Critics argue estate tax hits more than just the wealthy

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STATE HOUSE — Proposed modifications to the Massachusetts estate tax system were described by supporters Tuesday as needed tools to help keep wealth in the state while also easing a burden on small business owners and working families.

Massachusetts collects a tax of up to 16 percent on qualifying estates over $1 million, a fee that reform proponents said during a legislative hearing has less impact on wealthy individuals who can move to another state or soften the blow by working with lawyers and planners.

“The people who are really affected by this are the people who have a $1 million term life insurance, a $700,000 three-family and maybe a gas station or something,” Rep. Shawn Dooley told members of the Joint Committee on Revenue. “They don’t consider themselves wealthy, so they don’t have a complicated plan.”

Dooley, a Norfolk Republican who sits on the Revenue Committee, has sponsored a bill (H 2489) that he said would revamp and streamline the estate tax system.

Among other provisions, Dooley’s bill would replace the $1 million tax threshold with a higher amount set to half of the federal estate tax exclusion level. Dooley said tying the threshold to the federal formula would prevent the Legislature from having to frequently revisit the law for changes in inflation. The current federal estate tax threshold exceeds $5 million.

Financial planner John McAvoy said Dooley’s bill was not intended to help the “very wealthy” but to improve the situation for average Massachusetts residents and workers. He told the committee the he had met the day before with a client, a retired Somerville employee who has a two-family home in that city along with a cottage at Hampton Beach in New Hampshire and some savings in a retirement account.

“I said to him, you’re a millionaire, and he said, ‘Really? I don’t feel like a millionaire,'” McAvoy said. “This is not Donald Trump we’re talking about here. This is someone who worked very hard his whole life and raised a family here.”

The bill would also provide an incentive for people with multiple homes to keep their primary residence in the state, Dooley said. Massachusetts residents would be able to exclude their primary residence from the value of the estate.

Dooley said wealthier families with multiple homes often choose to declare their primary residence in another state, like Florida, that does not assess separate estate taxes.

“Not only do we lose 100 percent of their estate tax, we also lose the 25 or 35 years in retirement of capital gains tax, income tax, and automobile excise tax,” Dooley said.

In May, the Senate shot down a budget amendment that would have eliminated the estate tax, also called the “death tax.” The amendment failed with seven votes in favor and 31 against. Opponents said the tax provides needed state revenue.

Two bills now before the Revenue Committee (H 2612 and S 1478) take another shot at abolishing the tax.

“We’re in a situation now where this tax, I think, is damaging to those small family businesses that may be over the $1 million exemption but certainly in no way are wealthy,” said Rep. Joseph McKenna, a Webster Republican who sponsored the House repeal bill. “It forces businesses into difficult decisions.”

Asked by committee chairman Rep. Jay Kaufman if he would also support Dooley’s bill revising the way the tax is assessed, McKenna said he would “certainly be willing to work with the committee on finding that balance.”

— Written by Katie Lannan

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