California State Sen. Scott Wiener (D-San Francisco) recently introduced S.B. 726, a measure that would serve as a response to a recent federal proposal from the administration of President Donald Trump.
The President has been vocal in his desire to repeal the federal estate tax. As it currently stands, there is a 40 percent tax on individual estates valued at $5.49 million or more, with anything over that exemption limit subject to taxation upon the asset holder’s death. Republicans in Congress continue to work on several bills that would either completely repeal this tax or significantly raise the exemption amount.
State Sen. Wiener’s proposal would essentially do the opposite for the state of California, implementing an estate tax here that’s identical to the current federal law. However, it would only go into effect if Congress were to move forward with a repeal of the federal estate tax.
An ongoing political battle in the state
The estate tax is one of the many issues that seem to divide Democrats and Republicans these days. And although some political figures have made noise about repealing the tax over the past 20 years, few has been as adamant about it as President Trump. While the tax does not apply to most people’s estate’s Trump and others, have argued that it is unfair and results in double, or even triple, taxation.
These taxes, critics say, particularly hurt small businesses and family farms, which frequently struggle to continue operating after the original owner passes away.
Supporters of the estate tax tend to see it as a way to generate revenue for the federal government. Former President Barack Obama had proposed eliminating some loopholes to estate taxes, and as a candidate, Hillary Clinton announced plans to raise the tax to as much as 65 percent. Democrats also argue that the estate tax is a fair way to fund public services like infrastructure and education.
The prognosis of the bill
There are still plenty of challenges ahead for Weiner to overcome with his proposed bill. Even if it succeeds in both houses of the state legislature and the governor signs it, the issue would still have to go in front of voters as a ballot measure.
If this were to succeed, the estate tax revenue that used to go to the federal government would go instead to the state’s coffers, generating around $4.5 billion per year. Right now, Californians pay about 26 percent of the estate and inheritance taxes in the United States. Under this plan, the state would have significantly more money at its disposal to make necessary investments at a more local level.
On the other hand, critics say the tax would put California at a significant disadvantage when it comes to economic competition, as it already has some of the nation’s highest income tax rates. These taxes have, some claim, driven businesses into neighboring states. Some believe a statewide estate tax would only exacerbate this problem.
Estate planning attorneys in California and across the United States will be closely watching what happens in Washington, D.C. as it pertains to the estate tax. Any repeal efforts could significantly impact the estate planning process for high-net-worth individuals and families.
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