Momentum is growing at the Capitol to change Connecticut’s estate tax, which Republicans argue is driving the wealthiest residents out of state when they retire.
For years, critics said eliminating or reducing the so called ‘death tax’ would be an unnecessary giveaway to the rich. The tax only applies to estates worth at least $3.6 million.
The idea has moved forward in fits and starts for decades, with tax phase-outs routinely postponed through the years when the state needed more money to balance the budget.
But legislators say this year is different, as concern grows about long-time Connecticut residents moving to avoid taxes on their estates when they die.
In an unusual move, two freshmen Democratic senators from Fairfield County — Will Haskell of Westport and Alexandra Bergstein of Greenwich — are both calling for the elimination. They both defeated longtime Republican veterans in a Democratic sweep that has increased their party’s majorities in both chambers of the legislature.
Haskell, a 22-year-old Georgetown University graduate who scored a stunning upset in a district that was held by the Republicans since the 1970s, has taken liberal positions supporting paid family leave and a minimum wage of $15 per hour. But saying that he wants to avoid partisan labels, he has sponsored a bill to phase-out the estate tax.
“It’s absolutely vital that we keep retired folks and stop them from moving to states without an estate tax,” Haskell said. “I think the estate tax is an incentive to leave, and eliminating it would send a signal” to reverse the trend.
Bergstein, who represents her hometown and affluent sections of Stamford and New Canaan, has submitted one of more than 10 bills that seek to eliminate the tax. Connecticut is also the only one of the 50 states to have a gift tax, and Bergstein’s bill would eliminate that, too.
“Greenwich alone contributes more than $500 million in income tax per year to the state,” Bergstein said. “That number will decrease if we continue to impose an estate tax. We lose billions in income tax revenue that we could collect from those who move to Florida and other states. Right now, Connecticut has the reputation as ‘the worst place to die,’ but by correcting our tax structure, we would make Connecticut ‘the best place to live.’ That’s my goal.”
Public records show scrapping the tax would provide a huge windfall for the state’s wealthiest residents. The only ones who paid the tax in 2018 were those who died with estates of at least $2.6 million. That threshold increased to $3.6 million for those who die in 2019, and the figure is scheduled to increase in the future — meaning that fewer and fewer residents will pay even if no change in the law is made.
The tax affects only a small percentage of the overall population, but Republicans say that tiny group of multimillionaires pays a disproportionate share of the state income tax. That small number of taxpayers can make the difference between a balanced budget and large deficits, they said.
House majority leader Matt Ritter of Hartford said that the changes in federal and state laws have led to a decline in the amount of revenue generated from the estate tax — with the projections expected to drop from $196 million in the current fiscal year to $126 million in the 2022 fiscal year. That represents a huge drop from $439 million in the 2013 fiscal year — when a particularly large number of super-wealthy residents died.
“I know it upsets my progressive friends to even talk about it, but I would say, ‘look at the numbers,’ ” Ritter said. “In five to seven years, it will be closer to $50 million. … It’s just been going down every year because it’s so easy for an elderly family to change their address.”
Ritter favors eliminating the tax but only if the state replenishes all of the money. That could be done, he said, by raising the capital gains tax that comes mostly from the sales of stocks on Wall Street. The highest rate currently is 6.99 percent because capital gains are taxed at the same rate as wages under the state income tax.
At one point, Ritter talked about eliminating the tax in connection with raising the minimum wage, but now he says it must be replaced, dollar for dollar, within the state budget.
“It can’t be done in isolation,” Ritter said, adding that the elimination must be part of a broader deal. “I would never vote for it in isolation as a repeal. I believe very strongly in progressive taxation.”
Another Hartford Democrat, Sen. John Fonfara, said that he favors eliminating the estate tax, but only under certain circumstances.
Fonfara, who co-chairs the influential tax-writing finance committee, said wealthy residents “would be able to be exempt from the estate tax if you invest in certain funds like high-risk venture capital” that creates jobs in Connecticut. The funds would be designated by the state and established by the legislature, although Fonfara noted that the full details of a bill have not yet been written.
A special fiscal commission, headed by former business executives Robert Patricelli and James C. Smith, called last year for eliminating the levy, which Republicans call the death tax. The measure is also supported by the 10,000-member Connecticut Business and Industry Association as it impacts family-owned businesses that are passed down through the generations.
“It’s not just people in gated communities in Fairfield County,” said Joe Brennan, CBIA’s chief executive officer.
While some lawmakers are talking about elimination, the state’s probate court administrator, Paul Knierim, is warning against potential unintended consequences. Knierim, a former Republican state legislator, says the probate system would lose $17 million per year in fees if the estate tax — and its subsequent fees — are eliminated. With an annual budget of $48 million in the current year, Knierim said it is crucial to collect the fees in order to run 54 probate courts that cover the entire state.
“We couldn’t possibly survive unless that probate fee revenue is replaced,” Knierim said in an interview. “The only correct option is to replace the revenue.”
In 2016, those who died with major estates included West Hartford developer and business executive David Chase at nearly $27 million and Stamford’sLorna Wendt, who received much of her $20 million estate in a nasty, highly public, big-money divorce battle with a top executive at General Electric that generated national headlines and landed her on the cover of Fortune magazine.
House Speaker Joe Aresimowicz of Berlin said he would not rule out eliminating the tax, saying he wants to hear the arguments on the issue.
“Let’s talk about it,” Aresimowicz said. “I’m open to everything as long as we have facts, figures, and data.”
This article provided by NewsEdge.