Dead millionaires among Speaker Mattiello’s top priorities

The priorities, said Speaker of the House Nicholas Mattiello, are raising the minimum wage, eliminating the double tax on leased cars, increasing the level of income that would be exempted for retirees on state income tax, doubling down on public education and expanding the estate tax exemption to be regionally competitive. Let’s take a look at that last one.

Nicholas Mattiello
Nicholas Mattiello

The last time the General Assembly messed with the estate tax (aka the inheritance tax), during the 2014 session, they did two things: They raised the exemption, and they got rid of the “fiscal cliff.”

Before 2015, if you inherited $930,000 or less, you paid no estate taxes. (Though in truth, with a halfway decent estate planner, you could actually have inherited at least twice that amount and pay no estate taxes since much inheritable income can be sheltered from taxation. But let’s put that aside for now.) If you were unfortunate enough to inherit $1 more than $930,000 before 2015, then you would be forced to pay an estate tax on all the money you inherited. That’s the fiscal cliff.

2017-01-06-ri-small-business-economic-summit-33-nicholas-mattielloHad the General Assembly merely eliminated the fiscal cliff, then no one would pay estate taxes on the first $930,000 of their inherited money. They’d pay taxes only on the money over that amount. If you inherited a million dollars, you’d pay estate taxes on $70,000.

But the General Assembly didn’t stop at eliminating the fiscal cliff. They also raised the amount of money that could not be taxed to $1.5 million. So now you only pay taxes on whatever money you inherit over $1.5 million. This year, Mattiello wants to raise that number again, to be “regionally competitive” and the number that’s being thrown around is $2 million.

It’s important to realize that the estate tax is literally a tax on dead millionaires. The person being taxed has no further stake in their estate. They are dead, and money is presumably meaningless to them unless they are trying to get into Christian Heaven, where Jesus will tell them they can’t. (Matthew 19:24)

What people opposed to the estate tax like to do is pretend that the tax is being imposed on the inheritors. It’s not. Inherited wealth is unearned wealth. It is money not worked for, a windfall given not to the deserving, but to those fortunate enough to find themselves related to the rich and the dead. Note too, that many of those inheriting wealth may not live in Rhode Island. Relatives in Nebraska inheriting the wealth of a dead Rhode islander take that money out of our state.

Taco Inc‘s John Hazen White Jr, a man who supported Speaker Mattiello’s election campaign so much he doubled the legal limits on contributions, made a comment back in October about the estate tax.

“People like me can’t afford to die in RI,” said Hazen White- an epically arrogant statement.

cant-afford-to-die
Looking back at the April 10, 2014 House Committee on Finance video, (back when House Finance was run by Ray Gallison) we can get a clear idea of not only why the estate tax was changed, but how we can expect the estate tax to be handled in the coming legislative session.

Two bills were introduced. One by Representative Robert Craven (D32 North Kingstown) and one by Representative Deborah Ruggiero (D74 Jamestown Middletown).  Both bills eliminated the fiscal cliff. Craven’s bill raised the exception to $2 million, Ruggiero’s to $1.5 million. Craven noted that reforming the estate tax was a top priority of the Providence Chamber of Commerce, saying his bill was endorsed by executive director Laurie White.

Craven said that estate planners in Rhode Island were telling their clients to leave Rhode island. Top estate tax lawyers were telling Craven that reform would have an enormous impact.” If rich people stay in the state, instead of running off to avoid paying taxes, said Craven, they will engage in “taxable conduct” that may exceed the taxes lost through changes in the estate tax law.

Deborah Ruggiero, anticipating Hazen White, said, “Rhode Island is a horrible place to die.” More accurately, Rhode Island is a less ideal place for your rich parents to die, because you’ll inherit slightly less money.

In 2013, said Ruggiero, 4262 people died. 208 people paid estate taxes. The state took in $31 million. Ruggiero estimated changing the estate tax would lose the state between $17 and $23 million a year.

That money, said Ruggiero, would be better off going to the heirs of the rich dead people, (people who might not live in Rhode Island, remember). Ruggiero suggests that these heirs would possibly exercise their “philanthropic discretion” to fund Rhode Island arts and charities.

Note the extremes that Craven and Ruggiero use to justify what is essentially a giveaway to the heirs of dead millionaires. Neither can point to any real advantage to cutting the estate tax, other than to speculate without facts about possible ways we might see some slight economic stimulus. Craven said, “Even in tough times we have to make a commitment and recognize that [the estate tax] is a problem which is not just associated with the perception that some could have, that it’s just rich people that are being taken care of.”

Nope, it’s rich dead people, and that’s it.

Ruggiero noted that “It’s not too hard to get to a number of $930,00 in the scheme of one’s lifetime.” She neglected to point out that her own figures, from 2013, show that less than five percent of dead Rhode Islanders do leave behind an estate of $930,000. Even less leave behind estates of $2 million.

If ever a tax break served the one percent, this is it.

Representative Patricia Morgan (D26 West Warwick, Coventry, Warwick) was positively giddy with the idea of gutting the estate tax. As a Republican, she should have been the one leading the charge on this, and in fact, she did have a bill in the pipeline, but the Craven and Ruggiero bills were better than hers.

“When they [rich people] go [leave the state] they take their sales tax with them, their property tax with them. They’re taking  their economic activity out of the state,” said Morgan, “You can’t quantify economic activity.”

There’s a term for the economic theory that cutting taxes on the rich leads to greater economic activity. It’s called “trickle-down” or “supply-side” economics and it has been widely debunked, mostly because, as opposed to what Morgan thinks, you can quantify economic activity. That’s kind of the point of economics.

Even calculating all the “taxable conduct” and “philanthropic discretion” untaxed millionaires engage in is only difficult, not impossible.

Of all people to get it, conservative Representative Jan Malik (who recently lost his seat to Jason Knight (D67 Barrington, Warren)) understood. He called Craven and Ruggiero’s bills “good for the dead.” His own bill, that would go lower the state’s sales tax, he called, “good for the living.”

Three people testified in favor of the bills that night. Bill Felkner, representing a website called RIEstateTax.com (which, now that its usefulness has passed, no longer exists, it seems) that presented some pretty suspect numbers to support reforming the estate tax. He quoted a poll taken of 160 Rhode Island financial planners. Not surprisingly, financial planners thought the estate tax needed to be reformed. It was a little like polling children about bedtime: Most kids want to stay up late.

R. Kelly Sheridan was representing the Greater Providence Chamber of Commerce. We had already heard from Representative Craven that the  Chamber wanted reform. Sheridan called the estate tax unfair and said that it was a relatively inexpensive reform.

The last speaker to talk in favor was Bill Vernon, representing the National Federation of Small Businesses. He said that the estate tax was inherently inequitable.

They didn’t need to testify. The fix was in. Speaker Mattiello had made gutting the estate tax and organizing a big giveaway to the richest Rhode islanders a top priority then as he has now. The two bills were held for further study and never voted on. Instead, the estate tax reforms in Representative Ruggiero’s bill were incorporated into the 2015 budget. This was in keeping with Ruggiero’s wishes. “It should be part of the budget,” she said, “Not a bill.”

Putting it into the budget means that there is no way for the general public to object. The budget is voted on as a single document. Once finalized it is very difficult to make changes. Every Representative opposes parts of the budget, but they vote for it as a whole because they all get something they want.

When the House gets around to further “reforming” the estate tax this session, we will be lucky if there’s even a bill to be discussed in House Finance. Most likely, a few words will be added to the budget raising the exemption to $2 million, or $3 million or even $5 million, like the federal tax. (Note that with a Republican controlled federal government and a President Donald Trump, the estate tax may be eliminated all together federally.)

Only one person spoke against the bills of Craven and Ruggiero. Kate Brewster, from the Economic Progress Institute, said, “The estate tax is one of the most progressive taxes in what is otherwise a most regressive state and local tax structure. It serves as an important backstop to the capital gains tax for assets that have not been realized upon a person’s death.”

Noting that Rhode Island is one of the “top ten states with the largest taxes on the poor,” Brewster added that “only a handful of Rhode Islanders would benefit” from estate tax reform and asked that the House consider increasing the Earned Income Tax Credit (EITC), something that would help tens of thousands of the poorest Rhode Islanders.

Further reform of the estate tax in Rhode Island serves no one but the richest  dead Rhode Islanders. It’s a giveaway from Mattiello to his top moneyed supporters, people like Hazen White Jr, who can’t keep track of how many thousands of dollars they give their preferred candidates.

At this year’s Rhode Island Small Business Economic Summit the subject of the estate tax was brought up again, and Mattiello promised to address it. This must not happen the way Mattiello wants.

What Rhode Island needs is a higher estate tax. One that closes the loopholes people use to shelter their fortunes. At the very least we need to return the estate tax to its pre-2015 rate and bring back the fiscal cliff. The $30 million dollars could easily pay for the no-fare bus pass program and have money left over to increase the EITC without hitting state revenues.

Rhode Island’s economy thrives when it protects workers and helps people to leave poverty. That is where our priorities should be.

Here’s all the video from 2014:

2017-01-06-ri-small-business-economic-summit-08-nicholas-mattiello

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Dead millionaires among Speaker Mattiello's top priorities, 10.0 out of 10 based on 2 ratings

2 Comments

  1. “Ruggiero estimated changing the estate tax would lose the state between $17 and $23 million a year.”

    When one starts adding up these millions here and millions there, one soon starts to talk about real money.

    For the life of me, I understand why the pols don’t give David Norton’s One State, One Tax policy a chance. I agree that Governor Raimondo’s proposal is regressive but it makes me cynical that none of the so called transportation activists get worked up about giveaways like this, of which there are so many.

    The Rhode Island Foundation has entry after entry on Google, advertising their estate planning services:

    “Through these collaborative efforts, clients and their advisors can be confident that the Rhode Island Foundation will steward their charitable legacy for generations to come.”

    Their Professional Advisory Council chair even has something called the “Dynasty Trust”:

    “. . . . assisted a client with respect to leveraged gifts of his business interests. With the use of two successful Grantor Retained Annuity Trusts, the client was able to transfer over $4.3 million to a long-term trust for the benefit of his descendants at a cost of only $2 of his lifetime gift tax exemption. . . .

    Dynasties for the wealthy and legally well represented. Use taxes and driving penalties for the rest of us . . . one way or another, they’re gonna getcha, getcha, getcha, so it’s you who ends up paying their bills.

    Alan Hassenfeld moved, didn’t he? And we’re to believe it is progressives he bankrolls. Why do I have so much trouble believing that?

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  2. RI Future gives the RI Small Business Economic Summit much too much play for the impact it has, which is next to nothing. The Summit committee agendas and committee chairs, who are basically cronies of the SBA District Director, have been basically the same for the last ten years. It is interesting that the major promoter of the Summit is the US Small Business Administration and the moderator is a federal government bureaucrat. A good way to spend (waste) taxpayer dollars.

    The Summit Tax Committee has been pushing raising the estate tax exemption for at least ten years. The Chair of the Committee is an retired accountant who sold his business and made a few million dollars. Hello? Of course he wants the exemption increased, for himself and his wealthy clients.

    Someone needs to ask the proponents of raising the estate tax exemption for a list of rich people who actually moved out of RI because of the estate tax. It’s nonsense and no list will ever be produced. Few wealthy RI’ers are going to move out of the state just because of the estate tax. Ask the Tax Committee Chair if he’s planning to move. Ask Mr. Hazen White if he’s planning to move. You may get some threatening pledge “to consider it if things don’t change” but in reality they are going nowhere and there is no way there are going to uproot their families, leave the superior medical care and education environment, and walk away from all of the attention that they covet to save dollars because of the estate tax.

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