The Economist UK - 30.11.2019

1982 85 2000 05 10

0

50

100

150

200

90 95 1715

James “Bud” Walton, a founder

of Walmart, died in 1995 with a

fortune then estimated at $1bn

The next year, inheritance-tax

revenue in Arkansas quintupled

Arkansas repealed its

estate tax in 2005

In 2001 Congress ended the

federal credit for state-level

estate taxes

If Georgia added a16% estate tax,it would stand to gain $3.75bn in theory

Under current law (no estate tax)

However, around 35% of billionaires would relocate to avoid the tax, reducing the net gain to $1.38bn

$4.86bnfrom income tax

$4.86bn $3.75bn

$3.57bn $2.67bn Net gain $1.38bn

Net fiscal impact of typical estate tax†

% of GDP

-2 -1 210

HI

MN

OR

VT

ME

CT

NY

MD

MA

RI

IL

WA

PA

These states

loserevenue

by having an

estate tax

←

ME

VT

WA IL NY MA

OR

MN

CT RI

MD

DC

HI

NH

ID MT ND MI

NV WY SD IA OH PA

CA UT CO MO KY WV DE

NM KS TN NC SC

AL GA

FL

AK

IN

NE VA

OK

TX

AR

NJ

WI

AZ

LA MS

States with an estate tax*

2019

→States without estate taxes tend to lure ageing billionaires

→Despite billionaire flight, many states would profit from taxing inheritances

→But states that tax inheritances still reap windfalls from those who stay put

Sources: “Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy ”,

by Enrico Moretti and Daniel J. Wilson, Oct 2019; The Economist

*Or functionally equivalent inheritance tax †Change in net present value of billionaires’ tax

payments resulting from estate tax, based on a $5.5m exemption and 16% top rate, Nov 2019

Arkansas, estate-tax revenue, $m, 2017 prices

Changes in listed residence for Americans aged 65 and over on theForbes400 list, 2002-17

Georgia

Real net present value of future estate and income taxes paid by current billionaires, Nov 2019

California

Cumulative wealth moving

from states with estate

taxes to ones without

Moves that did not

reduce estate-tax liability

Florida

Sized by

aggregate

net worth

$10bn

$1bn

The EconomistNovember 30th 2019 85

A

mong theDemocrats seeking Ameri-

ca’s presidency, wealth taxes are a core

division between the left and centre. Ex-

perts disagree on whether plutocrats can

wriggle out of such levies, because few rich

countries use them. Data on inheritance

taxes, a close cousin, are also spotty. But a

new study by Enrico Moretti of the Univer-

sity of California, Berkeley and Daniel Wil-

son of the Federal Reserve Bank of San

Francisco suggests that at the state level,

governments can reap gains from estate

taxes, even though they are easy to avoid.

Their working paper makes use of a nat-

ural experiment. Estate taxes in America

vary by state. However, before 2001 all ul-

tra-rich Americans paid the same rate, be-

cause the federal government offset state-

level estate taxes with a dollar-for-dollar

credit. George W. Bush’s first tax law ended

this rule. That made dying in Idaho, which

has no estate tax, cheaper than in Washing-

ton state, which charges up to 20%.

The rich can only avoid federal taxes by

renouncing citizenship. However, they can

dodge state levies by moving. If they priori-

tise preserving their heirs’ fortunes, then

states that taxed inheritances after 2001

should have become bereft of billionaires.

The study supports this theory. The au-

thors did not know where the rich resided

for tax purposes. Instead, they relied on

Forbesmagazine, which estimates billion-

aires’ net worth and assigns them to specif-

ic states. Starting in 2001, people whose

listed state changed were much more likely

to switch from states that charged an estate

tax to ones that did not than the reverse.

Overall, estate-tax states lost 35% of

their listed billionaires, and 50% of those

aged over 65. If such moves reflected real

changes in tax residence, they would cost

states both estate taxes and the income tax-

es the departed would otherwise have paid.

However, the windfall from billionaires

who stay is huge. In 1996 revenue in Arkan-

sas rose by $148m after Bud Walton, a foun-

der of Walmart, died. The authors find that

of the 13 states that kept the tax, nine came

out ahead. On average, states lose 60-70%

of potential estate-tax proceeds as the rich

flee. The rest can go to schools and roads.

Estate taxes do not always raise money.

A few states tax income so heavily that an

estate tax which led the rich to move away

would cost them revenue. But Forbes’s data

imply that enough tycoons want to “age in

place” to make their heirs juicy targets. 7

A new study tries to assess whether

inheritance taxes boost net revenues

Death and taxes

Graphic detailFiscal policy