CALmatters: If feds dump the estate tax, California may get one of its own

April 12, 2017

By Ben Christopher

As President Trump and Congressional Republicans plan to reconfigure the federal tax code, the estate tax—defended by liberals as a vital check on inequality and reviled by conservatives as fiscal punishment dealt to the recently deceased—may not be long for this world.

But if the controversial tax should meet its untimely end this year, Democratic state Sen. Scott Wiener of San Francisco wants California to introduce an estate tax of its own.

Senate Bill 726 would place a measure on next year’s California ballot asking voters whether the state should be allowed to place a tax on property transferred “by reason of death.” State and local governments are currently barred from doing so, thanks to a proposition passed by voters in 1982.

The Senate Governance and Finance Committee will take their first look at the issue later this month. The federal estate tax currently generates more than $4 billion from California each year. If the state introduces its own version, those funds would go to Sacramento rather than D.C.

The political battle over the estate tax long predates the Trump presidency. For decades, conservatives have railed against the “death tax,” and plans separately introduced by both House Republicans and President Trump call for the full elimination of the estate tax.

“No family will have to pay the death tax,” Trump told the Detroit Economic Club last August. “American workers have paid taxes their whole lives and they should not be taxed again in death.”

In fact, most workers do not. Because the tax is only applied to the value of an estate that exceeds $5.45 million, only 0.02 percent of property owners end up paying the IRS for the luxury of dying—although of course it’s their heirs who actually forego some of their inheritance. And for all the political controversy it arouses, the tax isn’t a particularly important source of federal funding, generating approximately $20 billion every year, or roughly half of one percent of all federal revenue.

If SB 726 passes and voters approve the measure, California would not be alone in applying its own tax to inherited wealth. Currently, 19 other states impose some form of estate or inheritance tax. But Wiener is presenting the tax as a direct response to the Trump administration and vows to withdraw the measure if the federal estate tax is left untouched.

Read the article on the CALmatters website