GPSolo Magazine - September 2006

Tax Law
Defying Expectations: Assessing the Surprising Resilience of State Death Taxes

Since the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), more than a dozen states have acted to decouple their death taxes from the federal estate tax regime, at least temporarily. About a dozen other states continue to levy state death taxes as a result of legislative inaction. This article investigates why these states have done so.

The role of budgetary factors. For many states, the period following the enactment of EGTRRA has constituted a budget crisis. By the end of FY 2002, 49 states were in the red. It appears that some of the states with the largest budget deficits were also the states to decouple from EGTRRA. It might also be anticipated that states with the highest overall per capita tax burdens prior to the recent fiscal downturn would be most likely to preserve their death tax revenues. The data support this hypothesized relationship.

This analysis offers strong evidence that any credible explanation of states’ actions during the past several years must take account of state budgetary conditions. Faced with significant financial distress, it appears that many states felt compelled to consider every revenue option available, including decoupling their death taxes. While this story gives deficits a central role, they are not sufficient to explain states’ policy decisions. Given that states presumably have a variety of revenue-raising options, other factors may help to explain the specific decision to protect death tax revenue.

The role of socioeconomic characteristics. Once state officials have acknowledged the need to address their budget shortfalls through either tax increases or spending reductions, one might anticipate that certain social and economic attributes would affect the likelihood that a state turns to the estate tax in particular. States with an unusually high percentage of senior citizens, for example, may be more averse to death taxation than states with younger populations. After all, if interstate competition is an important consideration in state death tax policy-making, states with many retirees should have incentives to minimize their death tax burdens in an effort to prevent seniors from relocating to lower tax jurisdictions. The data, however, do not support this hypothesis. In fact, the states that have moved to protect their death tax revenue have, on average, a slightly higher percentage of senior citizens than the nation as a whole.

Death tax exposure may be estimated in a variety of ways, three of which are tested here. An obvious option is to look at the percentage of a state’s estates that claimed the state death tax credit in a recent year. That statistic, however, does not fully capture the number of people who may be concerned about and wish to minimize future death tax liability. A second option is to look at the percentage of individuals within a state with net wealth greater than $1 million. A third approach is to look at median residential property values. In states with expensive real estate, decedents with few other assets may incur estate tax liability simply by virtue of being homeowners. Furthermore, because real property owners often find it more inconvenient to pay death taxes than those who hold a more liquid portfolio, real estate owners may be especially averse to death taxation.

Interestingly, the data hint at the opposite conclusion. All three variables are higher on average for the states that have acted to preserve their death tax revenue than for the nation as a whole. Only one of these relationships, however, meets the test of statistical significance. For every one-point rise in the percentage of estates claiming the credit in 1999, the likelihood that a state has acted to safeguard its death tax revenue nearly triples. One possible explanation for this relationship is that decoupling is a more lucrative and thus more attractive revenue option for wealthier states than it is for poorer states. Another possibility is that residents of wealthier states are, as a general rule, simply not as tax-averse as residents of poorer states. Such attitudes could be reflected in states’ political configurations, which are considered below.

The role of political affiliation. While the estate tax may not have been a make-or-break issue for many American voters, it does seem likely that voters’ opinions on the tax reflected their broader ideological leanings, which in turn shaped their choice of candidate. Thus, Gore/Kerry voters would be expected to have more sympathy for the estate tax than would Bush voters. If this is the case, states won by Gore in 2000 should have a political climate more conducive to death tax preservation than states won by Bush. A glance at the data lends credence to this view. With only three exceptions, every state that has acted to maintain its death tax voted for Gore. Gore states were 16 times more likely to adopt pro-death tax policies than Bush states.

Given the strong connection between voters’ presidential preferences and death tax preservation, one could posit a similar relationship between the party affiliation of elected state officials and the likelihood that a state has acted to protect its death tax revenue. Under this hypothesis, states with Democratic governors or legislatures would be more likely to decouple than states with Republican governors or legislatures. However, the combination of a highly significant relationship between presidential vote and state actions and no statistically significant relationship between state party control and state actions is a rather surprising result. Voters’ presidential preferences apparently bear a closer relationship to state death tax policy choices than do the party affiliations of state officials. Relatively liberal Gore/Kerry states have been far more likely to pursue death tax preservation than relatively conservative Bush states, regardless of which party controls the state government.

Quantitative conclusions. The foregoing analysis has demonstrated that the likelihood a state has acted to protect its death tax revenue appears to be linked to high budget deficits, high levels of state taxation per capita, a high percentage of estates claiming the death tax credit, and support for Gore in the 2000 election.


Robert Yablon received his J.D. from Yale Law School in 2006. He was awarded the 2004 Tannenwald Writing Competition Award for this article. He can be reached at

For More Information about the Section of Taxation

- This article is an abridged and edited version of one that originally appeared on page 241 of The Tax Lawyer, Fall 2005 (59:1).

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