Calls to reform estate tax grow, Gov. Pritzker mum on the issue

A local attorney told The State Journal-Register nearly 12 years ago that 2010 was a "good year to die." Well, at least for relatives of the deceased.

The reason Jim Lestikow, an attorney with the Springfield firm of Henshaw & Culbertson, made this comment was due to Illinoisans not facing a federal or state estate tax - a payment imposed on the estate of a descendant before inheritance is delivered - that year. Since then, the tax has returned and its exemption threshold has gradually increased.

As it stands, net assets in Illinois assessed at $4 million or higher are subject to a tax ranging from 0.8% to 16%. Calls to reform the estate tax have grown in recent weeks in the Capitol, albeit with varying methods.

Illinois Republicans have long promoted either a full repeal or modification of the tax, a method which the minority party claims will keep more people in the state. Their legislative efforts have fallen short in this aim, including one that would have go into effect if voters approved the graduated income tax proposed constitutional amendment in 2020.

Alternatively, a recent report from the Center of Tax and Budget Accountability suggests a lowering of the threshold - making more Illinoisans subject to the tax - is the best route. Authors of the report say the state is at a “fiscal crossroads,” due to COVID-19 related federal subsidies running out, where dropping the exclusion amount would make-up some of the loss in the funds.

“From a fiscal policy standpoint, few tax options are available that would raise revenue while simultaneously making state-level taxation fairer by responding to the significant growth in wealth and income inequality," the report found. "One such option, however, is the tax assessed on wealthy estates.”

Recent: Mayors, municipal leaders call for restored share of state income tax

One of 12 states to have a state estate tax, Illinois is projected to receive $426 million in Fiscal Year 2024 per Gov. JB Pritzker's budget proposal, a reduction north of $200 million from FY 2022. The Illinois Attorney General's office administers the tax with 94% of the tax receipts received going to the state's General Revenue Fund and the remaining 6% is dedicated to the Estate Tax Refund Fund to refund overpayments.

Asked about what action, if any, the state needed to take regarding its estate tax, the governor did not provide indication as to how he leaned.

"My priority is balancing the budget, making sure that we are continuing our march to credit upgrades and making sure we've set the real foundation for fiscal stability in our state," he said following remarks made during the 2023 Illinois Business Day event in Springfield.

Preparing for reductions

The CTBA report lists several recommended changes to the "Exclusion Limit" as a way to restore some of the funding lost by increasing the threshold from $1 million to $4 million. Dependent on how low the limit would drop, the state could receive up-to $300 million in new revenue per year.

A higher threshold means less estates have been subjected to the tax, which had a peak of more than 5,000 estates in 2001. By 2020, that number had dropped to 860 bringing with it an estimated $5 billion state revenue loss over the course of 18 years according to the report.

Federal funding, by comparison, dedicated to the state from the Coronavirus Aid, Relief, and Economic Security Act and the American Rescue Plan Act surpassed $10 billion.

“Reducing the Exclusion Limit would both broaden the base subject to Illinois’ Estate Tax — thereby generating new revenue from those with large estates — and enhance the tax fairness created by the Estate Tax,” the report reads, adding that working and middle-class families are unfairly taxed when compared to the wealthy in Illinois.

Down on the farm

Characterization of this being a tax on the wealthy is not one that Illinois Farm Bureau Director of State Legislation Kevin Semlow agreed with.

Increasing farmland value and agriculture equipment costs in recent years have made more middle-class family farms meet the Exclusion Limit, he said, causing them to either sell of some of their assets or to take-out loans to make their payment. IFB supports either a repeal of the state estate tax or increasing the threshold to $12 million - closer to the federal estate tax limit of $12.92 million.

"We are one of the last few midwestern states that have it (state estate tax) and it really hampers agricultural interests, especially farmers," Semlow told the SJ-R.

Andrew White, an attorney at Bellatti, Barton, Cochran & White in Springfield is quoted in an IFB report from earlier this month that land in central Illinois have been recently appraised as high as $18,000 per acre.

Combined with farm equipment and a farmhouse expenses, he said a family owning 160 to 200 acres could be taxed. The size of an average family farm as of 2020 was 1,250 acres.

Legislative response

Republicans have mostly led action on estate tax-related legislation introduced in the Illinois General Assembly this session. None have seen much action, including one from Springfield GOP Rep. Mike Coffey, exceeding some committee discussion as time dwindles before the scheduled May 19 adjournment.

House Minority Leader Tony McCombie introduced House Bill 1459 in January which would have the exclusion amount be equivalent to a calculated sum by Section 210 of the Internal Revenue Code. That amount in 2011 was $5 million, according to the Internal Revenue Service, and then adjusted for inflation in the years to follow.

McCombie, R-Savanna, indicated a chance of bipartisan agreement to make change to the tax during a Wednesday interview. Estate tax reform should only be part of a larger overhaul of the state's tax system and how it spends those dollars, she said.

"Oftentimes, it's considered a double tax," she said of the estate tax. "So, I can't believe that government would think that's a good idea."

Senators Sue Rezin, R-Morris, and Rob Martwick, D-Chicago, were also asked their positions on the tax during the Illinois Business Day panel discussion moderated by Chicago Tribune reporter Rick Pearson.

Martwick noted recent surpluses in previous state budgets, which could make a loss of state estate tax funds through a repeal affordable. However any change, he said, would have to be part of a larger discussion of tax reform, especially as Illinois deals with its $140 billion pension debt.

"We can spend money on repealing the estate tax - that's what it is - it'll take money out of our budget because we have it," he said to the crowd of business leaders gathered at the Abraham Lincoln hotel. "But, what's going to happen in two years?"

Contact Patrick Keck: 312-549-9340, pkeck@gannett.com, twitter.com/@pkeckreporter.

This article originally appeared on State Journal-Register: Calls to reform estate tax grow, Gov. Pritzker mum on the issue