Maryland - Gov. Ehrlich Wants Md. Estate-Tax Law to Keep Pace With U.S. Act

By DORI BERMAN
The Daily Record (Baltimore)

If you spend your life paying taxes, why should your death mean even more taxes? That question has long been asked by opponents of the estate tax, or death tax, which requires beneficiaries of people who pass away with estates larger than $1 million to pay taxes on the estate.Now, as property assessments spiral skyward, the argument against the estate tax has become more pronounced. Millionaires are no longer a rarity, and opponents of the estate tax argue it hurts small businesses and farmers who have their assets invested in their business or land.That's why Gov. Robert L. Ehrlich Jr. has included an estate-tax modernization bill in his 2006 legislative agenda.The proposal would re-couple the Maryland estate tax, which currently applies to beneficiaries of estates larger than $1 million, with the federal estate tax, which has a higher exemption. Federal legislation passed shortly after President Bush took office in 2001 changed the exemption to $2 million beginning this year, and will jump to $3.5 million in 2009. In 2010 the federal tax will be entirely repealed, but will come back into effect in 2011 unless Congress extends the measure, which many expect it to do.Following that legislation at the federal level, a number of states, including Maryland, de-coupled their estate taxes from the federal tax in order to keep the revenue flowing.The governor feels strongly that there should not be a death tax. We pay taxes during our lifetime, there should not be a death tax, said Department of Business and Economic Development Secretary Aris Melissaratos. The re-coupling measure is one of the department's top legislative priorities this year.Melissaratos views the estate tax as a critical small-business issue.Small-business people work their entire lives to create some wealth, and in some cases the sons and daughters of business owners cannot afford to keep the business, he said. Beneficiaries of small- business owners often have to sell the business in order to have enough money to pay the estate tax.Ellen Valentino, the Maryland director for the National Federation of Independent Business, said her organization has been trying to eliminate the estate tax for a number of years. While she would prefer to see the tax repealed, she said re-coupling with the federal tax would be a step in the right direction.For a family to have to liquidate a farm or business, the impact is far greater than just that family unit, Valentino said. It could hurt employees and the community as well.The Maryland Farm Bureau also will support the measure. Valerie Connelly, the organization's director of government relations, said farmers increasingly find their holdings worth more than $1 million.Most farmers are not cash rich. They've got land and they've got equipment, and that's where all the wealth is, if they've got any, Connelly said.In fiscal year 2004, 1,505 estates paid approximately $111.3 million in estate taxes in Maryland. For the following year, the number of estates paying the tax was not yet available from the comptroller's office, but the state brought in $137.5 million from estate taxes in fiscal year 2005.Some opponents of repealing the tax argue the estate tax boosts philanthropic giving, since money given to charity can be deducted from the tax. Melissaratos brushed off those concerns, saying he does not believe philanthropy in the state would decline if this measure should pass.Still, the bill could encounter some obstacles in the General Assembly.Both Speaker of the House Michael Busch, D-Anne Arundel, and Senate President Thomas V. Mike Miller Jr., D-Calvert and Prince George's, declined to take a position on the measure before public hearings take place.But Miller alluded to concerns about cutting taxes in a year when the governor has submitted a hefty state budget.The governor wants to both spend to the point of breaking the bank in terms of the operating budget, and yet at the same time he wants to cut revenue sources, Miller said, noting the governor has also proposed a property tax cut and income tax exemption for retired veterans. In politics, like balancing your budget at home, you can't have it both ways. You cut taxes or increase spending.One small-business owner argued that keeping the estate tax would actually hurt the state's revenue collection more than cutting the tax.Jeff Levin, whose family owns the restaurant and retail store Fields of Pikesville, said some residents move to other states that don't have an estate tax.This is one of the reasons that, through the years, Florida gets people to go down there, Levin said.I've seen the effects of it even before the de-coupling. I know people who have gone down there because there's no estate tax, he said.Meanwhile, Melissaratos expressed little concern about the effect re-coupling the estate tax would have on state revenue. He said the legislative staff in his department conducted an extensive analysis in house and included the revenue reduction in the department's budget.The Department of Legislative Services has not yet completed a fiscal analysis of the bill.The bill is filed in the House as HB 307 and in the Senate as SB 224.