Gov. Chris Christie’s budget address calls for increasing the exemption on the “death tax,” the colloquial term for the estate tax.
The estate tax calls for taxing the assets of a recently deceased person when they are transferred to a relative.
The federal estate tax rate is 35 percent per person for households that have assets totaling at least $5 million for a single person, or $10 million for a married couple. Assets lower than that amount are exempt from the federal estate tax.
However, New Jersey’s situation is different in that it is one of 22 states that imposes a state estate tax. Instead of the $5 million minimum requirement in assets for the federal estate taxes to be issued, New Jerseyans feel the pinch of the state estate tax if the assets total $675,000 or more.
According to the American Family Business Institute, based in Washington, D.C., New Jersey’s exemption is currently the second lowest in the nation. Only Ohio has a lower tax exemption, at $338,800, but the state Legislature there has introduced measures to repeal it, according to the AFBI.
The rate of the New Jersey estate tax on a particular household ranges between 0.8 and 16 percent.
In his budget address, Gov. Chris Christie called for changing the estate tax exemption from $675,000 to $1 million. Experts believe that increasing the exemption would be beneficial, putting more money back into the economy.
“By raising the exemption, Gov. Christie will decrease the number of families who are subject to the tax,” said Adam Nicholson, AFBI’s communications director.
“We generally think it’s a negative growth tax,” said Kail Padgitt, a staff economist with the Tax Foundation, a think tank based in Washington, D.C.
Prior to the presidency of George W. Bush, many states were “coupled” with the federal government. This basically meant that states would not issue their own estate taxes. The federal estate taxes were largely the norm. In return, states would receive a tax credit from the federal government, which was basically free money for the states.
While neither expert said that the estate tax is a major revenue generator for the states, it can pose a psychological impact. People may move out of the state, or they may deliberately spend their money instead of investing it to avoid being taxed.
“It creates an incentive to behave in a different way,” Padgitt said. “People don’t want the government to touch their money. We know that taxes do affect behavior.”
In 2001, the Bush tax cuts were passed as part of the Economic Growth Tax Relief and Reconciliation Act. During his presidency, the federal estate tax was gradually being phased out, causing many states to “decouple” and start imposing their own estate taxes, Padgitt said.