OHIO ESTATE TAX REPORT, 2nd Edition
Policy Research Report
10.2
November 2006
By James Brodbelt
Harris, CFA
Harris Investment and
Property
(740) 408 2495
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concludes that the death tax must be repealed, and if not, that any such tax must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, more 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, with an option under
home-rule for townships or municipalities to keep 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.
OHIO ESTATE TAX REPORT, 2nd Edition
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 about
the tax, and while they vaguely disapprove, 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 levied is 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 passed at the state level without local approval. 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 the lame duck 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
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. Through a 1976
amendment to the Constitution of the State of Ohio,
at least 50% of income and estate taxes must be returned to the place of
origin. By law, estate tax revenues are allocated 20% for Ohio
and 80% to the local townships and municipalities. Currently, estate tax 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
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. 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 basic 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.
In several states the local estate taxes are being repealed
or reformed. The Ohio state
estate tax, though, stands out for its failed progressive mechanics, since it grossly
and inversely sideswipes the middle class, but regressively distributes the
revenues, failing 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 passed committee even while Congress has already enacted
repeal effective in several years. Currently, HB 589, Rep. Setzer’s estate tax
reform bill, and HB 616, Rep. Gibb’s estate tax repeal bill, sit dormant in the
House Ways & Means Committee, halted by lobbyists for local bureaucracies.
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 is more than half of the total amount of estate
assets, and simultaneously, if the farmland’s valuation is more than 25% of
estate assets.
Furthermore, only $500,000 of
valuation may be sheltered even if the valuation provision might apply, an
exemption level set in the early eighties which has not tracked corresponding
increases in inflation and appreciation factors nor federal exemption limits. Consequently,
without effective relief, most farm families in Ohio
are faced with an increasingly large estate tax bill, 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 taxes, 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 eagerly grasped 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, 2003, and 2004, 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 $1.69 billion over
7 years, or $241 million per year, about $148 per Ohioan or $21 per capita per year.
This author has identified counties with a disproportionately large share of
local estate tax distribution, termed the 15 “richest” Counties, and those with
a disproportionately small share, termed the 73 “poorest” Counties for the
purposes of this analysis. Jurisdictions in just 15 of the “richest” counties
with about a third of Ohio’s
population received more than half of total distributed estate tax receipts.
Several of these counties are in the Cincinnati
metropolitan area and others are along the lake in the Cleveland
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 with its relatively large economic and income growth 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.
In sum, most municipalities and townships in Ohio
are located in counties that in aggregate did not receive much of a
distribution of 7 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 73 Ohio
counties received a total of $809 million in distributed estate taxes, and with
7.5 million residents, they collectively received distributed estate taxes about
$15 per capita per year, which is less than half of that received by towns in
the richest 15 counties.
|
Distributed
Estate Tax Receipts to Local Governments in 88 Ohio Counties
|
|
Counties of Ohio
|
|
Distributed Estate Tax Receipts (1998-2004) to governments in
this county (US$)
|
Population (U.S. Census, 2000)
|
Per Capita Average Yearly Distribution of Estate Tax Receipts
|
|
1998-2004 Receipts
|
|
1,685,878,640
|
11,353,140
|
$21.21
|
|
Richest 15 Counties (share of receipts)
|
|
52%
|
34%
|
|
|
Richest
15 Counties
|
|
877,262,796
|
3,836,895
|
$32.66
|
|
Poorest
73 Counties
|
|
808,615,843
|
7,516,245
|
$15.37
|
|
15 Richest vs 73 Poorest
|
|
108%
|
51%
|
213%
|
|
Miami
|
|
48,869,876
|
98,868
|
$70.61
|
|
Hamilton
|
|
301,156,777
|
845,303
|
$50.90
|
|
Geauga
|
|
19,222,861
|
90,895
|
$30.21
|
|
Cuyahoga
|
|
278,347,281
|
1,393,978
|
$28.53
|
|
Fayette
|
|
5,172,711
|
28,433
|
$25.99
|
|
Ottawa
|
|
6,982,272
|
40,985
|
$24.34
|
|
Fulton
|
|
7,101,603
|
42,084
|
$24.11
|
|
Darke
|
|
8,995,297
|
53,309
|
$24.11
|
|
Lake
|
|
38,365,094
|
227,511
|
$24.09
|
|
Highland
|
|
6,830,414
|
40,875
|
$23.87
|
|
Greene
|
|
24,279,342
|
147,886
|
$23.45
|
|
Erie
|
|
13,046,573
|
79,551
|
$23.43
|
|
Wayne
|
|
18,246,925
|
111,564
|
$23.37
|
|
Mahoning
|
|
41,060,311
|
257,555
|
$22.77
|
|
Stark
|
|
59,585,459
|
378,098
|
$22.51
|
|
Van_Wert
|
|
4,418,499
|
29,659
|
$21.28
|
|
Hancock
|
|
10,288,371
|
71,295
|
$20.62
|
|
Wood
|
|
17,330,031
|
121,065
|
$20.45
|
|
Summit
|
|
76,953,924
|
542,899
|
$20.25
|
|
Auglaize
|
|
6,577,973
|
46,611
|
$20.16
|
|
Williams
|
|
5,353,083
|
39,188
|
$19.51
|
|
Montgomery
|
|
75,717,621
|
559,062
|
$19.35
|
|
Belmont
|
|
9,265,915
|
70,226
|
$18.85
|
|
Clark
|
|
18,583,800
|
144,742
|
$18.34
|
|
Shelby
|
|
6,120,967
|
47,910
|
$18.25
|
|
Coshocton
|
|
4,606,265
|
36,655
|
$17.95
|
|
Franklin
|
|
130,872,393
|
1,068,978
|
$17.49
|
|
Wyandot
|
|
2,798,624
|
22,908
|
$17.45
|
|
Delaware
|
|
13,245,291
|
109,989
|
$17.20
|
|
Seneca
|
|
7,044,935
|
58,683
|
$17.15
|
|
Lucas
|
|
54,126,008
|
455,054
|
$16.99
|
|
Henry
|
|
3,417,432
|
29,210
|
$16.71
|
|
Trumbull
|
|
26,198,467
|
225,116
|
$16.63
|
|
Union
|
|
4,745,519
|
40,909
|
$16.57
|
|
Crawford
|
|
5,445,353
|
46,966
|
$16.56
|
|
Licking
|
|
16,270,217
|
145,491
|
$15.98
|
|
Pickaway
|
|
5,834,747
|
52,727
|
$15.81
|
|
Mercer
|
|
4,449,741
|
40,924
|
$15.53
|
|
Paulding
|
|
2,175,705
|
20,293
|
$15.32
|
|
Jefferson
|
|
7,903,809
|
73,894
|
$15.28
|
|
Logan
|
|
4,819,958
|
46,005
|
$14.97
|
|
Warren
|
|
16,585,335
|
158,383
|
$14.96
|
|
Washington
|
|
6,618,442
|
63,251
|
$14.95
|
|
Portage
|
|
15,817,247
|
152,061
|
$14.86
|
|
Allen
|
|
11,188,085
|
108,473
|
$14.73
|
|
Holmes
|
|
3,978,418
|
38,943
|
$14.59
|
|
Tuscarawas
|
|
9,275,278
|
90,914
|
$14.57
|
|
Fairfield
|
|
12,430,957
|
122,759
|
$14.47
|
|
Putnam
|
|
3,506,892
|
34,726
|
$14.43
|
|
Defiance
|
|
3,910,879
|
39,500
|
$14.14
|
|
Huron
|
|
5,760,810
|
59,487
|
$13.83
|
|
Champaign
|
|
3,686,344
|
38,890
|
$13.54
|
|
Harrison
|
|
1,500,853
|
15,856
|
$13.52
|
|
Clinton
|
|
3,807,152
|
40,543
|
$13.41
|
|
Medina
|
|
13,936,925
|
151,095
|
$13.18
|
|
Lorain
|
|
26,250,722
|
284,664
|
$13.17
|
|
Preble
|
|
3,866,445
|
42,337
|
$13.05
|
|
Ashland
|
|
4,796,188
|
52,523
|
$13.05
|
|
Muskingum
|
|
7,580,136
|
84,585
|
$12.80
|
|
Adams
|
|
2,421,836
|
27,330
|
$12.66
|
|
Butler
|
|
29,412,882
|
332,807
|
$12.63
|
|
Marion
|
|
5,823,921
|
66,217
|
$12.56
|
|
Sandusky
|
|
5,418,775
|
61,792
|
$12.53
|
|
Madison
|
|
3,455,664
|
40,213
|
$12.28
|
|
Ross
|
|
5,962,160
|
73,345
|
$11.61
|
|
Hardin
|
|
2,558,354
|
31,945
|
$11.44
|
|
Clermont
|
|
14,058,725
|
177,977
|
$11.28
|
|
Richland
|
|
10,171,370
|
128,852
|
$11.28
|
|
Knox
|
|
4,298,621
|
54,500
|
$11.27
|
|
Brown
|
|
3,058,925
|
42,285
|
$10.33
|
|
Hocking
|
|
2,038,984
|
28,241
|
$10.31
|
|
Columbiana
|
|
7,383,037
|
112,075
|
$9.41
|
|
Morgan
|
|
975,289
|
14,897
|
$9.35
|
|
Ashtabula
|
|
6,671,951
|
102,728
|
$9.28
|
|
Guernsey
|
|
2,585,434
|
40,792
|
$9.05
|
|
Morrow
|
|
1,955,784
|
31,628
|
$8.83
|
|
Scioto
|
|
4,881,715
|
79,195
|
$8.81
|
|
Jackson
|
|
1,994,117
|
32,641
|
$8.73
|
|
Monroe
|
|
915,697
|
15,180
|
$8.62
|
|
Athens
|
|
3,713,556
|
62,223
|
$8.53
|
|
Pike
|
|
1,457,152
|
27,695
|
$7.52
|
|
Vinton
|
|
600,308
|
12,806
|
$6.70
|
|
Noble
|
|
637,959
|
14,058
|
$6.48
|
|
Carroll
|
|
1,280,476
|
28,836
|
$6.34
|
|
Meigs
|
|
975,677
|
23,072
|
$6.04
|
|
Lawrence
|
|
2,400,431
|
62,319
|
$5.50
|
|
Gallia
|
|
1,180,558
|
31,069
|
$5.43
|
|
Perry
|
|
1,264,730
|
34,078
|
$5.30
|
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 approval of 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.
|
Ohio Estate Tax Distribution
to Cities, Villages and Townships
(Total for tax years 1998, 1999, 2000, 2001, 2001, 2003,
2004). Source: Ohio Department of Taxation
http://tax.ohio.gov/divisions/tax_analysis/tax_data_series/estate/et1/et1cy03.stm
|
Local_Government
|
County
|
Estate tax receipts distributed to local
government (US$) (1998-2004)
|
Population (2000, U.S. Census)
|
Estate Tax receipts distributed per capita
per yr
|
|
|
|
|
|
|
|
Total (2331) municipalities &
townships
|
|
1,685,878,640
|
11,353,140
|
21
|
|
|
|
|
|
|
|
Total 240 Cities
|
|
1,020,960,236
|
6,538,320
|
22
|
|
Poorest 221 Cities
|
|
808,492,527
|
6,298,642
|
18
|
|
Richest 19 Cities
|
|
212,467,708
|
239,678
|
127
|
|
Indian_Hill
|
Hamilton
|
35,884,423
|
5,907
|
868
|
|
Pepper_Pike
|
Cuyahoga
|
10,571,890
|
6,040
|
250
|
|
Beachwood
|
Cuyahoga
|
18,625,422
|
12,186
|
218
|
|
Oakwood
|
Montgomery
|
11,757,474
|
9,215
|
182
|
|
Shaker_Heights
|
Cuyahoga
|
31,887,194
|
29,405
|
155
|
|
Rocky_River
|
Cuyahoga
|
17,076,142
|
20,735
|
118
|
|
St._Clairsville
|
Belmont
|
3,859,346
|
5,057
|
109
|
|
Upper_Arlington
|
Franklin
|
23,485,419
|
33,686
|
100
|
|
Bay_Village
|
Cuyahoga
|
11,106,475
|
16,087
|
99
|
|
Springdale
|
Hamilton
|
5,704,154
|
10,563
|
77
|
|
Lyndhurst
|
Cuyahoga
|
8,068,952
|
15,279
|
75
|
|
Fairlawn
|
Summit
|
3,848,243
|
7,307
|
75
|
|
Montgomery
|
Hamilton
|
5,008,500
|
10,163
|
70
|
|
Wyoming
|
Hamilton
|
3,931,304
|
8,261
|
68
|
|
Madeira
|
Hamilton
|
4,094,135
|
8,923
|
66
|
|
Hillsboro
|
Highland
|
2,891,900
|
6,368
|
65
|
|
St._Bernard
|
Hamilton
|
2,114,584
|
4,924
|
61
|
|
North_Canton
|
Stark
|
7,020,386
|
16,369
|
61
|
|
Bexley
|
Franklin
|
5,531,765
|
13,203
|
60
|
|
Richest 19 Cities (percentage share of
city tax receipts or population)
|
|
20.8%
|
3.7%
|
|
|
|
|
|
|
|
|
Largest 6 Cities (of 221)
|
|
307,940,959
|
2,208,692
|
20
|
|
Cincinnati
|
Hamilton
|
137,248,418
|
331,285
|
59
|
|
Akron
|
Summit
|
36,649,495
|
217,074
|
24
|
|
Toledo
|
Lucas
|
30,151,757
|
313,619
|
14
|
|
Columbus
|
Franklin
|
64,162,882
|
702,132
|
13
|
|
Cleveland
|
Cuyahoga
|
31,101,982
|
478,403
|
9
|
|
Dayton
|
Montgomery
|
8,626,424
|
166,179
|
7
|
|
Largest 6 Cities (percentage share of
city tax receipts or population)
|
|
30.2%
|
33.8%
|
|
|
|
|
|
|
|
|
Total 698 Villages
|
|
154,390,074
|
873,604
|
25
|
|
Poorest 673 Villages
|
|
76,908,031
|
825,526
|
13
|
|
Richest 25 Villages
|
|
77,482,043
|
48,078
|
230
|
|
Hunting_Valley
|
Cuyahoga
|
22,015,560
|
590
|
5,331
|
|
Kirtland_Hills
|
Lake
|
11,125,312
|
597
|
2,662
|
|
Waite_Hill
|
Lake
|
2,672,498
|
446
|
856
|
|
Hills_&_Dales
|
Stark
|
1,142,914
|
260
|
628
|
|
Chagrin_Falls
|
Cuyahoga
|
9,088,601
|
4,024
|
323
|
|
Bratenahl
|
Cuyahoga
|
2,339,709
|
1,337
|
250
|
|
Jacksonburg
|
Butler
|
80,998
|
67
|
173
|
|
Gates_Mills
|
Cuyahoga
|
2,976,361
|
2,493
|
171
|
|
Ottawa_Hills
|
Lucas
|
5,094,378
|
4,564
|
159
|
|
Sugar_Bush_Knolls
|
Portage
|
241,073
|
227
|
152
|
|
Amberley
|
Hamilton
|
2,855,309
|
3,425
|
119
|
|
Terrace_Park
|
Hamilton
|
1,634,912
|
2,273
|
103
|
|
Mariemont
|
Hamilton
|
2,335,068
|
3,408
|
98
|
|
Granville
|
Licking
|
2,082,805
|
3,167
|
94
|
|
Put-in-Bay
|
Ottawa
|
83,749
|
128
|
93
|
|
South_Russell
|
Geauga
|
2,603,536
|
4,022
|
92
|
|
Uniopolis
|
Auglaize
|
158,399
|
256
|
88
|
|
Woodlawn
|
Hamilton
|
1,712,634
|
2,816
|
87
|
|
Moreland_Hills
|
Cuyahoga
|
1,845,245
|
3,298
|
80
|
|
Orange
|
Cuyahoga
|
1,778,471
|
3,236
|
79
|
|
Kelleys_Island
|
Erie
|
189,726
|
367
|
74
|
|
Marble_Cliff
|
Franklin
|
332,112
|
646
|
73
|
|
Clifton
|
Greene
|
66,727
|
130
|
73
|
|
Mayfield
|
Cuyahoga
|
1,713,139
|
3,435
|
71
|
|
Poland
|
Mahoning
|
1,312,806
|
2,866
|
65
|
|
Richest 25 Villages (percentage share of
village tax receipts or population)
|
|
50.2%
|
5.5%
|
|
|
|
|
|
|
|
|
Total 1309 Townships
|
|
508,876,278
|
3,875,107
|
19
|
|
Poorest 1284 Townships
|
|
381,096,802
|
3,735,263
|
15
|
|
Richest 25 Townships
|
|
127,779,476
|
139,844
|
131
|
|
Elizabeth
|
Miami
|
37,108,724
|
1,620
|
3,272
|
|
Beavercreek
|
Greene
|
7,113,312
|
3,063
|
332
|
|
Baughman
|
Wayne
|
6,168,869
|
2,873
|
307
|
|
Chagrin_Falls
|
Cuyahoga
|
173,393
|
135
|
183
|
|
Clinton
|
Shelby
|
1,410,501
|
1,223
|
165
|
|
Huron
|
Erie
|
2,591,075
|
2,572
|
144
|
|
Washington
|
Auglaize
|
1,385,692
|
1,429
|
139
|
|
Sycamore
|
Hamilton
|
18,716,937
|
19,675
|
136
|
|
Hardy
|
Holmes
|
1,498,058
|
2,317
|
92
|
|
Buckskin
|
Ross
|
520,614
|
827
|
90
|
|
Jasper
|
Fayette
|
400,965
|
665
|
86
|
|
Paint
|
Fayette
|
590,197
|
1,031
|
82
|
|
Catawaba_Island
|
Ottawa
|
1,717,582
|
3,157
|
78
|
|
Bainbridge
|
Geauga
|
5,721,128
|
10,916
|
75
|
|
Sharon
|
Franklin
|
958,903
|
1,831
|
75
|
|
Brownhelm
|
Lorain
|
921,951
|
1,792
|
73
|
|
Olmsted
|
Cuyahoga
|
5,393,765
|
10,575
|
73
|
|
Liberty
|
Trumbull
|
6,438,824
|
12,661
|
73
|
|
Jackson
|
Stark
|
18,392,871
|
37,484
|
70
|
|
Columbia
|
Hamilton
|
2,242,435
|
4,619
|
69
|
|
Hanover
|
Licking
|
869,869
|
1,846
|
67
|
|
Van_Buren
|
Shelby
|
652,406
|
1,424
|
65
|
|
Spring_Valley
|
Greene
|
890,040
|
1,979
|
64
|
|
Taylor_Creek
|
Hardin
|
221,028
|
517
|
61
|
|
Perrysburg
|
Wood
|
5,680,341
|
13,613
|
60
|
|
Richest 25 Townships (percentage share of township
tax receipts or population)
|
|
25.1%
|
3.6%
|
|
|
|
|
|
|
|
|
84 Other census entities or
parts of cities
|
1,652,052
|
66,109
|
4
|
|
Either not included in
Department of Taxation file or included without population in 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 reform nor repeal bill has survived the Ways and Means committee
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 or are fairly represented
by lobbyists who mostly act for the wealthier towns, 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. Furthermore, Ohio
legislators may not realize how anti-tax reform behavior loses votes at the
polls. For example, perhaps the term-limited Kilbane’s limited support for tax
reform legislation contributed to the defeat of her partisan replacement in the
Rocky River legislative district in
November 2006, and to the wider defeat of her party, whose limited tax reform
achievements have been ignored or dwarfed by the calls for general governmental
reform by the other party.
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 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 seemingly 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 devolved
down to home-rule governments for their councils or their citizens to approve
or repeal. Already, the federal ‘death tax’ is severe, but purports to treat
Americans alike with all receipts going into the national 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 take over its respective local
‘death tax’ while eliminating the state administered death tax? Many
governments tax property, municipal income, school income, and municipal sales
under home-rule: why not devolve the Ohio
estate tax down to the local governments? Thus statewide repeal could be linked
to a statute authorizing local governments to take over their own replacement
tax, enacting any changes, reforms, or repeal, 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 years 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 in Ohio
are struggling to find the employers and gross local product (GLP) to support
their high tax endeavors, and are finding that taxing higher and harder leads
to a vicious cycle of economic shutdown and consequently, lower tax revenues.
More importantly, most local governments are waking up to the fact that
statewide tax distributions and funding formulas are extremely unfair, the result
of a century of compromises that have left Ohio
with a burdensome, Byzantine and weirdly regressive tax funding system. As Ohio
is impoverished, taxpayers and families are not getting enough local revenue to
fund their communities and schools and are looking to the unfair distribution
of revenues to the richer towns of Ohio.
Local Ohioans are crying out for solutions.
Specific to this report, 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 across
their borders into their communities, renewing them 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
unfair tax on death, abnormally and regressively distributed. In sum, the Ohio
estate tax is a “ghastly tax.”
Appendix
Draft local resolution to
effectively opt out of estate tax regime and to become a local Ohio
haven for entrepreneurs and high net worth permanent residents
Resolved, it shall not be the policy of the municipality to
profit from the assessment of Ohio
estate taxes or death duties assessed on the estates of citizens who have died
and who resided or owned property in the municipality. Accordingly, any funds distributed
to the municipality in any calendar year due to the Ohio estate tax having been
collected with respect of the estate of any decedent under Chapter 5731 of the
Revised Code, as amended, shall be first allocated or distributed to the
general revenue fund of the municipality, and then refunded from the general
revenue fund of the municipality directly to the estate of the decedent, within
one year of receipt. If in any year, any portion of estate tax receipts due to
the municipality cannot be allocated under a fair accounting to the individual
estates of decedents, then representatives of decedents’ estates shall be
notified of their eligibility to apply in writing for their share of the
unallocated portion of the year’s estate tax receipts, and upon application and
within one year, the unallocated portion of the year’s estate tax receipts
shall be distributed pro-rata to the applicable estates of decedents according
to the amount of Ohio estate taxes paid by the estates. No interest shall be
paid on any refunded estate tax receipts.
(Substitute language as appropriate for Townships or
Villages or to enact a credit against other municipal taxes. Consult proper
authority or legal advisor before attempting to utilize this draft local policy
proposal.)
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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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