BILL NUMBER: S2782
SPONSOR: BRISPORT
 
TITLE OF BILL:
An act to amend the tax law, in relation to establishing separate taxes
on inheritance income and on gift income, amending the estate tax, and
establishing a gift tax
 
SUMMARY OF PROVISIONS:
This act amends the tax law to reform the system for taxing inherited
wealth by changing the estate tax rates and brackets, introducing a gift
tax, and introducing a tax on inherited income, both as a source of
funding for general governmental purposes and in order to help reduce
racial and economic inequality, the continued growth of which poses an
increasingly serious challenge to the maintenance of a stable democratic
society.
Section 1 of the bill adds a new sections 604 and 604-a to the tax law
to create a separate tax within the personal income tax on inheritance
income received from an estate, and adds a new section 604-A to the tax
law to create a separate tax within the personal income tax on gift
income. Subsection (a) of the proposed section 604 defines "inheritance
income" and "family member," and subsection (b) imposes a tax on inheri-
tance income. Subsection (c) of proposed section 604 provides that the
following will not be considered inheritance income for purposes of the
separate tax on inheritance income: inheritances that provide for the
payment of certain educational or medical expenses, that are received
from the estate of a spouse, or that consist of certain retirement
accounts. In addition, such subsection provides that some of the value
of certain primary residences and residential homes, and certain family
farms and farm equipment, will not be considered inheritance income for
purposes of the separate tax on inheritance income. Subsection (d) of
such section also provides that payment of the separate tax on inheri-
tance income may be deferred until disposition of inherited property
consisting of certain primary residences or of certain family-owned
businesses. Subsection (a) of proposed section 604-A defines "gift
income" and "family member," and subsection (b) imposes a tax on gift
income. Subsection (c) of proposed section 604-A of the tax law provides
that the following gifts will not be considered gift income for purposes
of the separate tax on gift income: gifts for the payment of certain
educational and medical expenses, gifts from a spouse, and gifts
consisting of certain retirement accounts. Subsection (d) of such
section provides that, for gift income consisting of equity interests in
certain family businesses, the payment of the separate tax on gift
income may be deferred until the taxpayer sells such equity interests.
Sections 2 and 4 of the bill add sections 620-B and 640, respectively,
to the tax law to allow for a credit against the separate tax on inheri-
tance income in the amount of the New York estate tax, or any estate or
inheritance tax imposed by another state, a political subdivision of a
state, or the District of Columbia, on any inheritance income received
by a taxpayer. Proposed section 620-B allows such credit for residents,
and proposed section 640 allows such credit for nonresidents and part-
year residents.
Sections 3 and 4 of the bill add new sections 624-A and 637-A to the tax
law to provide for the computation of the separate tax on inheritance
income received by residents, nonresidents and part-year residents, and
add new sections 624-B and 637-B to provide for the computation of the
separate tax on gift income received by residents and part-year resi-
dents. Proposed sections 624-A and 637-A of the tax law provide for
inheritance income to be taxed at the following rates:
No tax on the first $250,000 of an inheritance income;
5% on the amount of inheritance income in excess of $250,000 and up to
$500,000;
15% on the amount of inheritance income in excess of $500,000 and up to
$1,000,000;
30% on the amount of inheritance income in excess of $1,000,000 and up
to $2,000,000;
40% on the amount of inheritance income in excess of $2,000,000 and up
to $10,000,000; and
50% on the amount of inheritance income in excess of $10,000,000.
Proposed sections 624-B and 637-B provide for gift income to be taxed at
the following rates:
No tax on the first $50,000 of gift income.
5% on the amount of gift income in excess of $50,000 and up to $100,000;
15% on the amount of gift income in excess of $100,000 and up to
$200,000;
30% on the amount of gift income in excess of $200,000 and up to
$400,000;
40% on the amount of gift income in excess of $400,000 and up to
$2,000,000; and
50% on the amount of gift income in excess of $2,000,000.
Section 5 of the bill amends section 951-a of the tax law to define the
term "New York taxable gifts."
Section 6 of the bill amends section 952 of the tax law to provide for
new estate tax rates for decedents dying after April 1, 2021, phase out
the applicable credit amount for the estate tax for decedents dying
after April 1, 2021, and provide for a credit against the estate tax for
the lifetime amount of gift taxes paid. The proposed paragraph (2) of
subsection (b) of section 952 provides that for estates of decedents
dying after April 1, 2021, estate tax will be determined based on the
taxable estate plus the lifetime amount of New York taxable gifts, at
the following rates:
No tax on the first $750,000 of taxable estate and the lifetime amount
of New York taxable gifts;
5% on the estate and gifts in excess of $750,000 and up to $1,500,000;
15% on the estate and gifts in excess of $1,500,000 and up to
$3,000,000;
30% on the estate and gifts in excess of $3,000,000 and up to
$6,000,000;
40% on the estate and gifts in excess of $6,000,000 and up to
$30,000,000; and
50% on the estate and gifts in excess of $30,000,000.
Section 7 of the bill amends section 954 of the tax law to provide that
the New York gross estate will be reduced by the amount of certain
transfers related to educational and medical expenses, and by transfers
of property consisting of certain retirement accounts. The proposed
amendments to section 954 also provide that the New York gross estate
will be reduced by a portion of the value of certain primary residences,
residential homes, and family farms and farm equipment.
Section 8 of the bill amends section 955 of the tax law to provide that
the New York taxable estate will be reduced by the amount of federal
estate tax imposed on the estate of a resident. The proposed amendments
to section 955 also provide that, with respect to the estate of a dece-
dent who was a nonresident of New York on the date of death, the New
York taxable estate will be reduced by the amount of federal estate tax
allocable to the portion of the estate that is subject to the tax
imposed by section 960 of the tax law.
Section 9 of the bill adds an article 26-A of the tax law to create a
gift tax. Proposed section 1000 of the proposed article 26-A defines the
terms "taxable gifts" and "New York taxable gifts." Proposed section
1001 of the proposed article 26-A imposes a tax on the transfer of prop-
erty by gift. Proposed section 1002 of the proposed article 26-A
provides that the gift tax will be imposed on the aggregate amount of
gifts made by a donor during all calendar years commencing on January 1,
2022, but that a credit will be allowed against the tax for the amount
of gift tax previously paid to the state by the donor. Such section
provides that New York taxable gifts will be taxed at the following
rates:
No tax on the first $750,000 of New York taxable gifts;
5% on New York taxable gifts in excess of $750,000 and up to $1,500,000;
15% on New York taxable gifts in excess of $1,500,000 and up to
$3,000,000;
30% on New York taxable gifts in excess of $3,000,000 and up to
$6,000,000;
40% on New York taxable gifts in excess of $6,000,000 and up to
$30,000,000; and
50% on New York taxable gifts in excess of $30,000,000.
Proposed section 1003 of the proposed article 26-A provides that the
commissioner of taxation and finance shall promulgate rules and regu-
lations necessary and appropriate to effectuate the provisions of the
proposed article.
Section 10 of the bill provides that this act shall take effect imme-
diately..
 
JUSTIFICATION:
New York is an exceptionally wealthy state. Treated as a separate coun-
try, it would have one of the world's largest economies. With such a
strong economy, all New Yorkers should have fundamental economic rights:
high-quality education, healthcare, guaranteed housing, and basic social
services and social insurance. New York must also finance investments in
green energy, green jobs, and green infrastructure in order to mitigate
the catastrophic risks of climate change.
Unfortunately, New York is also the most unequal state in the nation.
In part this is because the tax system has not kept pace with changes in
the economy, leaving the many high-earning professionals and wealthy
families in this state undertaxed. The benefits of economic growth from
recent decades has overwhelmingly been hoarded by a small segment of
elites, while inflation- adjusted wages have stagnated for the vast
majority of working people since the 1970s. The state government, lack-
ing adequate tax revenues, has been unable to afford essential public
investment and social spending, including upgrading our infrastructure,
repairing public housing, protecting public education, and financing
Medicaid.
State tax policy must focus on mitigating economic inequality. Inter-
generational wealth accumulation is one of the main sources of long-term
inequality and must therefore be directly addressed by the tax law. New
York currently has an estate tax, which imposes a tax on the total
assets of a deceased person. However, the current estate tax rate is
very low, ranging from 5% to 16%, and it only applies to estates worth
more than $5.85 million. This is one of the highest estate tax
exemptions in the country, having steadily skyrocketed from $300,000
prior to 2000.
An effective inheritance tax is particularly critical for addressing the
racial wealth gap. Nationwide, the wealth of the median white household
is nearly ten times that of the median Black household, and nearly all
of the wealthiest households in the country are white. Without a fair
tax on inherited wealth, intergenerational inequality will continue
unabated and the racial wealth gap will only worsen.
In order to effectively tax intergenerational wealth transfers, we need
a comprehensive system of taxes on estates, inheritances, and gifts.
This bill lowers the estate tax threshold, with progressive marginal tax
rates (as specified in the above summary) applying to estates worth more
than $750,000. It would also impose a gift tax, modeled on the federal
gift tax, on individuals who give gifts in excess of the lifetime
exemption limit, which is equal to the zero-rate bracket for the estate
tax ($750,000). Lifetime gifts are treated as part of the estate when
estate tax liability is determined, as in the federal estate tax. The
gift tax imposed on giftors, however, would not include in taxable gifts
any gifts that are subject to tax on the giftee, as discussed below.
In addition to amending the estate tax and imposing a gift tax, this
bill amends the income tax to treat inheritances and gifts as income to
the recipient. Inheritance income would be taxed under the rates speci-
fied above, with a credit available for estate tax already paid on the
same amount of property. The inheritance tax is imposed on inheritances
of more than $250,000. Per the Federal Reserve Board 2019 Survey of
Consumer Finances, such a tax only applies to the top 1% of inheritanc-
es. The gift tax would be imposed on an annual basis, at the rates spec-
ified above, on the receipt of gifts worth more than $50,000.
Numerous exceptions are provided to ensure that working people are not
overly burdened by these reforms: Spousal transfers are exempt from all
of the above taxes. Money used to pay for certain educational or medical
expenses is not subject to any of the above taxes. Retirement accounts
and pensions are also exempt from the above taxes. In the case of a
residence which has been the primary residence of the decedent for ten
years prior to death, or is the primary residence of the inheritor for
five years after receipt, an additional $1,750,000 is excludible from
the taxable value of the property. An exemption from all of the above
taxes is also provided for estates or inheritances with a total value of
up to $5 million, at least 50% of which is attributable to farmland or
farming equipment. Finally, for inheritances that include equity inter-
ests in family businesses or primary residences and are worth up to $5
million, tax can be deferred until sale of the inherited assets,
provided that the business interests or primary residence makes up over
50% of the total value of the inheritance.
The inheritance and gift tax remedies a serious defect in the way we tax
income. Currently, income from working is taxed at the highest rates,
income from investing is taxed at lower rates, and income from inheri-
tance is not taxed at all. In addition to the obvious unfairness of this
system, it puts the economic burdens in all the wrong places. Those who
earn wage income are most burdened by taxes on their income; heirs, who
need not work for their inheritance, are best able to bear the burden of
taxation, and yet pay no income tax on their inherited income. Moreover,
there is virtually no economic downside to taxing inherited income, as
the economic benefits for state spending vastly outweigh any minimal
disincentive created by taxing heirs.
An inheritance tax is also necessary to counteract avoidance problems
with the estate tax. Estate taxes can incentivize wealthy individuals,
in their old age, to move out of state to avoid the tax. The inheritors
of such wealth, by contrast, typically have families, often with kids in
school, and are less likely to relocate solely for tax reasons. There-
fore, an inheritance is less likely to be avoided. An inheritance tax
also creates an incentive for wealthy individuals to spread their wealth
among more beneficiaries, thereby benefiting more people and reducing
the intergenerational accumulation of wealth.
Reforming wealth transfer taxes is especially important as a means of
offsetting the tax benefit of basis step-up, one of the largest federal
tax handouts to the wealthy. When a decedent passes on appreciated
assets, which would otherwise produce taxable capital gains if they were
sold, all of that taxable gain is eliminated by "stepping up" the basis
of the asset to its fair market value. The heirs to these appreciated
assets, who would otherwise pay substantial tax on their capital gains,
end up paying no tax at all. An inheritance tax, by imposing a tax on
these inherited assets, offsets some of the benefit of the federal step-
up rules.
Finally, the inheritance tax helps mitigate the anti-democratic effects
of massive intergenerational wealth accumulation. The wealthy use their
resources to exert tremendous influence over the political system,
stripping away protections for poor and working people, distorting the
tax laws, and undermining the very basis of representative democracy. It
is imperative that we minimize the power of wealth to unduly influence
our political system.
 
PRIOR LEGISLATIVE HISTORY:
2021-22: S3462
 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
This act is projected to raise approximately $8 billion dollars annually
in new revenue.
 
EFFECTIVE DATE:
This bill is effective immediately.

Statutes affected:
S2782: 951-a tax law, 954 tax law, 954(a) tax law, 955 tax law, 955(a) tax law