Our communities and are state are stronger when all Mainers and Maine families have equal opportunities to thrive. But growing inequality is a barrier to opportunity for people and towns that lack the resources the need, even as those at the top reap more and more wealth.
Maine’s tax code makes this problem worse in a lot of ways, including a massive loophole in our estate tax that perpetuates wealth inequality across generations. This year, lawmakers have options to strengthen our estate tax so that millionaires and multi-millionaires pay their fair share to help fund investments that create opportunity for all Mainers — not just those at the top.
We know income inequality is stark. Wealth inequality is even worse.
Mainers experience dramatic economic inequality. Between 1973 and 2015, the top 1 percent of Maine families captured 42 percent of all income growth, leaving just 57 percent for the remaining 99 percent of Mainers. 1 That income inequality is correlated with inequality in wealth.2
Wealth inequality is 10 times more concentrated than income inequality.3 Wealth for the poorest 10 percent of Americans has actually declined over the past 50 years.4 Racial disparities in wealth today are as stark as they were in 1963, with white family wealth seven times greater than black family wealth and five times greater than that of Hispanic families.5
It’s important to be clear about what we mean by “wealth.” While income is money coming into a family, wealth is a family’s assets — things like savings, real estate, and businesses — minus debt. Both are important sides of families’ financial security, but wealth cushions families against emergencies and gives them greater means to move up the economic ladder.
A staggering 60 percent of household wealth in the United States is owned through inheritance rather than direct labor.6 If our economy were a level playing field, all Mainers would have equal access to the foundations of success. Instead, the generational dimension of wealth means one generation is passing its wealth inequality on to the next in a snow balling fashion that has contributed to white families owning more wealth than Black families. These inequities make some families unable to access what they need for economic security such as safe housing, quality education, and good-paying jobs.
Wealth inequality fueled by an unfair tax code hurts our economy
Inequality grows when our tax system is tilted in favor of the wealthiest, as it was when lawmakers cut Maine’s estate tax. That inequality harms economic growth.7
Our economy suffers from declines in labor productivity and consumer demand when access to education, health care, and capital is limited because of inequality. At the same time, concentrated wealth typically yields unbalanced political power, leading to policy choices that favor the wealthy at the expense of investments that support economic mobility and reduce poverty.
The Organization for Economic Co-operation and Development recommends increased access to education and higher taxes on the wealthy to reverse the loss of economic growth that stems from inequality.8 A more robust estate tax is part of the solution.
A weak estate tax limits our ability to tackle wealth inequality
We all know that income inequality and wealth inequality are a problem. Our state’s estate tax exemption is making it worse.
The estate tax, paid only by the very wealthiest, is a critical tool for reducing inequality and investing in the things that create shared prosperity. But in the last decade, Maine’s estate tax has been hollowed out, delivering a massive tax break to the ultra-wealthy while funding for our schools, communities, and health care fell behind.
After several rounds of estate tax cuts, the carveout for millionaire and multimillionaire estates in Maine is more than five times larger today than it was in 2011. Currently, Maine’s estate tax applies only to estates worth more than $5.9 million for individuals, or $11.8 million for the joint estates of married couples. At this exemption level, just over 20 Maine estates a year pay any tax.9
Lawmakers have two bills to strengthen Maine’s estate tax
The Maine Legislature has two bills this year that would roll back recent tax cuts for the wealthiest estates:
- LD 1524 — “An Act to Amend the Maine Exclusion Amount in the Estate Tax,” sponsored by Rep. Ben Collings — would bring Maines’s estate tax exemption back to its 2015 amount of $2 million and would generate about $16 million per year.
- LD 1704 — “An Act to Change the Exclusion Amount under the Estate Tax and Provide Additional Funding for the Housing Opportunities for Maine Fund,” by Assistant House Majority Leader Rep. Rachel Talbot Ross — would bring Maine’s estate tax back to its 2012 level, to apply to all individual estates valued at more than $1 million and would generate roughly $30 million per year.
Both bills exempt working farmland and heavy capital equipment of fishing, forestry, aquaculture, and agriculture businesses up to $3.8 million.
The millions of revenue generated by a strengthened estate tax could be invested in education, housing, and infrastructure — strengthening those pillars of our economy and helping put prosperity within reach for all Maine families, not just those at the top.
LD 1704 puts the revenue raised directly into the Housing Opportunities for Maine Fund to improve access to affordable housing. It would direct the Maine Housing Authority create a process to ensure that their project evaluation accounts for the needs of Black, brown and indigenous communities.
Even a strengthened estate tax would affect only the wealthiest few
Conversations about the estate tax inevitably turn to questions about who pays. The reality is that most Mainers are lucky to earn $2 million dollars over an entire lifetime, let alone to have million-dollar estates to pass on to heirs.10 And past estate tax data suggests that many filers owing estate taxes at these lower threshold amounts are residents of other states with tangible property here in Maine.11
Notes:
[1] Sommeillier, Estelle, and Mark Price. 2018. The New Gilded Age: Income Inequality in the U.S. by State, Metropolitan Area, and County. Economic Policy Institute, July 2018.
[2] Urban Institute. Nine Charts about Wealth Inequality in America. October 2017. Available at: http://apps.urban.org/features/wealth-inequality-charts/
[3] Saez, Emmanuel and Gabriel Zucman. Wealth Inequality in the United States Since 1913: Evidence from Capitalized Income Tax Data. National Bureau of Economic Research, Working Paper. October 2014. https://gabriel-zucman.eu/files/SaezZucman2014.pdf
[4] Urban Institute. Nine Charts about Wealth Inequality in America. October 2017. Available at: http://apps.urban.org/features/wealth-inequality-charts/
[5] Ibid.
[6] Alvaredo, Facundo, et al. “On the share of inheritance in aggregate wealth Europe and the United States, 1900- 2010” October 29, 2015. http://piketty.pse.ens.fr/files/AlvaredoGarbintiPiketty2015.pdf
[7] Dabla-Norris, Era et al. Causes and Consequences of Income Inequality: A Global Perspective. International Monetary Fund, June 2015.https://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf
[8] Focus on Inequality and Growth: Does Income Inequality Hurt Economic Growth? Organization on Economic Cooperation and Development, December 2014. Available at: https://www.oecd.org/social/Focus-Inequality-and-Growth-2014.pdf
[9] McNichol, Elizabeth. State Estate Taxes: A Key Tool for Broadly Shared Prosperity. Table 4. Center on Budget and Policy Priorities, March 2016. Available at: https://www.cbpp.org/sites/default/files/atoms/files/5-11-16sfp.pdf
[10] According to the Social Security Administration, the expected lifetime earnings of a woman at any education level is less than $2 million dollars and the expected lifetime earnings of men only exceeds $2 million for those with a bachelor’s degree. Available at: https://www.ssa.gov/policy/docs/research-summaries/education-earnings.html
[11] Data from Maine Revenue Services shows that about 150 estates owed any estate tax when the exemption was $2 million, and MRS provided estimates to the 125th legislature showing that increasing the exemption from $1 million to $2 million benefited about 600 more estates. Under a $1 million exemption, about 750 estates would owe any tax each year with anywhere from 40 to 50 percent of these estate being held by residents of other states.
