MODEL BILLS
Fair Estate Tax Act
Summary: The Fair Estate Tax Act increases revenues by increasing tax rates on only the very wealthiest estates.
Explanation: The estate tax is traditionally the most progressive of all taxes. On the federal level, only one in 500 estates paid any estate tax in 2017. The tax only affects the richest of Americans. If public policy was decided by facts and logic, the estate tax would be wildly popular because average Americans don’t pay it. In 2001, all 50 states imposed estate taxes.
Yet, estate and inheritance taxes were subjected to a fierce attack by a swarm of lobbyists, and most states abolished them. At this point, 17 states (CT, HI, IA, IL, KY, MA, MD, ME, MN, NE, NJ, NY, OR, PA, RI, WA and VT) and the District of Columbia have an estate or inheritance tax. The state with the highest maximum estate tax rate is Washington (20 percent) followed by nine states which have a maximum rate of 16 percent. A good technical discussion of the issue is here.
Right now the richest one percent in America own over one-third of all the combined wealth in our country—stocks, bonds, businesses, real estate, cars, jewelry. The richest five percent own nearly two-thirds of all the wealth. If we are going to do anything about economic inequality in America, the estate tax is the only practical avenue for improvement.
SECTION 1. SHORT TITLE
This Act shall be called the “Fair Estate Tax Act.”
SECTION 2. PURPOSE
This law is enacted to increase tax revenues by raising estate tax rates on a tiny slice of the richest decedents’ estates.
SECTION 3. FAIR ESTATE TAX ENFORCEMENT
After section XXX, the following new section XXX shall be inserted
(A) DEFINITIONS—In this section:
1. “[State] taxable estate” means the modified federal taxable estate of the decedent, reduced, but not below zero, by the exemption amount.
2. “Exemption amount” means the applicable exclusion amount set forth in §2010(c) of the Internal Revenue Code [26 U.S.C. §2010(c)] as in effect on the date of the decedent’s death.
3. “Modified federal taxable estate of the decedent” means the federal taxable estate of the decedent calculated under the provisions of the federal estate tax laws as in effect on the date of the decedent’s death,
(a) increased by the amount of any deduction for state death taxes included in calculating the federal taxable estate under §2058 of the Internal Revenue Code [26 U.S.C. §2058], or any successor provision thereto;
(b) increased by the value of property, if any remains as of the decedent’s date of death, for which a marital deduction qualified terminable interest property election was made for the decedent’s predeceased spouse on a timely-filed [State] estate tax return, to the extent such property was not included in the federal taxable estate;
(c) decreased by the value of agricultural land, and agricultural buildings on such land, enrolled in farmland assessment or farmland preservation programs, to the extent such property was included in the federal taxable estate; and
(d) decreased by the value of any interest in property which passes or has passed from the decedent to the decedent’s surviving spouse pursuant to a written irrevocable election to treat property as marital deduction qualified terminable interest property made by the decedent’s personal representative and submitted with or on a timely-filed [State] estate tax return, regardless of whether such an election was made for such decedent for federal estate tax purposes, which shall be deemed to be an election as required by §2056(b)(7)(B)(i), (iii), and (v) of the Internal Revenue Code [26 U.S.C. §2056(7)(B)(i), (iii) and (v)], to the extent such interest was included in the federal taxable estate.
4. “Personal representative” means any executor or administrator of the decedent and, with respect to property which is included in the gross estate for federal estate tax purposes and which is not in the possession or control of the personal representative, any person in possession of such property.
5. “State,” except where the context otherwise indicates, shall mean this State or any other state of the United States or the District of Columbia.
(B) TAX RATE ON RESIDENT ESTATES
1. For the first $1,000,000 of the [State] taxable estate, the amount of tax shall be 2 percent;
2. For the second $1,000,000 of the [State] taxable estate, the amount of tax shall be 4 percent;
3. For the third $1,000,000 of the [State] taxable estate, the amount of tax shall be 6 percent;
4. For the fourth $1,000,000 of the [State] taxable estate, the amount of tax shall be 8 percent;
5. For the fifth $1,000,000 of the [State] taxable estate, the amount of tax shall be 10 percent;
6. For the sixth $1,000,000 of the [State] taxable estate, the amount of tax shall be 12 percent;
7. For the seventh $1,000,000 of the [State] taxable estate, the amount of tax shall be 14 percent;
8. For the eighth $1,000,000 of the [State] taxable estate, the amount of tax shall be 16 percent;
9. For the ninth $1,000,000 of the [State] taxable estate, the amount of tax shall be 18 percent; and
10. For the tenth $1,000,000 of the [State] taxable estate and for all assets of the [State] taxable estate above this level, the amount of tax shall be 20 percent.
(C) CREDIT FOR TAXES PAID TO ANOTHER STATE
1. Subject to subsection (2) of this section, the [State] taxable estate of every decedent who was a resident of this State at the time of death shall be allowed a credit against the estate tax otherwise due under this chapter for the aggregate amount of all estate, inheritance, legacy and succession taxes actually paid to any other state with respect to any property owned by such decedent or subject to such taxes as part of or in connection with the estate and for which a credit or deduction for such taxes paid to any other state was allowable under the federal estate tax laws in effect as of the decedent’s date of death.
2. The credit allowed under subsection (1) above for taxes paid to any other state shall be limited to that amount which does not reduce the estate tax due under this chapter to an amount less than the estate tax otherwise due under this section, by a fraction:
(a) The numerator of which is the value of that part of the decedent’s federal taxable estate consisting of real and tangible personal property located in this State plus all intangible personal property; and
(b) The denominator of which is the value of the decedent’s federal taxable estate, excluding real and tangible personal property not located in any state.
(D) TAX ON TRANSFERS OF NONRESIDENT ESTATES
1. A tax is imposed upon the transfer of the estate of every decedent who, at the time of death, was a nonresident of this State and owned real or tangible personal property situated in this State which was taxable under the provisions of Chapter 11 of the Internal Revenue Code [26 U.S.C. Chapter 11] as it was in effect on the decedent’s date of death.
2. The amount of the tax shall be computed in the same manner as provided in section (B) of this section, the result of which is then multiplied by a fraction:
(a)The numerator of which is the value of that part of the decedent’s federal taxable estate consisting of real and tangible personal property located in this State, and
(b)The denominator of which is the value of the decedent’s federal taxable estate, excluding real and tangible personal property not located in any state.
(E) TAX RETURNS
1. The personal representative shall have a duty to file an estate tax return with this State in all cases when a representative for the estate of a resident decedent, or a representative for the estate of a nonresident decedent having real or tangible personal property located in this State which is included in the value of the decedent’s [State] taxable estate, is required to file a federal estate tax return under the provisions of the Internal Revenue Code in effect as of the decedent’s date of death.
SECTION 4. EFFECTIVE DATE
This law shall become effective on July 1, 20XX.