House Passes Bill Abolishing PA Death Taxes
On January 17, 2007, the Morning Call (Allentown, PA) published an article entitled "Pennsylvania House debates dozens of tax cuts", by Mark Scolforo, of the Associated Press, which included references to abolition of the Pennsylvania Inheritance Tax (PIT).
A state House debate on lowering property taxes turned into a multibillion-dollar tax-cutting party on Wednesday, as the chamber gave preliminary approval to breaks on everything from cell phones and business profits to inheritances and pet adoptions.
None of the measures passed out of the House, because the votes were for amendments to an underlying bill that could come up for final consideration today [January 17, 2008].
Unbridled from a pay-as-you-go rule that is part of the budget process, the House stampeded through one tax break after another, as members paid little heed to warnings about the enormous hole they were potentially blowing in the budget.
"I see a lot of passion for what the state might lose in all these taxes that aren't collected," said Rep. Scott Perry, R-York, during debate on eliminating the state inheritance tax at a cost of $420 million in the first two years. * * *
The House Bill underlying this debate is House Bill 377, now in Printers No. 3094. A version in PDF format (34 pages) is available here.
Collections from the PIT are substantial. See: PA EE&F Law Blog posting "PA Inh Tax Div Chief Murphy Retired" (12/04/07).
The key provision of HB 377 that would eliminate the PIT is set forth in Section 15:
SECTION 2106. IMPOSITION OF TAX.--Under Section 16 of HB 377, the proposed elimination of the PIT would be gradual, with interim reductions in the current tax rates until 2012:
A) AN INHERITANCE TAX FOR THE USE OF THE COMMONWEALTH IS IMPOSED UPON EVERY TRANSFER SUBJECT TO TAX UNDER THIS ARTICLE AT THE RATES SPECIFIED IN SECTION 2116.
(B) THIS SECTION SHALL NOT APPLY TO THE ESTATES OF DECEDENTS DYING ON OR AFTER JANUARY 1, 2012.
For transfers to lineal descendants, currently taxed at 4.5%, a decedent's estate would be taxed, based on the year of death, as follows:
- Before or during 2009 -- 4.5%
- During 2010 -- 2.0%
- During or after 2011 -- 0%
- Before or during 2008 -- 9.0%
- During 2009 -- 6.0%
- During 2010 -- 4.5%
- During 2011 -- 2.0%
- During or after 2012 -- 0%
For transfers to other persons, currently taxed at 15%, a decedent's estate would be taxed, based on the year of death, as follows:
- Before or during 2008 -- 10.0%
- During 2009 -- 7.0%
- During 2010 -- 4.5%
- During 2011 -- 2.0%
- During or after 2012 -- 0%
The [Pennsylvania] estate tax is a “pick-up” tax imposed to absorb the maximum amount of credit allowed by federal estate tax law toward state death taxes.HB 377, by way of its Section 17, would also abolish the PET:
For residents, the estate tax represents the difference between the Pennsylvania inheritance tax plus death taxes paid to other states and the maximum federal credit for state taxes allowed by federal estate tax law. * * *
Will such proposed repeals of the Pennsylvania Inheritance Tax, and its younger sibling, the Pennsylvania Estate Tax, be realized?SECTION 2117. ESTATE TAX.--* * *THIS SECTION SHALL NOT APPLY TO THE ESTATES OF DECEDENTS DYING ON OR AFTER JANUARY 1, 2012.
Remember, Pennsylvania was the first state to legislate a death tax -- in 1826. The Commonwealth has enforced a death tax continuously since then.
Remember, too, the position of Governor Edward Rendell, applied consistently, even before his re-election to a second term: Any changes in state taxes must be revenue neutral.
In a veto message rejecting a proposed minor increase in the "Family Exemption" deducted in calculation of the PIT, which had been adopted by both the House and the Senate, Governor Rendell stated:
As long as I am Governor, I intend to enforce a “pay as you go” budget process for Pennsylvania.See: PA EE&F Law Blog posting "Repeal PA Inheritance Tax?" (11/17/06).
There will be no significant increases in spending or reductions in revenue without a specific plan to pay for them.
The House members who adopted HB 377 likely know this, but . . . hey . . . this is politics.
That appreciation would explain one quote in the article:
Minority Leader Sam Smith, R-Jefferson, said the amount of tax cuts voted on was ''probably not realistic'' but sent an important message to Democratic Gov. Ed Rendell about the mood in the House as budget negotiations approach. * * *In those negotiations to come, Pennsylvania death taxes will be on the table.
Update: 01/19/08:
An article appeared in the Carlisle (PA) Sentinel on January 18, 2008, entitled "House OKs phasing out estate tax", by Andrea Ciccocioppo, which noted that "[a]n initiative to phase out the inheritance and estate tax is one step closer to fruition."
The state House has approved an amendment proposed by Rep. Scott Perry (R-92nd district) that would phase out the inheritance and estate tax by 2012. * * *
In fiscal year 2007-08, the Department of Revenue has projected the state will collect $801.9 million from this tax.
Perry’s measure, which was attached to House Bill 377, a state tax reform measure, was approved by a vote of 173-23. House Bill 377 passed by a vote of 191-0 and was sent to the Senate for consideration.
"The reduction in revenue will make it tough on those of us drawing up the state budget but that is what we were elected to do -- make tough decisions,” Perry said.
“Perhaps if people can keep more of their money, they won’t have to avail themselves of government programs.”
Perry’s amendment could aid state farmers and could help to preserve farmland.
“Farms tend to be cash poor. Many farmers in Pennsylvania face the prospect of selling off a portion of their farm just to pay federal and state inheritance taxes. The land often goes to development rather than to other farmers,” said Pennsylvania Farm Bureau President Carl T. Shaffer. “ * * *
Repealing the inheritance tax has been a long-time Farm Bureau priority. “The elimination of the inheritance tax would especially help our next generation of farmers,” Shaffer said.
