Increasing the estate tax would hurt family farms and businesses, drive wealth and investment out of Illinois. Most states are ending their ‘death taxes.’
Many states have moved away from taxing assets after people die because of the harm to family businesses and farms, but a new proposal before state lawmakers would double Illinois’ estate tax.
House Bill 3920 would hike the existing state tax on estates of over $4 million to 9.95% from 4.95%. Unlike neighboring Wisconsin, Michigan, Indiana and Missouri, Illinois is one of just a dozen states that still have an estate or inheritance tax. Tax Foundation analyst Katherine Loughead noted, “The top marginal estate tax rate under this proposal would become the highest in the country at 21%.”
While the bill’s sponsors intend the extra revenues to be used to support Illinoisans with disabilities, hiking the estate tax would squeeze family farmers, reduce the accumulation of productive assets, encourage spendthrift behavior, fuel tax avoidance and evasion, and drive wealth to other states.
When someone dies, the federal government taxes the estate by up to 40%. Then Illinois piles onto that with more taxes of up to 16%.
The Tax Foundation notes the harm of estate taxes: “They disincentivize business investment and can drive high-net-worth individuals out of state. They also yield estate planning and tax avoidance strategies that are inefficient, not only for affected taxpayers, but for the economy at large. The handful of states that still impose them should consider eliminating them or at least conforming to federal exemption levels.”
Research shows higher estate tax rates increase efforts to avoid those taxes and reduce wealth accumulation. People employ more complex estate planning techniques that carry economic costs.
Read more from Illinois Policy here.
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