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Scott MacKay Commentary
Fri May 30, 2014
Scott MacKay Commentary: It's Time To Dump The Rhode Island Estate Tax
Nothing is certain in life except death and taxes. RIPR political analyst Scott MacKay says it may be time for Rhode Island to get out from under this cliché.
Once again, conservative groups and business leaders are lobbying for big changes to Rhode Island’s estate tax. Called the ``death tax’’ by opponents, this tax is levied upon Rhode Island estates of more than about $922,000.
One of the state’s top business leaders, John Hazen White Jr., the president of Cranston-based TACO industries, put it bluntly in a recent appearance on Channel 36’s Lively Experiment show. White is the third generation of his family to run the manufacturing company which employs more than 500 workers at good wages and benefits. For years he has spurned offers to move his firm to states with lower taxes and fewer regulations.
White is a proud Rhode Islander; his children work in his business. But he says that the estate tax must be wiped out or dramatically modified or he will have to move his company to another state. If he died tomorrow, White says, his family would have to sell the privately-held company to pay the estate taxes. ``I’m not willing to do that to my company,’’ says White. ``So I’m outta here.’’
Ok, so nobody likes to pay taxes. Why should the estate tax be repealed rather than some other levies that business interests consider onerous, such as the property tax or the sales tax?
As far as fairness goes, there may be no tax as fair as the estate tax. That was theory of no less a capitalist than Andrew Carnegie, the Scottish immigrant who went from steel magnate to public library philanthropist. But in our new Gilded Age, we are a long way from Carnegie’s Gospel of Wealth philosophy; nowadays the plutocrats and huge corporations hire armies of lawyers and accountants to avoid paying taxes. Or they shift operations and jobs to foreign tax havens to dodge paying their fair share.
Repealing estate taxes also goes against the grain of the American work ethic. Allowing generations of inherited wealth too often breeds layabouts: cosseted, legacies with scant drive or ambition.
And rare is that 21st Century business leader who echoes jurist Oliver Wendell Holmes dictum that ```taxes are the price we pay for civilization.’’
So why should Rhode Island get rid of the estate tax? Well, sometimes life isn’t fair, in the immortal words of John F. Kennedy. In war, JFK said, some soldiers and sailors go to the front lines, while others are stationed in San Francisco.
The sad thing about all this is that the federal government has allowed a regime where states can race to the bottom to attract the monied elderly and Our small, chilly New England state can never win such a contest.
Sometimes egalitarian notions must bow to political pragmatism. Rhode Island’s economy may be in the doldrums. Yet it is largely a myth that rich people in their prime working years are leaving the Ocean State. (Have you noticed any Mayflower vans pulling up to the surgeon's homes in Barrington?)
National data shows that Rhode Island ranks 17th among the 50 states in the percentage of millionaires who live here. By this metric we are in the middle of the pack in New England. We have fewer millionaires than Connecticut, with its Fairfield County hedge fund zillionaires, and Massachusetts, with its wealthy Boston suburbs on the North Shore and in southern New Hampshire. But we rank higher on this scale than Maine and Vermont.
Without doing an in-depth study it is impossible to know for certain whether wealthy people leave Rhode Island for states that are more estate-tax friendly. Yet this we do know: the estate tax in its current form brings little to state coffers.
The state Division of Taxation estimates this levy will harvest about $38 million in the current budget year. That’s less than 2 percent of the estimated $2.7 billion the state will collect in total taxes. Since 2010, the estate tax has never yielded more than $47 million annually.
Wealthy retirees are a good deal for the state. They don’t burden schools and have lots of disposable income to spread around in our restaurants and arts attractions.
One reasonable way to handle this issue would be to repeal this tax for a sunset period, say five years, and see what happens.
A tax that delivers little money should be consigned to the dustbin of Rhode Island history. And make Johnny White complain about something else.
Scott MacKay’s commentary can be heard every Monday on Morning Edition at 6:35 and 8:35 and on All Things Considered at 5:50. You can also follow his political analysis and reporting at our `On Politics’ blog at RIPR.org