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FOUNDATION
Written Testimony of Josh Barro
Staff Economist, Tax Foundation
Committee on Ways and Means
February 18, 2009
Regarding H.B. 157
My name is Josh Barro, and I am currently Staff Economist at the Tax Foundation, a non-
partisan, non-profit research institution founded in 1937 to analyze tax issues and raise economic
awareness among taxpayers, lawmakers, and the media. We track tax-related issues at all levels
of government, and follow estate tax issues at the federal and state levels closely.
We appreciate the opportunity to submit this written testimony regarding H.B. 157 to the Ways
and Means Committee. The Tax Foundation takes no position on the bill, but is eager to provide
information about the subject matter. This testimony will address two estate tax topics impacted
by H.B. 157: (1) how an increased estate tax exclusion reduces the costs of complying with
estate taxes, and (2) how decoupling from increases in the federal estate tax exclusion has denied
Marylanders the benefit of reduced compliance costs.
Federal reforms increasing the amount of assets excluded from estate tax have greatly reduced
the number of estates that pay the tax, and therefore the costs of complying with the tax.
President Barack Obama has stated his intent to maintain an increased estate tax exclusion
past 2010. However, because Maryland retains an asset exclusion significantly lower than that
provided by the federal government, many of the efficiency benefits of the federal changes have
not flowed through to Marylanders. Meanwhile, Maryland imposes one of the highest death tax
burdens in the country, ranking 6th nationally in state estate and gift tax collections per capita.
How an increased exclusion reduces the compliance burden of the estate tax:
A key criticism of estate taxes at all levels of government is their relative inefficiency as a means
of revenue collection. A 1992 study by economists Henry J. Rosen and Alicia H. Munnell
estimated that the cost of complying with estate taxes is close to the total amount of revenue
raised by such taxes. According to the authors of the study, [T]he ratio of excess burden to
revenue of wealth transfer taxes is among the highest of all taxes.
At the federal level, one legislative strategy to mitigate the inefficiency of the estate tax has been
to raise the amount of estate assets excluded from tax. This reform drastically reduces the
number of estates that must comply with the tax, and therefore reduces compliance costs. For
2009, the exclusion amount as increased by the Economic Growth and Tax Relief Reconciliation
Act of 2001 is $3.5 million per estate, whereas the exclusion will fall to $1 million for 2011
under current law.
Written Testimony of the Tax Foundation 1](ViewImageLocal?handle=hein.taxfoundation/taxfaakd0001&div=1&collection=&method=preview&ext=.png&size=3)