RALEIGH — State lawmakers took their first look Wednesday at a proposal to repeal North Carolina's estate tax.
Advocates for the poor say doing away with the tax would only help a small sliver of the state's wealthiest people. But conservatives, who historically oppose the "death tax" in the first place, say steps must be taken because more estates will be taxed beginning in 2013 because of a change in federal law.
The state and federal governments currently tax estates valued at more than $5 million. That amount drops to $1 million in 2013, exposing more families to the tax on relatives' assets when they are transferred upon death.
All of the estate taxes paid to the state in a graduated rate are currently allowed as a credit against the federal tax. But if North Carolina repeals its tax, then that money would go only to the federal government.
Legislative staff has estimated that the full impact of that change would amount to a loss to the state of about $170 million a year by 2014.
"I have great concerns about putting a $170 million hole in our state budget," Sen. Floyd McKissick, a Durham Democrat, said at a Revenue Laws Study Committee meeting, which heard from several speakers on the draft bill. "There's little rationale for us to repeal if the money is going to Washington."
123 North Carolinians paid the tax in 2010
Alexandra Sirota, director of the left-leaning N.C. Budget & Tax Center, told the committee that the estates of only two of every 1,000 people who died in North Carolina resulted in any tax liability in 2010 - only 123 estates in all. At the same time, she said, an unfair burden falls on low-income families, which pay $9.50 in state and local taxes on every $100 of income while the wealthiest pay $6.80.
Sirota and Brian Balfour, policy director for the free-market advocate Civitas Institute, disagreed on whether repealing the estate tax would help or hurt the state's economy in general and small businesses and farms specifically.
Balfour said it would be better for the state to make "a bold, proactive move" to repeal the tax rather than remain at the mercy of the federal government, which could rewrite its rules at any time.
Rep. John Blust, a Greensboro Republican, asked, "What is the right of the state to the fruits of that labor and investment that is greater than their heirs?"
Rep. Paul Luebke, a Durham Democrat, replied that it was the same as with any tax. He said the estate issue should be part of a broader discussion about updating the tax codes.
After the meeting, committee co-chairman Sen. Bob Rucho, a Mecklenburg County Republican, said that the estate tax might be included in a tax-reform effort legislators will take up, but not in the short session that begins in May.