Md. Senate Approves Raising Estate Tax Exemption

ANNAPOLIS, Md. (AP) -- The Maryland Senate on Thursday approved raising the exemption on the estate tax due to concerns that higher taxes are causing wealthy people to leave the state.

Right now, Maryland estates worth more than $1 million are taxed at a rate of up to 16 percent. That amount would rise to $1.5 million next year and $2 million in 2016 before the rate kicks in. The exemption would rise to $3 million in 2017 and $4 million in 2018 before being coupled with the federal exemption in 2019. The federal exemption, which is indexed to inflation, is projected to be $5.9 million in 2019.

The Senate voted 36-10 for the measure already approved by the House of Delegates, sending the bill to Gov. Martin O'Malley, a Democrat.

"We will, of course, conduct the customary reviews before making any final determinations, but we expect the governor to sign this bill into law," said Nina Smith, O'Malley's spokeswoman. "Having passed this measure, the governor hopes that the General Assembly will now finish the work of giving Maryland a raise, and increase our minimum wage to $10.10 an hour."

Supporters of increasing the exemption for the estate tax say the change is needed to prevent wealthy residents from leaving Maryland. A variety of Maryland taxes have been raised in recent years, including the income tax on people in higher tax brackets.

"It's just something that encourages people to stay, invest their money in our colleges, our hospitals -- be philanthropic here in the state," said Senate President Thomas V. Mike Miller, D-Calvert. He noted the string of tax increases in recent years and that Maryland is the only state in the nation that allows a local piggyback tax on the state income tax.

Sen. Ron Young, D-Frederick, spoke about a dinner he attended in December, where a wealthy Frederick resident said that he made his fortune in Maryland and had no problem paying the taxes. However, Young said 20 other wealthy people at the dinner had moved their residency to Florida to avoid the estate tax.

"And when I look at all the things they contributed to and how they paid in other ways, yeah, they went south because the weather was warm, but it's whether they live six months and a day there or six months and a day here," Young, who voted for the bill said. "And I think this will help keep some of them here, and it'll balance out in other things they pay and contribute."

But opponents questioned whether people really leave because of the estate tax. Sen. Paul Pinsky, D-Prince George's, said the bill could actually have the opposite intended effect and cause millionaires to depart, because it sends a signal that the state isn't as willing to invest in infrastructure and schools.

"So rather than spend money on pre-K, on new roads or buying wildlands, we are choosing a priority of spending on this tax reduction of up to $150 million in the sixth year," said Pinsky, who voted against the bill.

Sen. Karen Montgomery, D-Montgomery, said she was concerned about growing disparities between the wealthy and the poor.

"I'm going to be voting red on this bill, and it is because of the fact that I think that although any number of us in this room probably qualify for the higher deduction -- in fact I'm sure of it -- that it is important for us to be thinking about equality across the state, and I think this bill does not discourage people from staying," Montgomery said.

Maryland is one of two states, along with New Jersey, that has both an estate tax and an inheritance tax. The estate tax is based on the overall value of an estate, while the inheritance tax is based on who receives it. For example, in Maryland, spouses, children, parents, grandparents or siblings are not subject to the inheritance tax.

Neighboring Virginia and West Virginia do not impose any taxes on wealth transfers. Estate and inheritance taxes in New Jersey and the District of Columbia are among the highest in the nation.

(Copyright 2013 by The Associated Press. All Rights Reserved.)

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