families sell off parcels of land to pay estate taxes.

  15. I can assure you, anytime a politician talks about taking money, they are serious.

  16. Death Taxes are theft plain and simple, it’s tax on the already taxed and should be binned,

  17. dsxasx

  18. cdscds

  19. csdscdscd

  20. Excellent website, excellent post as well!
    I genuinely love how it is simple on my eyes and the data
    are well written.I’m wondering how I could be notified if a new post has been made.
    I’ve subscribed to your RSS which should do the trick!

    http://forums.banatmasr.net/

    http://forums.banatmasr.net/f24/

  21. You need to take a look at this blog post https://nerdymates.com/blog/research-essay for some info that could be really helpful for your research paper writing. This could save you in the future

Please to post comments

Comments are closed.