By J.F. McKenna
You can’t take it with you. Many in Ohio accept that not only as a fact of life but also as a matter of fiscal efficiency.
The state taxes what you can’t take to the Happy Hunting Ground—twice.
While that won’t concern you in the end, Ohio’s estate tax nonetheless shows little sympathy toward heirs. Moreover, it’s just not good business.
“Ohio is one of just 20 states that taxes its citizens and their families after they pass away,” according to State Treasurer Josh Mandel. “When residents and retirees leave Ohio for friendlier tax climates, they take their financial, charitable and intellectual capital with them. The result is that places like Naples and Palm Beach have become second capitals of Ohio.”
But now the 43-year-old legislation itself faces the Grim Reaper. In May the Ohio House included the repeal of the so-called death tax in its budget proposal. The Senate gets its chance to pull the plug with the passage of SB 90.
The demise of the estate tax would likely be met with more than a few tears shed. Many Ohio communities have benefitted from estate-tax revenue, and would prefer that the tax have a much longer life on the books.
As the Plain Dealer recently reported, Ohio “keeps 20 percent of the tax’s revenue and the other 80 percent is distributed to Ohio’s local governments. In fiscal year 2009, for example, the tax generated $333.8 million. The state kept $64.4 million and the remainder of the money was distributed to local governments.”
One such municipality is the economically strapped suburb of Lakewood, which banks about $900,000 in estate-tax funds every year. Another recipient of death-tax largesse is neighboring Bay Village.
“My position is ‘it’s going to hurt us tremendously,’” Bay Village Mayor Deborah Sutherland told the morning paper. “I’ve testified a couple of different times downstate already that delaying the repeal would be very wise for municipalities. They were going to actively repeal it starting Jan. 1 of this year, and they delayed it until 2013, but that’s when all the other budget cuts are going to hit from the state. We’re 97 percent residential. So trying to make that up through economic development is not going to happen.”
Mayor Sutherland’s comments are representative of quite a few Ohio mayors and city council members. Her sentiment is understandable—to a point.
Yes, it costs a lot of cash to administer a city or a county today, particularly with the national economy in suspended animation. The state is feeling the hurt as well, with a whopping $8 billion deficit hanging over its sovereign head. Gov. Kasich and the Ohio Legislature have little choice but to confront doing less with less and to ask communities to do likewise.
Common-sense economics is the only option. Governments operate courtesy of private-sector revenue, period. Raising taxes and retaining onerous ones don’t encourage individuals or businesses to stay in a state. Instead, as any honest economist will point out, the raise-and-retain strategy is a recipe for long-term and widespread economic stagnation.
Ohio is saddled with the seventh-highest state and local tax burden as a percentage of income in the nation, The Tax Foundation reports. “This unfortunate fact,” Mandel wrote in an op-ed, “makes us uncompetitive with neighboring states and vulnerable to having our companies and workers lured away. In the 15 years from 1993 to 2008, Ohio lost 231,000 citizens, while state spending more than doubled. Lawmakers need to reverse this trend.”
Not surprisingly, some of the debate over the estate tax has taken on a partisan flavor. The Plain Dealer summed it up this way: “Estate tax advocates say it keeps money from staying in the hands of the wealthy. Opponents argue it drives successful people — such as entrepreneurs and other job creators — out of the state, stunting the growth of the local economy.”
Partisan arguments be damned. Economics, in its purest form, is apolitical. Make it too costly for a a person or a business to stay in Ohio—or even a community within Ohio—and you’ll soon see moving vans pulling up. Brooklyn is learning that the hard way. (See An American Greeting: We’re Leaving, CBR May 27.) Political firebrand Howard Metzenbaum couldn’t cheat death himself, but even he “spoke” loudly from the grave about Ohio’s death tax.
Three years ago, the former U.S. senator from Ohio outfoxed the estate tax by having moved to Florida. “Howard Metzenbaum thus denied the state in which he lived most of his life a parting financial gift,” The Wall Street Journal wrote at the time. “But he has at least provided the rest of us with a teaching moment in tax policy. If a liberal lion like Metzenbaum is willing to relocate late in life to avoid his state’s death tax, maybe living politicians in Ohio will better understand how their confiscatory tax laws are driving its citizens to warmer climes.”
Ohio’s treasurer needs no persuasion. “We must create an environment where small businesses can flourish in our state so that industry and innovation will remain and return,” Mandel wrote in his op-ed. “We must reverse the brain drain of students, families, businesses and seniors leaving the state for greener pastures. Eliminating the death tax once-and-for-all will be a good start toward making Ohio more attractive to entrepreneurs, family businesses, farmers and individuals who want to create and maintain their families and businesses here in Ohio. While it’s important that we don’t stop here, ending the estate tax is a good first step toward Ohio’s long-term economic recovery.”
Here in northeast Ohio, the new Cuyahoga County government recently shared its economic-development plan, noting the residents’ clear mandate to promote “job creation and economic growth as a fundamental government purpose.” The plan outlines a handful of immediate and near-term actions for fulfilling that mandate, including the reorganization of the county’s department of development.
Before the Ohio Senate votes on SB 90 next month, the county government should add one more action item: lending its support to burying Ohio’s estate tax.
J.F. McKenna is a veteran business journalist and communications specialist. Reach him at email@example.com .