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Wednesday, January 14, 2004

Another Budget Detail: Tax Cuts for Rich Heirs

Governor Schwarzenegger’s new budget contains a hidden $1 billion tax cut for the wealthiest Californians -- those who inherit money from multimillionaires. Here's how it works:

The Federal tax law changes enacted back in 2001 phased out the existing Federal credit for state-level taxes paid on estates and inheritances. California defined its estate tax in terms of the maximum amounts that were allowed as Federal law credits: about $390,000 on a $5 million estate and $3.4 million on a $25 million estate. The Federal law change reduced the credit in four yearly steps, down to zero in 2005, but California law didn’t change.

The result: state receipts from this tax that affects only the richest 2 percent of the population decreased from $647 million in 2002-03 to $135 million in 2004-05 – a $1 billion decline from what they would have been otherwise. That's about twice the amount that Gov. Gropinator plans to cut from the budgets for all of California's universities. See the Governor’s Budget Summary, pp. 35-36.



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