Taxed Unto Death

 

In the ongoing debate over taxation in Vermont, those who believe that we tax too aggressively argue that high taxes drive people of means from this state.  They leave for Florida, perhaps, where there is no state income tax and no estate tax.
    Supporters of Vermont’s tax policies counter by saying that there is no empirical evidence to back this claim.  So far as we can tell, they are right.  And maybe an individual’s behavior is not overly influenced by taxation.  Maybe the house painter who quotes you two prices – the lower one for cash payment – really isn’t trying to get out of paying taxes.  He just doesn’t like banks.
    Anyway … since the issue comes up frequently, we thought it would be interesting to talk to an expert who knows – and works with – people who have enough money to worry about estate taxes and capital gains exemptions.  So we asked a Vermont investment guru how his clients have reacted to changes – and proposed changes – in our tax laws.      We present our questions, and his answers, in the form of the following dialogue:

VT: The Vermont legislature has voted to set the estate tax exemption at $2 million where most states have gone with the federal number of $3.5 million.  Does this really influence someone’s decision about where to live?

IG (Investment Guru):  High net-worth people spend a lot of time and energy on estate planning.  They don’t do it as a substitute for crossword puzzles.  Maybe you can’t take it with you, but that doesn’t mean you can’t try to have some say in what happens to it after you’re gone. 

So of course people with money pay attention to changes in estate tax laws.  In fact, they may react more dramatically to this estate tax exemption business than they would to a change in the income tax rate.

VT: Why?

IG: Well, because we are talking about more money, for one thing.  Another little half-percentage point on the income tax … that’s annoying.  But the other thing is real money.  Besides, there is a fairness issue.  People resent having to pay taxes on an estate that is made up of money that they earned and have already paid taxes on.

VT:  What about the state?  Does it stand to take in a lot through estate taxes?

IG: Depends on who dies.  The richer the departed, the better for the state.  Obviously.  There was one year when the state of Vermont balanced its budget on tax of a single estate.  The deceased, in that case, was Vermont’s very own stimulus package. 

Right now, the people writing the legislation say it will account for an additional $3 million in revenue.  They always overestimate the upside and lowball the downside, but say that’s just about right.  You could wipe out that $3 million if you chased a  few of the right people out of the state.

VT: So Vermont is being penny-wise and pound-foolish with this estate tax legislation?

IG: Precisely.  And when someone with high net-worth leaves, we don’t just miss out on the take from his estate.  That person might be in good health and live a long life.  During those years, Vermont will not be collecting income tax or capital gains … which the legislature also wants to change to the state’s advantage.

And there are the things we don’t discuss.  If those people are in Florida for the winter – conscientiously spending 181 days away from Vermont – then where are they doing their Christmas shopping? 

And, think about what happens to the charities and various non-profits that depend on contributions.  When you aren’t here full-time, you tend to feel less invested in the community and not so concerned about its needs.

VT: So we lose estate taxes, income taxes, sales taxes, and charitable donations?  Anything else?

IG:  What’s left? 

VT: And you have clients who are leaving?  In reaction to Vermont’s taxes?

IG:  Some leaving.  A number who have already left.  And plenty, like me, who are thinking about it.

VT:  Seriously thinking about it?

IG: Yes.  If the legislature keeps the state exemption at $2 million, rather than mirroring the $3.5 federal number.  Enough is enough.

Comments

[Brattleboro landlord]

Over the weekend a friend told me he and his wife were moving from Brattleboro to New Hampshire. Says the move will save him $5,000 a year.

[Dennis Lukas]

While moving my things back to New York, I have lived in what used to be Vermont for ten years, I was overwhelmed by the construction and development in Mass.,CT,NH and N.Y.Even in so called hard times.
Then you come to Vermont, Zero building, just run down homes and businesses.Which for all you environmentalists, is a blight on beautiful Vermont as everywere you look people dump and pile crap on their property because the cost of taking it to a town dump is to high.As a Vermonter said some places are a sea of sh-t.So Vermonters are over taxed, and let their homes get run down because they can not afford to fix them, do to lack of decent paying jobs or they refuse to fix them because they know the moment they do they will be taxed beyond their means.People with children and any sense are leaving,there are 49 other states in the U.S. each of which has beautiful areas in which to live.Vermont's only appeal to the average person is to those that wish to live in poverty and be supported by the state.Even the rich that own vacation homes will start to think twice about coming to Vermont.I will miss the mountains but I will not miss the poverty.Vermont is truly living up to being the Appalachia of New England.