Twelve years ago, the federal government eliminated a tax credit for inheritance and estate taxes paid to the state, and ever since, competition between states for attracting and retaining retirement wealth has been increasing.
That’s according to a new study by the National Tax Foundation entitled, “State Inheritance and Estate Taxes: Rates, Economic Implications, and the Return of Interstate Competition.”
Last year, New Jersey lawmakers approved the phase-out of the estate tax, and come Jan. 1, New Jersey will join the 37 other states that do not have one. New Jersey will still be one of the six states that has an inheritance tax, however.
The Tax Foundation report states that estate and inheritance taxes reduce investment, discourage business expansion, and sometimes drive wealthy taxpayers out of state.
That has been the experience in New Jersey. According to NJBIA’s Outmigration Report, New Jersey lost $18 billion in net adjusted gross income showed between 2004 and 2013. In 2015, another $2.4 billion in net adjusted gross income left the state, bringing the total economic impact to $20.7 billion over 11 years.
“For years, financial advisors have been telling their clients that it’s too expensive to retire or die in New Jersey and to relocate to tax-friendlier states,” NJBIA President and CEO Michele Siekerka said when the estate tax repeal passed the Legislature. “While New Jersey still has a ways to go to make living here more financially appealing, we have now taken the first important step toward comprehensive reform….”