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The Ohio Estate Tax:
Local Treatments for a Schizophrenic Law
Policy Research Report 10.1
By James Brodbelt Harris, CFA
Harris Investment and Property
1172 Muirwood Drive
Zanesville, Ohio 43701
(740) 408 2495 (media only)
HarrisForOhio@aol.com
www.HarrisForOhio.com
Executive Summary of the Report
The Ohio Estate Tax is a statewide assessment on the dead at 7% starting essentially with estates worth more than $338,333 (6% rate) and $500,000 (7% rate), with 80% of receipts mostly distributed to wealthy cities, villages and townships around Ohio leaving other jurisdictions with little share of the revenue. Ohio’s death tax, meant to be a progressive tax on the rich, in fact taxes mostly the middle class, including farmers and small businessmen, and is distributed in a highly regressive way to the richest townships and municipalities in the state. The middle class and wealthy would not support a local death tax, but because they cannot vote locally on the tax, the local bureaucracy and local incumbents lobby for its continuation statewide: thus creating taxation without representation or local approval. Most local taxes need public approval but the locally distributed death tax does not. The continuation of the statewide death tax prompts businesses and wealthy Ohioans to move to tax free states. Because of low exemption levels, for most Ohioans, the death tax of Ohio will constitute most or all of the death tax payable on an estate. In actual terms and as a percentage of total death taxes, all of Ohio’s middle class pay the same amount of tax or even more tax than do the richest Ohioans, and thus the tax fails not only as economic policy but also as political justice. This author concludes that the death tax must be repealed, and if not, that any such tax must exempt farmland, family businesses and homes, the estates of veterans with service during wartime, and also the amount exempt under the federal tax. This author further suggests that without repeal, all death tax receipts should be utilized by the state general fund and distributed by population, if at all. Finally, this author feels that any local demand for a continued estate tax be firmly answered with legislation repealing the state death tax, but alternatively allowing townships or municipalities to adopt an estate tax locally if the local population desires (or alternatively to opt out of the statewide tax). If relief legislation is not adopted statewide, then this author advises local jurisdictions to demonstrate their concern by provisionally and effectively opting out of the statewide death tax by directly refunding to the estates of decedent taxpayers their share of local estate tax receipts. Such action will result in a beneficial competition among local jurisdictions to attract Ohioans with businesses and capital to invest locally.
The Ohio Estate Tax:
Local Treatments for a Schizophrenic Law
By James Brodbelt Harris, CFA
Introduction: The Multiple Personality Disorder of Ohio’s Regressive-Progressive Tax on Death
Chapter One: Basic Rules for the Ohio Death Tax
Chapter Two: The Ohio and U.S. Estate Tax Combined
Chapter Three: Exemptions and Unworkable Farm Valuation Provision
Chapter Four: Effective Transfer Tax Rate
Chapter Five: Charitable Exclusion Limits
Chapter Six: Regressive Distribution of Ohio’s Estate Tax Receipts to Richest Townships and Municipalities
Chapter Seven: Alternatives to Legislative Repeal
Conclusion: Ohio’s Inefficient Death Tax, Unfairly Assessed, Unequally Distributed
Appendix: Draft local resolution to effectively opt out of estate tax regime
Note also related documents:
Press Release: Includes contact details, biography, and a summary of findings in the Report
Introduction
The Multiple Personality Disorder of Ohio’s
Regressive-Progressive Tax on Death
The State of Ohio, through Chapter 5731 of the Ohio Revised Code, assesses a tax on the assets of recently deceased individuals who were residents, or owned property in, Ohio. Proponents call the death duty justified taxation and argue that the tax rate is progressive and in any case applied only on the transfer of wealth from the rich to their heirs. Detractors of the tax argue that it is unfair to tax the dead, that families shouldn’t suffer the tax upon death, that businesses are broken up because of the tax, and that the assessments constitute an unfair double or triple taxation of family savings, wealth, or inflation. The politicians of the state usually voice disapproval of the tax but rarely propose to reform or repeal it in committee or on the floors of the Legislature, and the bureaucracy of Ohio demands the continuation of all Ohio taxes to feed its size and growth. The voters of the state remain uneducated and while they vaguely disapprove of the tax, they do not organize any opposition through single issue organizations, voter education or media campaigns.
Much of the received wisdom about the tax is true, of course, and will be investigated here further. But what the conventionally wise fail to appreciate is that the tax assessments are not only progressive but also regressive. The Ohio estate tax does in fact tax the dead, but it also taxes the transfer of assets to the living with a corresponding higher effective rate of taxation on the net amount transferred. The tax is assessed by the Ohio state bureaucracy, but it is allocated to Ohio’s local jurisdictions where the decedents lived, and thus becomes, de facto, a local tax, albeit one approved at the state level. And while it is assumed that the estate tax receipts are crucial to Ohio’s municipalities and townships, in fact the opposite is true, because most jurisdictions receive far less than their fair share of the Ohio estate tax proceeds; if educated about the who receives the bulk of tax receipts, the residents of most Ohio townships, villages, and cities would vote to repeal or reform the state death tax fairly quickly.
The state estate tax has been on the books for decades and its equivalent exemption levels were revised several years ago, but only to a nominal level of several hundred thousand dollars. The last halfway serious attempt to reform or end the tax was HB 114 in the 124th General Assembly, which died in the Ways and Means committee chaired by Rep. Kilbane of the estate tax rich city of Rocky River. A previous law created the ‘Joint Committee on Estate and Death Taxes’ which issued a report and recommendations to repeal the tax, but with state deficit spending the reform effort went nowhere. Now that surpluses are returning with a growing economy, and with greater scrutiny of the schizophrenic nature of the “passive-aggressive” regressive-progressive death tax, this author modestly hopes that this report provides a reader with some useful analysis and tools to take action locally and, eventually, statewide in order to reform or repeal the state’s most “ghastly tax”.
Chapter One
Basic Rules for the Ohio Death Tax
The Ohio Estate Tax rules are codified in Chapter 5731 of the Ohio Revised Code, and enforced by the State and the court system. The tax was enacted decades ago by a previous legislature and governor to replace a tax on individual inheritances, and it is administered through the Counties, by the Probate Courts, by Auditors, and by Treasurers, to whom are tasked various responsibilities. The gross estate tax receipts are collected for Ohio by the Counties and then distributed to the general revenue funds of the State and, usually, to the general funds of the municipalities and townships in which the deceased was resident or where the deceased owned property: 20% for Ohio and 80% to the local townships and municipalities. The amounts distributed are adjusted for administration costs, and were adjusted by statute several years ago such that the amount distributed to municipalities and townships was 70% in 2001 and 64% in the decade before 2001. The nominal tax rate assessed against estates ranges from 2% to 7%, to be multiplied against the taxable estate valuation and applied against a small tax credit of up to $13,900 for assessed estates after 2001. The small credit renders the first $338,333.33 of estate value essentially exempt from taxation and essentially creates a single rate tax regime for most taxpayers at a rate of 7%. |
Distribution of Ohio Estate Tax Receipts
State of Ohio, General Revenue Fund: 20%
Municipalities and townships: 80%
(During 2001: 70%, 1989-2000: 64%)
Credited to the general revenue funds or school board funds by resolution
of the local municipal council or board of township trustees
Nominal Rate of Taxation on the Taxable Estate
Taxable Estate Valuation Ohio Estate Tax
$0 $0 plus 2% of amount
$40,000 $800 plus 3% of amount over $40,000
$100,000 $2,600 plus 4% of amount over $100,000
$200,000 $6,600 plus 5% of amount over $200,000
$300,000 $11,600 plus 6% of amount over $300,000
$500,000 $23,600 plus 7% of amount over $500,000
Effective Rate of Taxation on the Taxable Estate with Credit
Taxable Estate Valuation Ohio Estate Tax
$0 $0
$338,333 $0 plus 6% of amount over $338,333
$500,000 or more $9,700 plus 7% of amount over $500,000
Chapter Two
The Ohio and U.S. Estate Tax Combined
Because of federal efforts to reform or abolish the U.S. estate tax death duties, the amount essentially excluded from taxation under Chapter 11 of the Internal Revenue Code is $2,000,000, rising in 2009 to $3,500,000, and in 2010, the entire estate is exempt from taxation (though the following year the exemption amounts drop back to original, low levels). The marginal federal estate tax rate imposed is limited to 46% (2006) dropping to 45% (2007-2009). With these changes, the U.S. and Ohio now dramatically differ in their taxation of decedents’ estates, creating unnecessary complexity and surprising effects for Ohioans, leaving most Ohioans with a higher tax bill due to Ohio than to the IRS (most of the rich, though, pay more Federal estate tax, of course).
Given the exemption amounts and rates described above (all else the same), the Ohio estate tax will always be more than or equal to the U.S. estate tax at estate amounts below $2,294,102.56. Thus for most Ohioans, the burdensome state death tax is far more of a threat to the family finances than the theoretical federal death tax. Even for those with $3,000,000 or more in assets, a significant percentage up to 29% of total death tax is payable to the State of Ohio.
If the tax is not abolished outright, then the exemption should be raised to at least the highest federal exemption amounts. Though the federal estate tax does not tax exactly the same combination of estate assets as the Ohio estate tax, the tabular comparison (below) of estimated 2006 taxes for varying estate amounts under the differing exemption limits and rates shows the approximate effect of the divergent legislation.
Recently, Governor George Pataki proposed eliminating the New York state estate tax in 2006 budget legislation proposed to his legislature. In other states, the fight against state death taxes has taken on new significance as state exemption amounts and rates have not kept pace with federal reforms. The Ohio state estate tax, though, stands out for its failed mechanics, since its originally intended progressive nature has grossly and inversely sideswiped the middle class, but regressively fails to fund most municipalities and townships. Given changes in Federal law, the Ohio legislature did remove one small related tax, called the Ohio additional tax, which obnoxiously billed an extra death duty to taxpayers who had never heard of it. Still, no recent repeal proposals regarding the basic Ohio estate tax have seen light even while Congress plans for national repeal.
OHIO and US ESTATE TAX TABLE (2006)
Ohio Tax Rate 7%
U.S. Tax Rate 46%
Combined estate tax rate 53%
Ohio Exemption $338,333
U.S. Exemption $2,000,000
(Ohio tax rate 2nd tier)* $500,000*
(Ohio Tax Rate below $500,000)* 6%*
Taxable Estate Tax (Ohio) Tax (U.S.) % Tax (Ohio)
$300,000 $0 $0 100%
$400,000 $3,700 $0 100%
$500,000 $9,700 $0 100%
$600,000 $16,700 $0 100%
$700,000 $23,700 $0 100%
$800,000 $30,700 $0 100%
$900,000 $37,700 $0 100%
$1,000,000 $44,700 $0 100%
$1,100,000 $51,700 $0 100%
$1,200,000 $58,700 $0 100%
$1,300,000 $65,700 $0 100%
$1,400,000 $72,700 $0 100%
$1,500,000 $79,700 $0 100%
$1,600,000 $86,700 $0 100%
$1,700,000 $93,700 $0 100%
$1,800,000 $100,700 $0 100%
$1,900,000 $107,700 $0 100%
$2,000,000 $114,700 $0 100%
$2,100,000 $121,700 $46,000 73%
$2,200,000 $128,700 $92,000 58%
$2,300,000 $135,700 $138,000 50%
$2,400,000 $142,700 $184,000 44%
$2,500,000 $149,700 $230,000 39%
$2,600,000 $156,700 $276,000 36%
$2,700,000 $163,700 $322,000 34%
$2,800,000 $170,700 $368,000 32%
$2,900,000 $177,700 $414,000 30%
$3,000,000 $184,700 $460,000 29%
$3,100,000 $191,700 $506,000 27%
$3,200,000 $198,700 $552,000 26%
$3,300,000 $205,700 $598,000 26% |
Chapter Three
Exemptions and Unworkable Farm Valuation Provision
Almost all property is includable in the estate of the deceased, excepting only items like insurance proceeds, out of state property, and certain trust property. Previously discussed was the low effective exemption amount of $338,333 which has not kept up with middle class wealth appreciation, GDP growth, monetary inflation, or even the federal exemption amounts. No exclusions or exemptions are allowed for the family home or the assets of veterans who served their country during wartime.
Homes should not be taxed in Ohio under the death tax regime. Neither should any assets of a veteran who served Ohio or the U.S. during wartime, whether during WWII, the Korean War, the Vietnam War, the Gulf War, or the War on Terrorism.
No asset appreciation due to normal inflation should be taxable, and exemption amounts should be increased yearly to adjust to regular growth of assets because of inflation. Further, ever since the death tax replaced the Ohio inheritance tax, estates have been taxed no matter the number of children or heirs. The death tax in its current form discriminates against larger families, rewarding the decedent with a second wife and one son, while punishing the larger family with four, five, six or more children.
Farm property supposedly attracts a lower level of taxation under an agriculture use provision, but only in very narrow prescribed circumstances that essentially void any benefit or render the provision useless or inapplicable for farm families originally targeted. Though the law correctly qualifies farm property as that actually farmed by a qualified heir and used in agriculture, it essentially limits the application of the provision to $500,000 of valuation and only if the farm property valuation amount, after adjustment, is more than half of the total amount of estate assets, and simultaneously, if the farmland’s adjusted valuation is more than 25% of estate assets. For most family farms caught in areas where sprawl and higher values threaten large estate tax bills, the deceased usually owns a farm house, CD’s or other retirement assets that together exceed the low, adjusted valuation of the farm, thus voiding the provision. Furthermore, only $500,000 of valuation may be sheltered even if the valuation provision might apply. For example, a farm of 160 acres valued at $6,000 per acre (or $1,000 an acre under CAUV) would not qualify for the estate valuation provision if the deceased farmer owned a $200,000 home across the road and died with $100,000 in his retirement account. Consequently, without effective relief, most farm families in Ohio are faced with a large estate tax bill of nearly 7% of farm assets, on top of any federal estate taxes, attorney, accounting and appraisal fees, and probate court costs. Because farms are usually sold, broken up or mortgaged in such an event, farm families face financial peril under the Ohio estate tax.
Farms should be exempt under the death tax. At the least, no “Century Farm” or adjoining farmland should be taxable under the death tax. With farm families with at least 2 children (let alone four or more), it is difficult if not impossible to gently, with emotions restrained, plan for business continuation. Because the current farm valuation methodology is unworkable, the complicated current legislation should be replaced with a simple one sentence exemption from death tax of all farmland enrolled in CAUV in Ohio. If repeal is impossible, then estate tax revenues from farmland should be segregated and distributed by the Ohio Department of Agriculture to purchase local conservation easements or to make loans to farmers beyond current statutory levels.
Chapter Four
Effective Transfer Tax Rate
The effective death tax rate on an Ohio decedent’s estate is actually greater than it first appears. Firstly, the proponents of the estate tax often validate the tax by suggesting it is merely a tax on assets transferred to heirs rather than an actual levy or tax on the dead or her estate. Taking these advocates at their word, then the marginal tax rate of 7% is not actually the effective tax rate applied on the amount actually transferred to devisees. For example, a tax of 7% on the corpus of the estate would leave 93% after tax, or an estimated 80% to 90% after all administration costs, legal fees, court costs, appraisal fees, sales fees and taxes. If 90% of an estate were actually distributed or “transferred” to heirs, then the 7% levy on the gross estate would amount to an effective 8% tax on the net estate transferred. When coupled with the federal estate tax, and a marginal rate of 46%, the effective rate of combined taxation on the actual transfer of wealth rises to 120%. At rates approaching 10%, taxation represents a vigorous appropriation. At rates over 50%, taxation is unjustifiable confiscation implying financial tyranny.
As a further illustration, take an estate valued at the top end of the table produced in this paper, valued at $3.3 million. The combined estate taxes are $803,700 at an effective rate of 24%, and let’s assume only a small amount of administration costs raise the amount of taxes and costs to an even one million dollars. Therefore, at a marginal rate of taxation of 53%, the estate has lost about one third of its value, after accounting for the state and federal exemptions. Yet with an amount actually transferred to heirs dropping to $2.3 million, the combined state and federal estate taxes produce an effective “transfer tax rate” of approximately 35% - even after exemptions. Thus the effective transfer tax rate in this example is almost 50% more than the calculated “estate tax” rate. Clearly, even upper middle class Ohioans are being hooked at death by the combined effects of the state and federal death tax on estates, which is mislabeled a benign “transfer tax.”
Chapter Five
Charitable Exclusion Limits
Generally, charitable gifts are excluded from Ohio estate tax taxation, unlike gifts to children or friends. While charities have grown to depend upon various statutory perquisites, tax exemptions on incoming and outgoing transfers, and death induced generosity, there should be limits to the growth of “dynasty endowments” at family foundations or large non-profit corporations. Because of an urge to target what critics call dynastic families, the state created the estate tax – but if the tax is retained, then the state must not hypocritically ignore the rise of dynastic charitable institutions.
Put another way, if some families are forced to pay death taxes, then other wealthy families should not escape estate or capital gain taxation merely because the bulk of their wealth is transferred to family foundations controlled for generations by family members for their personal satisfaction or policy agendas. The unchecked compound growth rates of large non-profit endowments should not approach infinity in perpetuity, as these dynastic eleemosynary corporations owe back to society the proceeds of these tax subsidized injections of capital. History shows that even charitable corporations can be corrupted by tax subsidies and endowment growth as evidenced by the renaissance struggles to rein in the massive wealth, power and corruption of the medieval Roman Catholic Church. In addition, out of state charitable gifts should not benefit from the same tax exemptions or credits matched to gifts to local Ohio charities. In summary, if there is to be an Ohio death tax, then a fair and full examination of the charitable exemption is warranted to properly give incentives to Ohio donors and Ohio charities but to curtail windfall gains to out of state trusts, abusive family foundations, or dynastic eleemosynary corporations.
Chapter Six
Regressive Distribution of Ohio’s Estate Tax Receipts
to Richest Townships and Municipalities
Four fifths of Ohio’s estate tax receipts are allocated to townships and municipalities, and of those distributed receipts, most estate tax receipts flow regressively to the richest townships and municipalities. The per capita distribution of estate taxes varies widely, and for the wealthiest suburbs and villages of the state located near Cincinnati and Cleveland, the distributed share of tax receipts has become an important revenue source even though most residents of these jurisdictions would emphatically vote down any local legislation to tax estates if given the chance.
Because the municipal, township, and consequent per capita distribution of tax proceeds might vary due to chance, this author collected data published by the Ohio Department of Taxation (http://tax.ohio.gov/divisions/tax_analysis/tax_data_series/estate/publications_tds_estate.stm ) for the years 1998, 1999, 2000, 2001, 2002, and 2003, in order to minimize abnormal yearly distortion. This author assembled all reported receipts of villages, cities and townships in an Excel workbook (available upon request), after identifying any mislabeled, misspelled, or newly created municipalities, and reports his findings on the following pages. The population data of Ohio and its Counties, Municipalities, and Villages were taken from the 2000 census and matched against the Department of Taxation figures. The figures from each year for each municipality or township were summed without any present valuation or inflation factor. The per capita calculations refer only to the 2000 census and do not account for population loss or growth within the six year period.
The Distributed Estate Tax Receipts total $1.48 billion over 6 years, or $247 million per year, about $131 per Ohioan or $21 per year. This author has identified counties with a disproportionately large share of local estate tax distribution, termed the 12 “richest” Counties, and those with a disproportionately small share, termed the 76 “poorest” Counties for the purposes of this analysis. Jurisdictions in just 12 of the “richest” counties with less than a third of Ohio’s population received more than half of total distributed estate tax receipts. Several of these counties are in the CincinnatiCleveland metropolitan area, reflecting perhaps large residual holdings of wealth in jurisdictions in these counties, or alternatively, creative or competitive cultures of wealth creation. It is a surprise, though, that Metropolitan Columbus ranks less high; evidently, while income growth has accelerated in central Ohio relative to its peer Ohio regions, the aggregate personal wealth there might actually be less, accounting for the smaller estate tax distribution. Rural Ohio, of course, has not received the bulk of estate tax receipts but more specifically and dramatically, rural Ohio has not received its per capita share of the total distribution of estate taxes. metropolitan area and others are along the lake in the
In sum, most municipalities and townships in Ohio are located in counties that in aggregate did not receive much of a distribution of six years of Ohio estate tax revenues, and more importantly, most did not receive the average per capita distribution of estate tax revenues. Over the six years studied, local jurisdictions in the poorest 76 Ohio counties received a total of $741 million in distributed estate taxes, and with 7.8 million residents, they collectively received distributed estate taxes of less than $96 per capita, which is less than half of that received by towns in the richest 12 counties.
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Distributed Estate Tax Receipts to Jurisdictions in 88 Counties of Ohio
|
|
Counties of Ohio
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Distributed Estate Tax Receipts over six years (1998-2003) (US$)
|
Population (2000)
|
Per Capita Estate Tax Receipts (US$)
|
|
1998-2003 Receipts
|
1,484,733,438
|
11,353,140
|
130.78
|
|
Richest 12 Counties
|
50%
|
32%
|
|
|
Richest 12 Counties
|
743,277,777
|
3,617,347
|
205.48
|
|
Poorest 76 Counties
|
741,455,661
|
7,735,793
|
95.85
|
|
12 Richest vs. 76 Poorest
|
100%
|
46%
|
214%
|
|
Miami
|
47,724,923
|
98,868
|
482.71
|
|
Hamilton
|
255,628,519
|
845,303
|
302.41
|
|
Geauga
|
17,481,985
|
90,895
|
192.33
|
|
Cuyahoga
|
246,762,155
|
1,393,978
|
177.02
|
|
Lake
|
35,628,445
|
227,511
|
156.60
|
|
Highland
|
6,275,085
|
40,875
|
153.52
|
|
Ottawa
|
6,281,918
|
40,985
|
153.27
|
|
Greene
|
22,499,953
|
147,886
|
152.14
|
|
Darke
|
8,016,318
|
53,309
|
150.37
|
|
Fulton
|
6,132,536
|
42,084
|
145.72
|
|
Stark
|
54,734,705
|
378,098
|
144.76
|
|
Mahoning
|
36,111,234
|
257,555
|
140.21
|
|
Van_Wert
|
4,120,647
|
29,659
|
138.93
|
|
Erie
|
10,582,304
|
79,551
|
133.03
|
|
Fayette
|
3,755,573
|
28,433
|
132.08
|
|
Summit
|
69,575,108
|
542,899
|
128.15
|
|
Auglaize
|
5,968,648
|
46,611
|
128.05
|
|
Hancock
|
9,073,394
|
71,295
|
127.27
|
|
Belmont
|
8,568,502
|
70,226
|
122.01
|
|
Montgomery
|
67,598,274
|
559,062
|
120.91
|
|
Williams
|
4,733,764
|
39,188
|
120.80
|
|
Clark
|
16,989,970
|
144,742
|
117.38
|
|
Coshocton
|
4,298,301
|
36,655
|
117.26
|
|
Wood
|
14,136,457
|
121,065
|
116.77
|
|
Wayne
|
12,611,749
|
111,564
|
113.04
|
|
Seneca
|
6,429,668
|
58,683
|
109.57
|
|
Franklin
|
116,699,544
|
1,068,978
|
109.17
|
|
Shelby
|
5,205,708
|
47,910
|
108.66
|
|
Wyandot
|
2,468,427
|
22,908
|
107.75
|
|
Trumbull
|
24,014,830
|
225,116
|
106.68
|
|
Union
|
4,325,812
|
40,909
|
105.74
|
|
Henry
|
3,076,641
|
29,210
|
105.33
|
|
Lucas
|
46,162,341
|
455,054
|
101.44
|
|
Logan
|
4,606,729
|
46,005
|
100.14
|
|
Delaware
|
11,012,200
|
109,989
|
100.12
|
|
Pickaway
|
5,267,969
|
52,727
|
99.91
|
|
Crawford
|
4,672,500
|
46,966
|
99.49
|
|
Paulding
|
1,991,676
|
20,293
|
98.15
|
|
Jefferson
|
7,223,469
|
73,894
|
97.75
|
|
Mercer
|
3,985,438
|
40,924
|
97.39
|
|
Licking
|
14,130,105
|
145,491
|
97.12
|
|
Washington
|
6,105,162
|
63,251
|
96.52
|
|
Tuscarawas
|
8,570,545
|
90,914
|
94.27
|
|
Holmes
|
3,616,060
|
38,943
|
92.86
|
|
Warren
|
14,679,912
|
158,383
|
92.69
|
|
Putnam
|
3,172,851
|
34,726
|
91.37
|
|
Fairfield
|
11,172,586
|
122,759
|
91.01
|
|
Defiance
|
3,594,416
|
39,500
|
91.00
|
|
Allen
|
9,569,773
|
108,473
|
88.22
|
|
Portage
|
13,277,543
|
152,061
|
87.32
|
|
Muskingum
|
7,200,871
|
84,585
|
85.13
|
|
Ashland
|
4,366,379
|
52,523
|
83.13
|
|
Huron
|
4,895,687
|
59,487
|
82.30
|
|
Harrison
|
1,304,064
|
15,856
|
82.24
|
|
Lorain
|
23,306,008
|
284,664
|
81.87
|
|
Clinton
|
3,302,787
|
40,543
|
81.46
|
|
Preble
|
3,378,613
|
42,337
|
79.80
|
|
Medina
|
11,918,098
|
151,095
|
78.88
|
|
Sandusky
|
4,831,393
|
61,792
|
78.19
|
|
Marion
|
5,157,385
|
66,217
|
77.89
|
|
Butler
|
25,606,199
|
332,807
|
76.94
|
|
Champaign
|
2,887,041
|
38,890
|
74.24
|
|
Ross
|
5,422,914
|
73,345
|
73.94
|
|
Hardin
|
2,259,787
|
31,945
|
70.74
|
|
Madison
|
2,828,109
|
40,213
|
70.33
|
|
Knox
|
3,770,875
|
54,500
|
69.19
|
|
Richland
|
8,659,451
|
128,852
|
67.20
|
|
Brown
|
2,725,807
|
42,285
|
64.46
|
|
Morgan
|
939,979
|
14,897
|
63.10
|
|
Clermont
|
10,801,650
|
177,977
|
60.69
|
|
Guernsey
|
2,459,117
|
40,792
|
60.28
|
|
Ashtabula
|
6,070,373
|
102,728
|
59.09
|
|
Columbiana
|
6,297,107
|
112,075
|
56.19
|
|
Hocking
|
1,584,206
|
28,241
|
56.10
|
|
Scioto
|
4,401,924
|
79,195
|
55.58
|
|
Athens
|
3,442,673
|
62,223
|
55.33
|
|
Monroe
|
836,245
|
15,180
|
55.09
|
|
Morrow
|
1,694,347
|
31,628
|
53.57
|
|
Adams
|
1,436,049
|
27,330
|
52.54
|
|
Jackson
|
1,535,952
|
32,641
|
47.06
|
|
Pike
|
1,276,654
|
27,695
|
46.10
|
|
Noble
|
636,668
|
14,058
|
45.29
|
|
Carroll
|
1,238,409
|
28,836
|
42.95
|
|
Meigs
|
957,022
|
23,072
|
41.48
|
|
Vinton
|
516,671
|
12,806
|
40.35
|
|
Lawrence
|
2,287,349
|
62,319
|
36.70
|
|
Gallia
|
1,072,435
|
31,069
|
34.52
|
|
Perry
|
1,104,770
|
34,078
|
32.42
|
The distribution of estate tax receipts to townships, villages and cities is even more regressively skewed. Because Ohio’s wealthy towns have a large relative share of resident decedents with taxable estates valued above $338,333 (effective exemption amount was less in earlier years), these towns lay claim to a far higher share of distributed estate taxes. Most residents of these towns would vote down levies against their personal assets, but because the State of Ohio has enacted a statewide estate tax, there is no local choice on estate taxation nor is there any incentive to move to a nearby city (though the pull of tax free states like Florida is strong). Towns with a smaller aggregation of wealthy or middle class decedents share a much smaller per capita distribution of estate tax receipts, but because the estate tax has been deemed a progressive tax, many residents and political leaders in most towns of Ohio assume they are better off with estate taxation. Clearly, from the data in the table below, the estate tax distribution is highly regressive, and most Ohioans and most Ohio towns do not benefit from the estate tax distribution nor from the estate tax itself. Considering that only a small number of the wealthier towns disproportionately receive most of the benefits, and admitting that most residents in these towns do not support taxation of their estates, it is a wonder that estate taxation continues with such small and fragile base of support. Clearly, the regressive distribution of the Ohio estate tax has not been effectively analyzed nor publicized to most Ohioans and their local government leaders, who without proper research would probably guess if polled that the tax was intended to progressively tax the wealthy. Since even middle class Ohio estates are taxed at 7% and because statewide estate tax receipts are distributed regressively to the richest towns in Ohio, this author feels that the Ohio estate tax cannot be further supported and should be repealed. |
|
Local Government
|
County
|
Estate tax receipts (1998-2003: 6 years) distributed to local government (US$)
|
Population (U.S. Census, 2000)
|
Per Capita distributed estate tax receipts (six year total)
(US$)
|
|
|
|
|
|
|
|
Total (2331)
municipalities
& townships
|
|
1,484,733,438
|
11,353,140
|
131
|
|
Total 240 Cities
|
|
896,933,475
|
6,538,320
|
137
|
|
Poorest 221 Cities
|
|
704,852,321
|
6,281,127
|
112
|
|
Richest 19 Cities
|
|
192,081,155
|
257,193
|
747
|
|
Indian_Hill
|
Hamilton
|
30,044,676
|
5,907
|
5,086
|
|
Beachwood
|
Cuyahoga
|
16,147,987
|
12,186
|
1,325
|
|
Pepper_Pike
|
Cuyahoga
|
7,656,556
|
6,040
|
1,268
|
|
Oakwood
|
Montgomery
|
11,089,175
|
9,215
|
1,203
|
|
Shaker_Heights
|
Cuyahoga
|
28,410,823
|
29,405
|
966
|
|
St._Clairsville
|
Belmont
|
3,680,280
|
5,057
|
728
|
|
Rocky_River
|
Cuyahoga
|
15,056,218
|
20,735
|
726
|
|
Upper_Arlington
|
Franklin
|
21,507,124
|
33,686
|
638
|
|
Bay_Village
|
Cuyahoga
|
10,155,516
|
16,087
|
631
|
|
Fairlawn
|
Summit
|
3,475,081
|
7,307
|
476
|
|
Lyndhurst
|
Cuyahoga
|
7,162,630
|
15,279
|
469
|
|
Madeira
|
Hamilton
|
3,884,364
|
8,923
|
435
|
|
Springdale
|
Hamilton
|
4,588,021
|
10,563
|
434
|
|
Hillsboro
|
Highland
|
2,758,635
|
6,368
|
433
|
|
Montgomery
|
Hamilton
|
4,400,212
|
10,163
|
433
|
|
North_Canton
|
Stark
|
6,431,352
|
16,369
|
393
|
|
Hudson
|
Summit
|
8,133,991
|
22,439
|
362
|
|
Wyoming
|
Hamilton
|
2,900,492
|
8,261
|
351
|
|
Bexley
|
Franklin
|
4,598,022
|
13,203
|
348
|
|
Richest 19 Cities
(percentage)
|
21%
|
4%
|
|
|
|
|
|
|
|
|
Largest 6 Cities
(of 221)
|
|
267,031,660
|
2,208,692
|
121
|
|
Cincinnati
|
Hamilton
|
113,853,494
|
331,285
|
344
|
|
Akron
|
Summit
|
33,489,415
|
217,074
|
154
|
|
Toledo
|
Lucas
|
26,356,766
|
313,619
|
84
|
|
Columbus
|
Franklin
|
57,283,874
|
702,132
|
82
|
|
Cleveland
|
Cuyahoga
|
28,043,015
|
478,403
|
59
|
|
Dayton
|
Montgomery
|
8,005,095
|
166,179
|
48
|
|
Largest 6 Cities
(percentage)
|
30%
|
34%
|
|
|
|
|
|
|
|
|
Total 698 Villages
|
|
138,662,442
|
873,604
|
159
|
|
Poorest 673 Villages
|
|
69,426,256
|
829,539
|
84
|
|
Richest 25 Villages
|
|
69,236,186
|
44,065
|
1,571
|
|
Hunting_Valley
|
Cuyahoga
|
19,500,616
|
590
|
33,052
|
|
Kirtland_Hills
|
Lake
|
11,125,312
|
597
|
18,635
|
|
Waite_Hill
|
Lake
|
2,671,248
|
446
|
5,989
|
|
Hills_&_Dales
|
Stark
|
1,078,547
|
260
|
4,148
|
|
Chagrin_Falls
|
Cuyahoga
|
8,283,907
|
4,024
|
2,059
|
|
Bratenahl
|
Cuyahoga
|
2,333,556
|
1,337
|
1,745
|
|
Jacksonburg
|
Butler
|
80,998
|
67
|
1,209
|
|
Sugar_Bush_Knolls
|
Portage
|
241,073
|
227
|
1,062
|
|
Gates_Mills
|
Cuyahoga
|
2,423,988
|
2,493
|
972
|
|
Ottawa_Hills
|
Lucas
|
3,775,464
|
4,564
|
827
|
|
Amberley
|
Hamilton
|
2,696,526
|
3,425
|
787
|
|
Terrace_Park
|
Hamilton
|
1,582,487
|
2,273
|
696
|
|
Put-in-Bay
|
Ottawa
|
83,459
|
128
|
652
|
|
Granville
|
Licking
|
2,061,335
|
3,167
|
651
|
|
Mariemont
|
Hamilton
|
2,190,441
|
3,408
|
643
|
|
South_Russell
|
Geauga
|
2,569,884
|
4,022
|
639
|
|
Uniopolis
|
Auglaize
|
158,399
|
256
|
619
|
|
Woodlawn
|
Hamilton
|
1,700,930
|
2,816
|
604
|
|
Moreland_Hills
|
Cuyahoga
|
1,837,932
|
3,298
|
557
|
|
Clifton
|
Greene
|
66,727
|
130
|
513
|
|
Marble_Cliff
|
Franklin
|
316,471
|
646
|
490
|
|
Richmond
|
Jefferson
|
209,489
|
471
|
445
|
|
Orange
|
Cuyahoga
|
1,378,940
|
3,236
|
426
|
|
Kelleys_Island
|
Erie
|
153,479
|
367
|
418
|
|
Cridersville
|
Auglaize
|
714,979
|
1,817
|
393
|
|
Richest 25 Villages
(percentage)
|
50%
|
5%
|
|
|
|
|
|
|
|
|
Total 1309 Townships
|
|
447,721,720
|
3,875,107
|
116
|
|
Poorest 1284
Townships
|
332,366,037
|
3,736,953
|
89
|
|
Richest 25 Townships
|
|
115,355,683
|
138,154
|
835
|
|
Elizabeth
|
Miami
|
37,097,635
|
1,620
|
22,900
|
|
Beavercreek
|
Greene
|
7,032,466
|
3,063
|
2,296
|
|
Chagrin_Falls
|
Cuyahoga
|
173,393
|
135
|
1,284
|
|
Clinton
|
Shelby
|
1,338,143
|
1,223
|
1,094
|
|
Washington
|
Auglaize
|
1,353,716
|
1,429
|
947
|
|
Huron
|
Erie
|
2,017,919
|
2,572
|
785
|
|
Sycamore
|
Hamilton
|
15,061,572
|
19,675
|
766
|
|
Baughman
|
Wayne
|
1,926,526
|
2,873
|
671
|
|
Hardy
|
Holmes
|
1,489,825
|
2,317
|
643
|
|
Buckskin
|
Ross
|
519,910
|
827
|
629
|
|
Sharon
|
Franklin
|
942,768
|
1,831
|
515
|
|
Liberty
|
Trumbull
|
6,310,229
|
12,661
|
498
|
|
Columbia
|
Hamilton
|
2,224,038
|
4,619
|
481
|
|
Bainbridge
|
Geauga
|
5,219,428
|
10,916
|
478
|
|
Jackson
|
Stark
|
17,806,368
|
37,484
|
475
|
|
Catawaba_Island
|
Ottawa
|
1,495,113
|
3,157
|
474
|
|
Jasper
|
Fayette
|
310,858
|
665
|
467
|
|
Olmsted
|
Cuyahoga
|
4,891,997
|
10,575
|
463
|
|
Van_Buren
|
Shelby
|
626,829
|
1,424
|
440
|
|
Taylor_Creek
|
Hardin
|
221,028
|
517
|
428
|
|
Springfield
|
Clark
|
5,312,501
|
13,424
|
396
|
|
Jackson
|
Hardin
|
202,382
|
513
|
395
|
|
Richfield
|
Summit
|
824,305
|
2,138
|
386
|
|
Hanover
|
Licking
|
708,331
|
1,846
|
384
|
|
York
|
Van_Wert
|
248,404
|
650
|
382
|
|
Richest 25 Townships (percentage)
|
26%
|
4%
|
|
|
|
|
|
|
|
|
84 Other census entities or parts of cities (see Excel file)
|
1,415,801
|
66,109
|
21
|
|
Either not included in Department of Taxation file or included without population in 2000 census
|
|
Chapter Seven
Alternatives to Legislative Repeal
For several years legislators have discussed their anti-tax philosophy in campaign literature, but due to their legislative spending priorities, economic stagnation, and ballooning state department budgets, no serious death tax repeal efforts have borne fruit. Several years ago, a credit was created expanding the exemption amount to the still-low level of $338,333.33 and a temporary commission was assembled pledging to end the death tax. Still, no repeal bill has been sponsored in the current legislature. Ohio’s legislators have many pressing budget needs and have focused with the Governor on some tax reduction, tax replacement and spending restraint priorities, but heretofore have been uninterested in serious legislation involving estate tax reduction. Pressure from local governments, many with the mistaken belief that they receive a fair allocation of estate tax revenues, has also been felt by the legislature and thus little has been done for several years to update the estate tax regime or repeal the tax altogether. Assuming no voluntary action from the legislature, then the tax may only be eliminated or reformed following the circumstances outlined below.
Federal Estate Tax repeal or reform
The U.S. Congress and President have repealed the U.S. death tax for one year in 2010, but the tax springs back the following year. Since a minority of more than 40 Democratic Senators usually filibuster any Senate approval of a House bill to repeal the tax, the future of permanent repeal remains uncertain. Exemption amounts have risen and will rise according to a table published in this essay, but the marginal rate remains high and any repeal appears to be accompanied by a lamentable partial claw-back of decedent basis, posthumously subjecting heirs to a capital gain tax (and state income tax) retroactively, essentially taxing for a second or third time a lifetime of monetary inflation or capital appreciation. Any Federal repeal or reform effort, and any state repeal legislation in competitor states like that proposed by the Governor of New York, may embolden or force Ohio state legislators to take action to simplify or repeal the Ohio death tax.
Electoral campaigning, activism and legislator turnover
Voters of Ohio may sponsor or elect candidates to the legislature who advance reform or repeal policy proposals to mend or end Ohio’s death tax. Because some legislators adopt an anti-tax posture but hail from estate tax revenue rich towns, a general anti-tax sentiment may not be enough to sway legislators since towns with vested interests may plead poverty or directly impede repeal efforts. For example, Rep. Kilbane, the Chairwoman of the Ways and Means committee which would oversee any estate tax repeal, hails from Rocky River, a wealthy Northern Ohio town with a disproportionately large per capita share of estate tax receipts. Her apparent reluctance to sponsor estate tax repeal may stem from her hometown’s vested interest to keep the tax, or at least the current geographic distribution thereof. While her neighbors and voters may not be “in the know”, she likely hears from her peers in local government who depend upon the distributed tax receipts, probably through their lawyers or various associations of cities or townships. Hence the effectiveness of mere partisan or issue campaigning against taxes in general may not be as great as a relentless, individually researched candidate recruitment effort focused on estate tax repeal. Though Virginia and other states host state-specific anti-estate tax foundations and non-profit groups, Ohio does not have a group specifically targeting repeal of the Ohio estate tax.
Statewide initiative or referendum
Citizens, failing to affect change through the legislature, might sponsor a constitutional amendment to repeal the death tax, or alternatively, to exempt farmland, homes and estates of veterans from the estate tax. If the legislators continue to ignore the repeal effort, then Ohioans, like Californians before them, may take up the flag for referenda and send initiative petitions to the people for statewide approval. While expensive, the referendum process may be the most efficient means of repeal. The current legislature has recently made the initiative process more cumbersome, however, so no referendum would be easy.
Local policy initiatives
If not otherwise eliminated, then the ‘death tax’ should be implemented locally. Already, the federal ‘death tax’ is severe, but purports to treat Americans alike with receipts going into the general fund. Therefore, if the argument for an Ohio ‘death tax’ with regressive distribution is to assert local control over local assets and tax receipts, then why not leave it up to each township, village, or city to implement its own local ‘death tax’ while banning the state death tax? Thus statewide repeal could be linked to a statute authorizing local governments to enact their own replacement tax, if they or their voters wish. Since today’s tax distribution essentially allocates taxes locally anyway, then why not leave an ‘estate tax’ up to the people in each community like the local ‘property tax’, income tax, school income tax, sales tax, and other local taxes? This author believes most local governments or their citizens would refuse to enact a death tax locally, but would it not be more honest to offer a local tax directly to each local government and the local electorate? The local jurisdictions are little laboratories of democracy and most will make the right decisions.
This author in the coming year will be contacting local townships and municipalities to propose various methods to express their disapproval for the Ohio death tax, to research their relative and regressive allocations of tax receipts, and to suggest researching ways to opt out of the tax regime entirely, creating new opportunities for jurisdictional competition. A draft local resolution appended to this report in Appendix A might be the basis for a local government to express its voice to the state, but remains simply the author’s suggestion for political policy and does not constitute legal advice, which the local leadership should solicit before any review or adoption.
Local communities that find a way to opt out of the death tax regime will find small businesses, venture capital firms, entrepreneurs, and middle class and wealthy families eager to migrate in across their borders renewing their communities and putting them on an even or even superior footing relative to the high tax, high spending communities of Ohio. Local tax competition inspires cost efficiencies, governmental creativity, and grows aggregate local and statewide gross domestic product. Wealth creation, budget savings, economic growth and job creation are products of a well managed, low tax culture.
Conclusion
Ohio’s Inefficient Death Tax, Unfairly Assessed, Unequally Distributed
Estate tax planning and administration is costly and a drag on Ohio’s economy. The tax costs are an actual stimulant for CEOs, affluent families or retirees (not otherwise inclined) to investigate moving to tax free states like Florida, which is already well subsidized with warm temperatures and retiree wealth. Burdensome taxation in Ohio brings to mind the golden goose fable: will Ohio leaders heed the moral? In any case, why give that ‘extra push’ to affluent decision-makers to leave Ohio or even worse, to never consider settling here? If there is an Ohio ‘death tax’, then an Ohio business is more likely to be sold or liquidated to pay the tax, or to be moved out of Ohio entirely.
A ‘death tax’ is nothing more than a surreptitious confiscation and seizure of property at the moment of least political power and maximum emotional angst, and is against the intent of founders of America and the framers of the Constitution. Like those in power years ago who preyed on absentees or wards, the government today feasts on the assets of Ohio savers and investors at their weakest time. The Ohio estate tax is not progressive and is not a good tax, but rather, it is an tax on death, abnormally and regressively distributed. In sum, the Ohio estate tax is a “ghastly tax.”
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Copyright, James Brodbelt Harris, 2/2006. The author gives permission in 2006 to media to excerpt, copy or publish Report or photograph at will and retain, if published in 2006, in electronic retrieval databases, if proper credit given to author. Permission is also available to weblog or private website publishers to excerpt report with proper credit, but reference to the larger published body of work should be made by link to author’s website. Author used public data published c. 2006 at http://tax.ohio.gov/divisions/tax_analysis/tax_data_series/estate/publications_tds_estate.stm
by the Ohio Department of Taxation (Excel files for 1998-2003 tax years), and other data from the U.S. government (Census, 2000) while attempting to fix errors related to naming conventions and formatting and to match population with tax data. Author’s Excel file may be available upon request by email. No warranty of correctness is given. This report does not constitute legal advice or financial advice to anyone including Ohio taxpayers or authorities for municipalities and townships. If photograph or contact details above do not publish properly, then contact James Brodbelt Harris, CFA, Harris Investment and Property, 1172 Muirwood Dr., Zanesville, OH 43701,(740) 408-2495 (media only), or email, HarrisForOhio@aol.com or visit www.HarrisForOhio.com |
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Paid For by Harris For Ohio
Harris For Ohio, a candidate campaign committee, James Brodbelt Harris, Treasurer, All content (c) 2006
1172 Muirwood Dr., Zanesville, OH 43701 HarrisForOhio@aol.com (740) 408-2495
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