Governor Pataki and the Senate leadership in Albany are playing dumb about a little-noticed feature of New York’s estate tax law that is about to send the estate tax for New Yorkers soaring — not only compared to what it has been but, even more so, compared to other states. The differential kicks in with the latest tax cuts gained by President Bush, and alarm is quietly spreading as tax experts realize what our tax code hath wrought, as our R.H. Sager reports on page one. They are warning that the differentials about to be phased in are so great that wealthy New Yorkers may actually move their domiciles to more hospitable states, such as Florida. Coming at a time when New York is scrambling, in the wake of the attacks of September 11, to maintain its primacy as a business center, the question is not something on which playing dumb is smart.

This all stems from the Economic Growth and Tax Relief Reconciliation Act passed at the federal level last year. One of its provisions phases out the possibility of getting a credit for estate taxes paid at the state level. Most states make or are going to make automatic downward adjustments in their own estate taxes. Not the Rip Tax Winkles in Albany. The result is that the differential in the effective estate tax for the very rich between New York and Florida will soar to a staggering 16 percentage points by 2005 from nothing last year. This means that if one of the billionaires or multi-centi-millionaires around town makes the mistake of dying while a resident of the Empire State, the tax penalty could be tens of millions of dollars, even $100 million or more than if he or she had died in Florida. It gets to a point where a failure to move one’s domicile might even be set down as fiscally irresponsible for the head of a wealthy family.

If the politicians at Albany think that they can pocket the change from the new federal law because no one is looking, they may be in for a rude awakening. While the highest estate tax rates affect only the very wealthy, the low end affects the merely affluent. That means that thousands of estates, starting in 2003, will be taxed at significantly higher rates in New York than they would be in other states — unless the legislature and the governor act. They would need to reconcile New York’s estate tax rates to correspond with the credit, currently being phased out, that the federal government allows estates to deduct from the federal estate tax. If they fail to do so, New Yorkers will be paying full federal estate taxes, plus an extra tax to the state of New York.

This could all revert to the status quo ante, because the changes in federal law are set, at the moment, to expire in 2011. But a lot of dying can take place in a decade. New York hardly needs to return to the days of the affluent elderly shipping off to climes that are not only warmer but more hospitable fiscally. Or buying houses in lower-tax states and doing their best to convince the Empire State that they’ve moved. In the last flight of the wealthy, a good deal of private wealth that could have been pulsing through the local economy was transfused elsewhere. As recently as 1997, Mr. Pataki and Senator Bruno claimed to understand all this. But at the moment, they seem to be asleep at the switch. It would be nice if they woke up sooner than it took old Rip to wake from his stupor.