Repeal PA Inheritance Tax?

The Pittsburgh Post-Gazette published an article on November 14, 2006, by Tracie Mauriello of its Harrisburg Bureau, found online here, entitled "House votes to remove inheritance property tax". What are the prospects for repeal of the Pennsylvania Inheritance Tax?

The article reported the passage of a bill by the PA House of Representatives on Monday evening, November 13, 2006, as follows: "In a 163-29 vote, House members agreed to phase out the tax over four years. The legislation now heads to the Senate."

The particular bill is House Bill 906, Printer's No. 4917, found here. Its history during the 2005-2006 Legislative Session is found here.

The article reports the reaction of opponents to the bill:

Opponents say the measure is irresponsible because it includes no provision to make up for lost tax revenue, which would amount to about $635 million annually when the phase-out is complete in 2010.

"The Republicans want to cut something without having the money to pay for it," said Minority Leader Bill DeWeese.

"This just doesn't make good sense, especially when my honorable colleagues on the Republican side want to cap state spending. ... You can't have it both ways."

Repeal of the PA Inheritance Tax was raised during the recent campaigns for election as Pennsylvania Governor. Republican challenger Lynn Swann lost to Democratic Governor Edward G. Rendell in the election held November 7, 2006.

One of Swann's advocated positions was repeal of the PA Inheritance Tax, which I described in a prior posting entitled "Gubinatorial Candidate Swann vs. PA Inheritance Tax". Governor Rendell remained quiet in his response, as indicated in my prior posting.

The PPG article notes the position of the advocates of the current bill, which clearly echoes the arguments previously made by Candidate Swann: "Supporters of the phase-out plan have said that lower taxes would stimulate the economy and help keep family businesses in operation."

On the other hand, the responsive comments made by the Minority Leader in opposition to the bill reflect Governor Rendell's previous consistent position on the reduction or abolition of any state tax, including the inheritance tax.

For example, in November, 2004, the Governor vetoed legislation passed by both the PA House & Senate that would have increased the amounts of certain permitted deductions or exemptions from PA Inheritance Tax.

In his veto message, found here, Governor Rendell explained his refusal to sign the bill presented for his signature into law:

I am returning herewith, without my approval, Senate Bill 304, Printer’s Number 1983, entitled “An Act amending Title 20 (Decedents, Estates and Fiduciaries) of the Pennsylvania Consolidated Statutes, providing for payments to family and funeral directors, for allowable family exemption and for classification and order of payment of claims against the estate of a decedent.” * * *

My opposition to Senate Bill 304, however, is with the language added to this bill, which provides increases in the family exemption and expansion of the categories as to who is eligible to receive these exemptions, and the funeral expense provisions. These provisions result in significant revenue losses that could expand in the future. The General Fund cannot absorb this magnitude of loss in isolation – either other revenue sources or reductions in service must be identified to offset these losses.

Provisions in Senate Bill 304 to increase the family exemption from $3,500 to $5,000 and permit persons not residing in the decedent’s residence to receive monies is projected to result in a decrease in anticipated Inheritance Tax revenues of $2.5 million for the remainder of fiscal year 2004-05 and $5 million annually thereafter.

This is based on the current number of estates claiming the family exemption, 9,000, increasing to 30,000 with the elimination of the “residing in the same household” standard. In addition, there will be some revenue loss to the Department of Public Welfare in its estate recovery program. Estimates range from $500,000 to $ 5 million in anticipated Medical Assistance services monies annually that will not be recouped from the estates with the enactment of Senate Bill 304.

All told, the potential total impact to the General Fund could be a loss of as much as $10 million annually. * * *

His veto message concluded with a statement of policy and political intention that likely will seal the fate of the current legislation approved by the House on Monday evening, regardless of its disposition in the Senate:

Though the aim of this legislation is laudable, it has not been coupled with any proposals as to how the Commonwealth would compensate for as much as $10 million in lost revenue – no plans to increase other revenues and no specific, delineated proposed spending cuts.

As a result, I have no choice but to withhold my signature from this bill. As long as I am Governor, I intend to enforce a “pay as you go” budget process for Pennsylvania. There will be no significant increases in spending or reductions in revenue without a specific plan to pay for them.

For the reasons set forth above, I must withhold my signature from Senate Bill 304, Printer’s Number 1983.

The adoption by the House of H.B. 906 was not accomplished in the setting of a budget presentation or debate, and none is underway in the Senate.

Governor Rendell would still be waiting with his question: "Where's the money?"

So, if I were a betting man, and if I only held H.B. 906 in my hand, I believe that I would fold.

Update: 01/18/08:

The political poker game just reassembled, and repeal of Pennsylvania death taxes -- both the "Inheritance Tax" and the "Estate Tax" -- is on the table. See: PA EE&F Law Blog posting "House Passes Bill Abolishing PA Death Taxes" (01/18/08).