Next week, Indiana is set to become the second state to repeal its “death tax” in the last 12 months, following Ohio, which repealed its estate tax in July 2011.
The plan will repeal the inheritance tax over ten years, beginning by raising the exemption level from excluding inheritances of less than $100,000 for close relatives, to excluding inheritances of less than $250,000 for close relatives. Close relatives are defined as children and grandchildren. Spouses are already exempt.
While a $100,000 cut-off may seem generous, opponents of the death tax point out that it disproportionately affects small businesses, and Indiana — a state where many of the most prominent businesses, as well as many of the farms are family-owned — is no exception. This is because when the leader of the family dies, the state takes a percentage of the wealth when it is passed down to their successors, effectively robbing the company of valuable capital at a time of already-difficult transition.
Under the first phase of the new law, those who are not close relatives will receive an exemption for inheritances under $25,000.
Indianapolis Business News (IBN) reports, “The plan starts phasing out the death tax on estates for those who die after July 1, with the tax being eliminated in 2022.” (RELATED: Death tax showdown heads to Warren Buffett’s home state)
Today, the Associated Press reports, Indiana receives approximately 1 percent of its revenue from death tax collections, and “the state would lose about $60 million in revenue the first year and then an additional $10 million each year during the phase out.” (RELATED: Tennessee governor still hedging on death tax)
Indiana State Budget Director Adam Horst told AP that the growth the reform will bring would cover those costs.
One organization that opposes the death tax on the federal and state levels nationwide is the American Family Business Institute (AFBI) — a trade association that represents family business owners and farmers.
“The small amount of revenue Indiana now brings in from the inheritance tax comes at the expense of Indiana family businesses, farms, and jobs,” AFBI President Dick Patten told The Daily Caller. “By eliminating the inheritance tax, the state will breathe new life into local economies and create a fertile new environment for new family businesses to grow and flourish.”
The essential argument of those who favor the death tax is that not only is it an important source of government revenue, but it is a blockade against the development of an American ruling class. (RELATED: Fareed Zakaria: Americans should give half of inheritance to government)
Those who oppose the tax maintain that by taxing people large amounts of money for saving, rather than spending, the government is double-taxing, creating disincentives for responsibility and destroying family businesses that cannot protect their assets from death like their big-business competition does.