Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy
Daniel J. Wilson
- American Economic Journal: Economic Policy (Forthcoming)
We study the effect of state-level estate taxes on the geographical location of the Forbes 400
richest Americans and its implications for tax policy. We use a change in federal law to identify
the tax sensitivity of the ultra-wealthy's locational choices. Before 2001, estate tax liabilities
for the ultra-wealthy were independent of where they live due to a federal credit against state
estate taxes. In 2001, the credit was eliminated and their estate tax liabilities suddenly became
highly dependent on where they live. We find the number of Forbes 400 individuals in estate tax
states fell by 35% after 2001 compared to non-estate tax states. We also find that billionaires'
sensitivity to the estate tax increases significantly with age. Overall, billionaires' geographical
location appears to be highly sensitive to estate taxes. When we estimate the effect of billionaire
deaths on state tax revenues, we find a sharp increase in revenues in the three years after a
Forbes billionaire's death, totaling $165 million for the average billionaire. In the last part of
the paper, we estimate the revenue costs and benefits for each state of having an estate tax.
The benefit is the tax revenue gain when a wealthy resident dies, while the cost is the forgone
income tax revenues over the remaining lifetimes of those who relocate. Surprisingly, despite
the high estimated tax mobility, we find that the benefit exceeds the cost for the vast majority
of states. Of the states that currently do not have an estate tax, all but California would
experience revenue gains if they were to adopt one.
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