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Many States Are Decoupling from the Federal Estate Tax Cut

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Publication Date: January 2004

Publisher(s): Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): Elizabeth C. McNichol

Funder(s): Center on Budget and Policy Priorities (Washington, D.C.)

Funder(s): Center on Budget and Policy Priorities (Washington, D.C.)

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Banking and finance (Taxation and tax policy)

Keywords: State budgets; Economic projections; Fiscal future; State taxes

Type: Report


The 2001 federal tax legislation includes a phaseout of the federal estate tax, culminating in full repeal in 2010. On a much faster track, the legislation repealed over four years — 2002 through 2005 — the federal estate tax credit to which state estate taxes are tied. In most states, estate and inheritance taxes are designed in such a way that states face either a full or partial loss of estate tax revenues as this credit is phased out. States can avert this loss of revenue by "decoupling." Decoupling means protecting the relevant parts of their tax code from the changes in the federal tax code, in most cases by remaining linked to federal law as it existed prior to the change.