Friday, January 26, 2001
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Posted on: Friday, January 26, 2001

End of federal estate tax costly to state

Advertiser Staff and News Services

Hawaii state government stands to lose about $25 million a year if President Bush can get Congress to enact his plan to scrap the federal estate tax.

Hawaii and many other states have tied their state estate taxes to the federal tax, which means Bush’s plan would also mean lower revenue for states.

Bush’s plan would cut $50 billion a year from the federal budget after about a decade. At the same time, it would knock out some $9 billion to the states — including Hawaii — because their tax codes piggyback the federal government’s.

In the fiscal year that just ended, estate and inheritance taxes brought in $5.5 billion for the states. California got $900 million. Alabama received $67 million. And Hawaii received $23 million. By 2010, the figure nationally would probably reach $9 billion a year, according to the nonpartisan Center for Budget and Policy Priorities.

Hawaii’s tax is structured so each estate pays a state tax equal to the amount of a federal tax credit that the federal government grants to each estate. The tax credit — and the state tax — varies from less than 1 percent to more than 16 percent depending on the size of the estate.

Lowell Kalapa, president of the Tax Foundation of Hawaii, said the structure of the state law means the state will lose its estate tax income if the federal tax is abolished. And Kalapa said he doubts the Hawaii Legislature would be able to adopt a new estate tax law.

"I think it would be very difficult for them to get something through when at the federal level the feds do away with the tax," Kalapa said. "The public is a lot closer to their elected officials here than they are to the ones in D.C."

Former President Clinton vetoed a bill to eliminate the tax last year. He said it would threaten the nation’s financial well-being while handing the richest 3,000 families an average tax cut of $7 million apiece.

Advertiser Capitol Bureau Chief Kevin Dayton and The Associated Press contribute to this report.

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