What were so many New York lawyers doing at Disney World at a recent New York State Bar Association seminar? That's easy: they were learning about Florida laws governing wills, trusts, and Medicaid so they could keep serving the growing number of their elderly clients who've moved south to escape the coldand New York State's confiscatory death taxes. Though Governor Pataki can't do anything about our frigid winters, he has proposed a welcome, long-overdue reform of New York's punitive levy on estates.
All 50 states impose a tax on estates worth more than $600,000. Thirty-two states tax these assets at rates topping out at 16 percentthe level up to which the state tax remains fully deductible from the federal inheritance tax. But not New York. Our death tax, by far the costliest in the nation, goes as high as 21 percent and applies to estates worth just over $115,000, striking sharply at the middle class. Over three years, Governor Pataki's proposal would reduce our top rate to 16 percent and raise the threshold for the tax to $600,000. This would put New York on a par with states like Florida and give it a tax advantage over economic rivals such as Pennsylvania and North Carolina.
Who will benefit? Thousands of middle-class New Yorkers, who now must pay a tax intended for the truly wealthy. And, yes, the truly wealthy, who now pay most of the tax and who are most likely to move away under the current law. New York City, which generates more than half the statewide estate-tax liability (38 percent of the total from Manhattan alone), especially stands to gain. Rich New Yorkersand New York is still the nation's wealth capitalwill no longer be tempted to take their money and run as they enter their declining years. Their wealth will stay in the city, where it contributes significantly to everyone's prosperity and benefits our great charities, which are tired of seeing their most generous donors driven elsewhere.
Five years ago, the Public Policy Institute, an Albany think tank where I work, issued the first proposal for reforming New York's estate tax. Given the political reality of the time, we recommended only limited reform. Today, thanks to Governor Pataki, the political climate in Albany is so different that full reform of the estate tax is not only on the tableit's likely to become law without serious opposition.