Should Illinois repeal the estate tax?
Tuesday, Nov 22, 2016 - Posted by Rich Miller
* Illinois Policy Institute…
With Republicans winning the presidential race and controlling both houses of Congress, federal tax code changes may be on the way, and Illinois should prepare by getting its state tax code in order. One of the first changes Illinois should make is to repeal the state’s death tax. The death tax drives out-migration of high-income Illinoisans, and it reduces economic growth in the Land of Lincoln. This tax particularly harms owners of farms and manufacturing firms.
One area of agreement between President-elect Donald Trump and the Republicans who will control Congress is on the need to repeal the federal death tax. U.S. House Speaker Paul Ryan’s tax reform plan includes a full repeal of the federal estate tax, as does the plan put forward by Trump.
A repeal of the federal death tax would put pressure on Illinois, the District of Columbia and the 16 other states that still have a version of the tax. Under the current system, state death taxes can be deducted against federal death taxes. Without the state deduction against federal taxes, the state-based death tax will become an even greater driver of wealth flight from states that still impose the tax.
Over the past two decades, Illinois has sustained a net loss of $50 billion in annual adjusted gross income due to migration losses to other states. More than $14 billion of that loss came during the four years of the income-tax hike. This amounts to a severe loss of both economic activity and desperately needed tax revenue.
The largest recipients of wealth from Illinois are states without a death tax and without an income tax – with Florida and Texas in the lead.
Nowhere does the piece mention that the first $4 million is exempt from the state tax. At an average of $7,450 per acre, the first 537 acres of farmland could be willed tax free.
Even with that large exemption, Illinois took in $306 million from the tax last fiscal year.
Your thoughts?
- The Captain - Tuesday, Nov 22, 16 @ 11:10 am:
[redacted] no!
- Earnest - Tuesday, Nov 22, 16 @ 11:13 am:
Only if it’s in the context an overall plan to generate revenue and balance our budget.
- Anonymous - Tuesday, Nov 22, 16 @ 11:14 am:
And this is what any increase in the state income tax will do! Increased out migration of population and business!
- Keyrock - Tuesday, Nov 22, 16 @ 11:16 am:
No. Bruce needs to pay more in tax, not less.
- First Gentleman - Tuesday, Nov 22, 16 @ 11:17 am:
If the $306 million loss is offset by a tax increase elsewhere, sure they can get rid of the estate tax. But taxes should be looked at as line items in the budget, not just random things that can get taken away with no negative consequences.
- wondering - Tuesday, Nov 22, 16 @ 11:17 am:
Brownback of Kansas did that…..Kansas is falling apart for lack of revenue, deflation and lack of growth. Death tax? Not to worry, when you die I gurantee you won’t have to pay it.
- Demoralized - Tuesday, Nov 22, 16 @ 11:20 am:
That’s $306 million in revenue that will have to be replaced somehow. Why in the world do you want to cut a revenue source right now?
- Anonymous - Tuesday, Nov 22, 16 @ 11:21 am:
Yes. Those who can afford to avoid it are doing so, and will continue to do so. And it’s really not that difficult to establish residency in another State to do so, or set it up in a trust in ways to avoid it. The ones hurt the most are those “land rich” , with middle class income, a family whose property that’s been in the family for years, could afford normal property taxes, but couldn’t afford to take this tax hit and keep the property.
- Dee Lay - Tuesday, Nov 22, 16 @ 11:23 am:
“Nowhere does the piece mention that the first $4 million is exempt from the state tax.”
Yep, intellectually honest discussion there IPI. That Death Tax really hurts the middle class folks.
- illinoised - Tuesday, Nov 22, 16 @ 11:24 am:
We need more revenue, not decreased revenue. Terrible idea.
- JohnnyPyleDriver - Tuesday, Nov 22, 16 @ 11:25 am:
No, we shouldn’t be asking how to give away more of the treasury to the richest among us when we’re this far in debt.
- Blue dog dem - Tuesday, Nov 22, 16 @ 11:26 am:
Find me $300 million in cuts. Then heck yes.
- hisgirlfriday - Tuesday, Nov 22, 16 @ 11:27 am:
No the estate tax should be kept in place in Illinois.
But speaking of Trump & GOP Congress promises to repeal things, has Bruce Rauner ever been asked what his plan is for D.C. Republicans repealing the Obamacare exchanges because IIRC Illinois went into that instead of setting up its own. Thus, Obamacare is a state issue now.
- wordslinger - Tuesday, Nov 22, 16 @ 11:31 am:
The first $4 million is exempt? No dice then. Shockingly, IPI is being dishonest by omission.
Illinois ain’t exactly in the fiscal position to be handing out $306 million in tax breaks to multi-millionaires at the moment.
But I’m sure IPIs sugar daddies — Griff, Rauner and Uiehlein — appreciate the big fat tukkus smooch.
- Sue - Tuesday, Nov 22, 16 @ 11:32 am:
Repeal would reduce the number of wealthy folks who move out of state for 6 months and a day. Keeping those people would allow for more annual income tax revenue. Lots of people don’t care about the income tax but the tax rates on larger estates is huge
- Mason born - Tuesday, Nov 22, 16 @ 11:32 am:
Yes. It should go away or at least have the deduction indexed to the Fed deduction.
Rich’s 537 acres doesn’t include Equipment value (2013 JD combine is 150-200K, etc.), building values, house, commodity values, etc. Since Farmers are typically Asset rich Cash poor this tax is a killer 4 farm comunity.
- Anonymous - Tuesday, Nov 22, 16 @ 11:33 am:
==Those who can afford to avoid it are doing so==
That would be everyone then since the tax doesn’t kick in until the $4 million mark.
So these wealthy individuals, who manage to hide their income off shore and use a myriad of other tricks to keep from paying taxes their whole life should also be able to pass that amassed wealth along without being taxed?
Whatever will the poor Rauners and Trumps of the world do?
- ChicagoR - Tuesday, Nov 22, 16 @ 11:33 am:
Repealing the federal and state estate taxes are a sure-fire way to ensure our grandkids are all just serfs to Trump’s and Rauner’s grandkids.
- Albany Park Patriot - Tuesday, Nov 22, 16 @ 11:34 am:
This is more regressive tripe. IPI should just say: Capital has priority over labor and the rich have priority over workers. That would be more honest.
- Angry Chicagoan - Tuesday, Nov 22, 16 @ 11:35 am:
An abominable, irresponsible idea. Illinois already taxes wealth and high income less than almost all other states.
- Anonymous - Tuesday, Nov 22, 16 @ 11:35 am:
I look forward to IPI’s revenue neutral legislative proposal. Maybe McSweeney’ll even file it.
- Dandy Edward - Tuesday, Nov 22, 16 @ 11:39 am:
Yes get rid of the state death tax. Only solution to the budget problem is to grow IL. econnomy faster. Bend the cost curve, cut spending, reforms and moderate hike in income taxes will get the budget balanced.
- ArchPundit - Tuesday, Nov 22, 16 @ 11:40 am:
Please let Rauner push for eliminating the estate tax. Please…..While he’s at it he can dress up in a top hat and tails to just make the case easier for Dems.
- cdog - Tuesday, Nov 22, 16 @ 11:40 am:
This is a form of double taxation. All the assets, that savers/investors/risk-takers have accumulated have previously been taxed.
The receipts are so low for this because most people, with any assets to preserve, have already plan around any estate taxes.
I vote for more double-taxing (maybe even triple-tax those income/asset dollars) and give it all to the governments. /s
- Quizzical - Tuesday, Nov 22, 16 @ 11:41 am:
It’s ironic that Trumpsters claim he won because working class whites are sick of elites dominating a rigged economy, yet cutting taxes on the elites is a top priority once he gets into office.
- Doug - Tuesday, Nov 22, 16 @ 11:42 am:
Who is the biggest beneficiary of estate taxation?
Insurance companies
- 32nd Ward Roscoe Village - Tuesday, Nov 22, 16 @ 11:43 am:
There are reasons other than revenue to have an estate tax–ChicagoR hit on it. Do we want a system of oligarchs in our country?
- Sir Reel - Tuesday, Nov 22, 16 @ 11:45 am:
For farm families that want to stay in farming from generation to generation, this is an issue.
But what about farmers who decide to get out of farming? They’ve already benefited from low real estate taxes for years, thanks to the Farmland Assessment Law, from now State sales tax on farm equipment, and myriad other ways. Repealing the estate tax would be another benefit on top of all the others.
As far as wealth from non farm sources, repealing the tax would concentrate wealth even more. And we sure need more of that.
- Dance Band on the Titanic - Tuesday, Nov 22, 16 @ 11:45 am:
Has IPI offered any suggestions as to how we can raise enough revenue to balance the budget? Seems most of their ideas actually make the revenue situation worse.
- The Old Professor - Tuesday, Nov 22, 16 @ 11:48 am:
OK, don’t tax estates, but collect the unpaid capital gains. Any non-spouse who inherits an estate should pay tax on it, perhaps with a lifetime exemption of $500K or something, and the obligation spread out over 3 or 5 years.
- ZC - Tuesday, Nov 22, 16 @ 11:51 am:
Such a bad idea. No.
Warren Buffett nailed this a long time ago, that abolishing the death tax will be like picking America’s future Olympic team based on who the grandsons and granddaughters are of America’s previous Olympic team.
- anon - Tuesday, Nov 22, 16 @ 11:56 am:
Illinois already has one of the most regressive state and local tax systems of any state. Repealing the estate tax would make it even more regressive, which is what IPI wants. Is there any evidence that repealing the estate tax creates jobs?
- illini97 - Tuesday, Nov 22, 16 @ 11:57 am:
Is there any math to support this? It costs $300+ million. How many millionaires need to move into the state and how many jobs do they need to create to erase this $300 million annual loss?
- Anon - Tuesday, Nov 22, 16 @ 11:58 am:
Last I knew Illinois had only a “pick up” tax that was the amount of tax credit on the federal tax return that could be claimed for payment of State taxes. In other words, no increase over the total federal and State tax otherwise owed. But my education on this is old and maybe outdated?
- MikeMacD - Tuesday, Nov 22, 16 @ 11:59 am:
Abolish it and have the recipients report it as income (with some sort of exemption, say 1 million).
- Ex Spsa - Tuesday, Nov 22, 16 @ 12:02 pm:
Tie it to the Federal death tactics guidelines
- 32nd Ward Roscoe Village - Tuesday, Nov 22, 16 @ 12:02 pm:
“Last I knew Illinois had only a “pick up” tax that was the amount of tax credit on the federal tax return that could be claimed for payment of State taxes.”
Yes, this changed. Illinois (and other states) have uncoupled from the federal system and have their own, lower exemption. The federal credit for a married couple is now almost $11MM since it is adjusted for inflation each year. President Obama signed that compromise in to law when in 2010 when the Bush tax cuts had the federal estate tax expire for 1 year.
- Ex Spsa - Tuesday, Nov 22, 16 @ 12:02 pm:
Tie it to the Federal death tax guidelines
- Bull Moose - Tuesday, Nov 22, 16 @ 12:09 pm:
fiscal insanity
- 32nd Ward Roscoe Village - Tuesday, Nov 22, 16 @ 12:10 pm:
Eliminating the step-up in basis at death (taxing capital gains) is an idea but a record-keeping nightmare. Many beneficiaries at a person’s death have no records on the basis of the stock, stock splits, etc.
In Illinois income tax purposes, trying to find basis information for a decedent’s stock holdings on that date when the tangible personal property tax was replaced with the income tax (why its called a replacement tax) is also a nightmare.
- Anonymous - Tuesday, Nov 22, 16 @ 12:11 pm:
cdog: if my grandparents want to give me a farm worth over $4 million, I’d have to pay income tax on that. But if they die, you think I should get a tax break? Why?
- Carhartt Representative - Tuesday, Nov 22, 16 @ 12:12 pm:
=Illinois already has one of the most regressive state and local tax systems of any state. Repealing the estate tax would make it even more regressive, which is what IPI wants. Is there any evidence that repealing the estate tax creates jobs?=
Exactly
- Anonymous - Tuesday, Nov 22, 16 @ 12:14 pm:
==So these wealthy individuals, who manage to hide their income off shore and use a myriad of other tricks to keep from paying taxes their whole life should also be able to pass that amassed wealth along without being taxed?==
You missed the point, Skippy. All those “tricks” are set up by the actual wealthy so the never pay the estate tax
- Skeptic - Tuesday, Nov 22, 16 @ 12:18 pm:
Why is this obvious propaganda organ for plutocrats taken so seriously?
- My button is broke... - Tuesday, Nov 22, 16 @ 12:23 pm:
There is a $4 million exemption per person. So for a married couple, it is increased to $8 million with minimal planning (first spouse that dies gives $4 million to kids and the rest to the surviving spouse, then the spouse dies and gives another $4 million to kids tax free).
Additionally, they always talk about farmers who die and their heirs have to sell the farm. People have looked for a family that fit these circumstances and has never been able to find one. There are safeguards in place, such as the ability to pay the estate tax over 15 years, that prevent this huge tax bill from being due immediately (provided you don’t have a bunch of liquid assets like stocks.)
- Doug - Tuesday, Nov 22, 16 @ 12:25 pm:
—-Warren Buffett nailed this a long time ago, that abolishing the death tax will be like picking America’s future Olympic team based on who the grandsons and granddaughters are of America’s previous Olympic team.—-
Warren Buffet made billions of dollars selling Life Insurance products for estate planning…..of course he is going to be for the death tax. It’s good for business.
- yeah - Tuesday, Nov 22, 16 @ 12:27 pm:
Congress will not repeal the Estate Tax. Ryan likes being Speaker, not Minority leader.
- Mr. Smith - Tuesday, Nov 22, 16 @ 12:31 pm:
No. Do NOT eliminate the estate tax. But I would TOTALLY be in favor of a clause that exempts the first 500 acres of _farmland_ from an estate valuation for an individual, and up to $500K in equiment, under the condition that the land must continue to remain in the possession of a family member and be used primarily for purposes of farming for x years. The idea being to encourage a family farm to continue on with a reduced tax burden on the surviving family.
- Sam Hall - Tuesday, Nov 22, 16 @ 12:53 pm:
For family farms, this is a problem. In Sangamon the last land I heard about went for over $12K an acre.
- Smitty Irving - Tuesday, Nov 22, 16 @ 12:53 pm:
“Death tax” ? What is the IPI, a Murdoch “publication” ?? /s
- Yes - Tuesday, Nov 22, 16 @ 12:54 pm:
Yes it should repeal it.
- Cheryl44 - Tuesday, Nov 22, 16 @ 12:54 pm:
No. IN fact, let’s double it.
- Robert the Bruce - Tuesday, Nov 22, 16 @ 1:00 pm:
Don’t repeal. Instead, reduce the exemption cutoff to $1,000,000 and double the tax after $4,000,000.
- Anonymous - Tuesday, Nov 22, 16 @ 1:06 pm:
==cdog: if my grandparents want to give me a farm worth over $4 million, I’d have to pay income tax on that. But if they die, you think I should get a tax break? Why? ==
If they die you do get a tax break already. If they die you only pay taxes on the value of the farm over $4 million. The first $4 million is free,
- Rocky Rosi - Tuesday, Nov 22, 16 @ 1:10 pm:
Do away with Illinois estate tax! This tax is un American!
- cdog - Tuesday, Nov 22, 16 @ 1:10 pm:
Anonymous, you make a good point. I believe if the $4m in assets were gifted, it would be a gift tax.
I do actually support some kind of estate tax, but I feel it should be a substantially higher asset threshold. I am for a progressive income tax as well. I have long believed that a tax code that creates billionaires is most likely not good for society and needs a tune up.
My point is more the slippery slope I think we are presented with–
when the incentives to put in effort at school, work hard, take risks, manage resources, make prudent decisions, are watered down by promises of a political party to make everything all better and the intoxication of instant gratification, we may all lose.
- Anonymous - Tuesday, Nov 22, 16 @ 1:14 pm:
If these freeloading millionaires want to leave Illinois let them.
We provide free fire and police protection; we maintain their roads and water and sewer systems.
We educate the rest of the population so they have quality people to hire and with witch to do business.
When the leave, they will be replaced by people who support the government that provides all of these benefits.
What exactly do we have to lose?
- Springfield Since '77 - Tuesday, Nov 22, 16 @ 1:23 pm:
These people have worked for years, sometimes generations to build these Family Farms / Businesses… Why shouldn’t the State get some when they die… /s/
- Stark - Tuesday, Nov 22, 16 @ 1:25 pm:
- Rocky Rosi -
I bet you’re such a fiscal conservative with the attitude of taxes are un-American. Enjoy your trillion dollar annual budget deficits because taxation is “theft”. Give me a break.
- Stark - Tuesday, Nov 22, 16 @ 1:26 pm:
Also, don’t use public roads and public schools if you think their funding mechanisms are un-American.
- Ahoy! - Tuesday, Nov 22, 16 @ 1:32 pm:
I don’t have that strong of an opinion either way as I do see both sides, specifically in this age of massive income inequality. Either way, I do think there should be more safeguards for family businesses, especially ones with large capital requirements such as farms and manufacturing. Sometimes those businesses are cash poor and this can hurt them.
I’m a lot less sympathetic to those who’s money is in trusts and stocks.
- Rocky Rosi - Tuesday, Nov 22, 16 @ 1:37 pm:
@Stark
Why should a person pay taxes on assets they own which they paid for with after tax income? Why should my estate have to pay taxes so a person of my wishes can have my assets? You are basically saying a person will and never should own anything they worked for??? P.S. I pay a lot of taxes. Thank You!
- Chicago 20 - Tuesday, Nov 22, 16 @ 1:47 pm:
- Why should a person pay taxes on assets they own which they paid for with after tax income? Why should my estate have to pay taxes?
You and your estate do not pay an inheritance tax.
Your heirs may have to pay an inheritance tax depending on the value.
- siriusly - Tuesday, Nov 22, 16 @ 1:52 pm:
If the first $4 million is exempt, eliminating it only benefits a very few very wealthy. It’s the Trump playbook describe things as way worse than they are and then your horrible drastic solutions sound less crazy. This is more anti-Illinois trash talking from Rauner.
Oops sorry I mean IPI. They are independent, not affiliated with the Governor or the GOP. Sorry about that.
- Anonymous - Tuesday, Nov 22, 16 @ 1:52 pm:
Cdog is right! This is double taxation!
I shouldn’t have to pay property tax and sales tax because the money I use to pay these taxes has already been taxed on my paycheck.
In fact it shouldn’t be taxed on my paycheck either, because the company I work for has already payed income tax on it.
End double taxation! ~~snark
- Anonymous - Tuesday, Nov 22, 16 @ 1:55 pm:
Rocky Rosi– the thing about the estate tax is it simplifies things for heirs. If I give more than 4 million to my grandkids, they pay gift taxes on that. If I liquidate my holdings, I pay capital gains on that. If I die, my heirs would have to puzzle through that, which can get very complicated very quickly. The estate tax reduces that administrative burden. It should approximate what would otherwise be paid, but rely on facts heirs would know, like gross value rather than starting basis and the like.
- Anonymous - Tuesday, Nov 22, 16 @ 2:08 pm:
Those who do not have any farmland in their families are full of opinions on what we should do with our land that feeds the world.
My grandfather was born in 1912 and started farming with horses. My father grew up in the 1930’s with electricity but no running water. My grandfather’s great-grandfather came over on a boat in 1870, and he was not descended from royalty. As far as I know they were tenant farmers or serfs back to the middle ages. My grandmother worked hard on the farm and died before I was born, I never got to meet her.
My grandfather payed taxes and employed and fed hundreds of people in his community just in his lifetime. We don’t “owe” anyone anything, we have worked hard for generations to take care of the land and keep our family business going.
See what you pay for food when corporations take over our family farms. Your children will starve and curse you in your graves.
- Rocky Rosi - Tuesday, Nov 22, 16 @ 2:13 pm:
@Anonymous
Administrative burden is not an issue. The issue is the state should find revenue from other sources. Estate tax hurts business and job growth. Also if the estate tax is working so will leave it in place and just keep driving more people out of the state. A VAT tax would be better than the estate tax for the great state of IL.
- Rich Miller - Tuesday, Nov 22, 16 @ 2:14 pm:
===A VAT tax would be better than the estate tax===
So, you’re gonna tax people when they buy a house?
Introduce that bill. See how many sponsors you get.
- Rocky Rosi - Tuesday, Nov 22, 16 @ 2:25 pm:
@Rich Miller
A VAT tax is the only way to get the state back on track. To many its a painful thought but if a person ran on that platform to balance the state budget I feel he or she would get a lot of traction.
- Downstate Illinois - Tuesday, Nov 22, 16 @ 3:15 pm:
537 acres is a small farm if that’s all you’re doing.
- facts are stubborn things - Tuesday, Nov 22, 16 @ 3:37 pm:
My family has been blessed to have a certified centennial farm that was founded by my great great grandfather. When my mother passed, we paid $150,000 in estate tax to Illinois in order to simply inherit the land that was our mothers. This land has paid high property taxes and income tax on the crop sales for years. I just fundamentally disagree with government taxing land so that it can pass to the next generation. Tax the property and the income it produces but please don’t tax it to keep it in the family. We did not pay federal estate tax but had to pay Illinois estate tax.
- blue dog dem - Tuesday, Nov 22, 16 @ 4:12 pm:
RoCky. How is that VAT working out in Europe?
- AlfondoGonz - Tuesday, Nov 22, 16 @ 4:19 pm:
#DeadMillionaireLivesMatter
- GEV - Tuesday, Nov 22, 16 @ 5:31 pm:
@Facts How much did the farm receive in federal crop subsidies?
- m - Tuesday, Nov 22, 16 @ 5:35 pm:
People constantly complain about big “corporate farms”. This is one of the biggest sources of that switch. Go make a living farming 537 acres of land. It’s not 1920 anymore.
One thing that probably needs mentioned in this is the rate. It’s like 40% after that first 537 acres. So keeping in mind that you really need to farm 800 to 1000 acres to support a family with $3 corn, that means you are giving around a quarter of your assets to the government just to keep the family farm going.
And anyone who’s ever farmed or grew up one one knows that it’s a business with incredibly high investment costs, no guaranteed income, and very slim margins most years. So you’ll be spending the next 15 to 20 years paying off the same farm your family paid for years ago, and likely paid for years ago before that, and years ago before that, etc.
Oh, and it should be mentioned, if you give someone a 1000 acre farm, you aren’t paying income taxes on it, it’s taxed the exact same way as inheritance taxes. That’s why farmers can’t just give their farms away before they die to avoid inheritance tax.
Educate yourself a little before you go condemning ideas.