Monday, January 17, 2011

Why there should be no repeal of Ohio's estate tax or renewal of federal estate tax cut

The following is information I've begun to put together to shed some light on the current efforts to repeal the State of Ohio's estate tax as well as the effort to renew the federal estate tax cuts.

The following information has been posted today as comments for the Plain Dealer's editorial:

by The Plain Dealer Editorial Board | Monday, 1/17/11.

Current Estate Tax for Ohio
Amount over $338,333 but not over $500,000; 
$13,900 plus 6% of the excess over $338,333
Amount over $500,000; $23,600 plus 7% of the excess over $500,000

Rate examples:

Amount                   Tax                   %

 $400,000                17,600               4%

   750,000                41,100               5%

1,000,000                58,600               6%

2,500,000              163,600               7%

3,000,000              198,600               7%

4,000,000              268,600               7%

5,000,000              338,600               7%

For those claiming the estate tax has any impact on the middle class - only 1.6% of Americans receive $100,000 or more in inheritance. Another 1.1% receive $50,000 to $100,000.  On the other hand, 91.9% receive nothing (REF: see table below, Kotlikoff & Gokhale, 2000, Federal Reserve Bank of Cleveland).  In ohio, the estate tax only impacted a mere .02% of the number of households – see info below.

The federal state tax rates have decreased and the exemption amounts increased from 2001 to 2009 benefiting less than 1% of Americans. For this past year - 2010 there was a 0% federal estate tax.

The attempt to eliminate inheritance taxes -- which opponents call "death taxes" for their public relations -- would eliminate a huge portion of government revenues (an estimated $1 trillion between 2012 and 2022) for the benefit of the heirs of the mere 0.6% of Americans whose death would lead to the payment of any estate taxes whatsoever (REF: Citizens for Tax Justice, 2010).

In the case of the State of Ohio's estate tax, the repeal of the tax would cut revenue to local governments by more than $230 million annually. The City of Cleveland faces a potential $8 million budget shortfall.

Funds collected from the State of Ohio's estate tax are distributed by law, 36% to the State of Ohio and 64% to the taxing district (City, Township or Village) in which the decedent had resided and/or owned real property.

Here is the breakdown of Cuyahoga County's share of the State of Ohio's Estate Tax for 2008 and the city that receive the most in revenue:

Cuyahoga County Total $30,891,039

Cleveland                  $5,382,386
Cleveland Heights       2,270,082
Beachwood                 2,150,139
Bay Village                 1,717,557
Rocky River                1,585,265
Lyndhurst                   1,244,035
Hunting Valley           1,146,762
Shaker Heights           1,141,723
Euclid                         1,085,719
Parma                         1,055,101
Pepper Pike                1,033,565
Strongsville                1,012,341
Westlake                       808,566

Please also see a very good piece written by Thomas Suddes of the Plain Dealer on 1/8/2011, for some concise arguments regarding the irony of the push to repeal the State's estate tax:

GOP's first target is Ohio's estate tax
; by Thomas Suddes, Saturday, 1/8/11.

Suddes points out the following regarding Ohio's median family income:
"The Census Bureau reports that Ohio's 2009 median family income was about $57,000 -- and the median value of an Ohio owner-occupied housing unit about $135,000."

Remember, the current state estate tax is on the value of an estate greater than $338,333.

And, a review of the number of households and persons the estate tax effects in the State of Ohio shows numbers similar to those reported nationally:

4,445,773 #Households in Ohio 2000 

8,000 # of estates taxed in 2009, or 0.18% 

11,542,645 2009 Population estimate for the State of Ohio

110,000 # of persons effected by estate tax 2009, or 0.01%

In Suddes piece, he highlights the biggest irony as his fourth and most important point –

“…The fourth (and crowning) irony: There's a lot of evidence Ohio's perceived "high tax problem" is caused as much or more by the plague of local taxes (charged by counties, school boards, cities, villages, townships and a swarm of "special districts" and "authorities") than by state taxes payable to Columbus.

Besides federal and state income taxes, and the state sales tax, it's not at all unusual for an Ohioan to pay: 1) property tax; 2) income tax to the city or village where he or she lives; 3) income tax to the city or village where he or she works; 4) income tax to a school district; 5) a piggyback local sales tax; and 6) local "sin taxes" on booze and tobacco…”

by G. William Domhoff, September 2005 (updated December 2010)

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