While Maine Governor Janet Mills (D) recently enacted a regressive paper bag tax that will disproportionately harm low income households, it hasn’t been all bad news for Maine taxpayers this year. On Monday, June 17th the Maine House of Representatives voted down LD 420, legislation that would increase the state’s death tax by reducing the exemption level from $5.6 million to $2 million.

Governor Mills’ predecessor, Paul LePage, recognized the economic harm caused by the state death tax and also the fact that for all the damage done by the estate tax, it fails to generate significant revenue for state coffers:

“Mainers with significant liquid assets only need to change their residency to escape our oppressive estate tax,” then-Governor LePage said in 2016. “Our business owners and farmers, who have fixed assets in Maine, are the ones that retain their residency and whose families are burdened by the estate tax.”

State Estate Tax Inheritance Tax Map 2018

This rejection of a death tax hike is a particularly smart move considering Maine already ranks as the third highest state where retirees are leaving rapidly. In fact, the National Bureau of Economic Research found that states lose up to one-third of their estate taxes because people simply move to states without state level death taxes.  When wealthy residents leave, they also take their revenues with them. A Heritage Foundation study found that states with death taxes were losing out on revenue due to the amount of people fleeing the state. For example, Rhode Island’s death tax raised $341.4 million, but the state ended up losing $540 million in other taxes due to out-migration.

 Increasing the death tax would only further drive retirees from the state towards more tax-friendly states like Florida, Tennessee, and North Carolina. In addition to having much more hospitable winters, those three states boast no death tax at all.

The federal death tax rate is currently 40% for the top earners, with an exemption of up to $11.2 million, after the Tax Cuts and Jobs Act doubled the exemption, up from $5.6 million. Maine is one of only 14 states that impose a state death tax in addition to the federal estate tax. 

It wasn’t a great year for taxpayers in Maine, but the defeat of the proposed death tax hike in the Democratic-controlled Maine legislature demonstrates that even blue state lawmakers recognize the damage cause by death taxes.

Photo Credit: Julia Ess

Photo Credit: Tax Foundation