North Carolina is moving to eliminate its estate tax under legislation that won approval along mostly party lines in a House committee Wednesday.
Republican state Rep. Edgar Starnes, the House GOP leader, said the state tax on the value of estates upon death is "an economic policy that just punishes people because they are trying to save things." But Democrats in the House Finance Committee countered that it only applies to the most wealthy and provides needed revenue for state programs.
The legislation that resulted from the so-called fiscal cliff altered the federal tax, eliminating a 100 percent credit for any state estate tax levy. So now, as Republicans contend, it is a "double tax" charged by the federal and state government separately.
The state tax applies to estates with a value over $5.25 million or $10.5 million for a married couple. The rate starts at 0.8 percent and increases to 16 percent for the largest estates.
In 2010, 123 people paid the estate tax. It is estimated to generate $52 million in next fiscal year.
Republican lawmakers advocated for the change, saying the tax prompts wealthy individuals to move from the state to avoid paying the tax. "They are not going to sit around like sheep ready to be shorn, or hogs waiting to be slaughtered, they will leave," said Rep. Andy Wells, a Hickory Republican.
Sixteen states currently impose an estate tax; Tennessee is the only neighboring state to do so.
Democrats said the tax cut for the wealthy sends the wrong message at the same time that the Republican-led legislature is letting expire a modest tax break for low-income taxpayers, called the earned income tax credit.
Rep. Susie Hamilton, a Wilmington Democrat, said she would be inclined to support the legislation under different circumstances. "I can't support repealing a tax that would benefit 123 people when we have effectively raised taxes on almost 1 million people in the state," she said. "I think the timing of this is extremely bad. I think it makes us look like a body that has no interest in helping families and the most needy in this economy."
The measure -- House Bill 101 -- could get absorbed into the state budget but may remain as a stand along bill, House leaders said, even as lawmakers look at a much broader overhaul of the state's tax code.
Senate leader Phil Berger supports the elimination of the estate tax but a Senate proposal for broader tax reform put forward by a top lieutenant, Sen. Bob Rucho, does not alter the tax.