User:Bdb484/Ohio estate tax

Two libertarian-leaning organizations, the Buckeye Institute and the Ohio chapter of Americans for Prosperity, are pursuing an initiative that would repeal Ohio’s estate tax. If the General Assembly does not act to approve the measure within four months of its certification, the question would be referred to the voters for their approval.

Proponents of the measure claim that the estate tax is unnecessary, and is driving people and businesses out of Ohio at a time when the state can afford to lose neither revenue nor human capital. Opponents similarly argue that with the state facing an $8 billion deficit for the upcoming fiscal biennium, Ohio cannot afford to lose the more than $300 million the tax generates annually.

This article will examine the background of Ohio’s estate tax, the history of the anti–estate tax movement, the motivation of the groups pushing for this proposal, the pitches likely to be made by advocates on both sides of the issue, and the likelihood of their success. It will also evaluate the initiative’s likelihood of success by drawing on lessons learned from similar campaigns in Ohio and elsewhere.

History
Ohio has levied an estate tax since 1968. The passing of an estate from one person to another is a two-party transaction, requiring one person to pass the estate on and another to receive it. Although many people think of the estate tax as a tax on the recipient of the estate — that is, after all, the only person who is going to notice anything missing — the tax is technically levied on "the privilege of transferring property" at the time of one's death. Inheritance taxes, meanwhile, could be considered the estate tax's parallel, an additional income tax of sorts on assets received as the result of another person's death. Although estate taxes are common, they are relatively insignificant as a source of income, generating about $5.7 billion nationwide in 2004. For more than 100 years, Ohio has levied some sort of "death tax." It started with an inheritance tax in 1893, but that tax was repealed and replaced with an estate tax in 1968.

Currently, Ohio's estate tax is levied in six tiers, ranging from 2 to 6 percent of the value of the "taxable estate," with the rate rising as the value of the estate rises. Thanks to a series of credits, however, most estates will never be directly affected by the tax. The credits leave estates worth less than $300,000 effectively untaxed. Estates over that value are subject to a 6 percent tax, while estates worth more than $500,000 are taxed at 7 percent. In Ohio, the tax generated $317.1 million in 2008, the most recent year for which data is available. The state keeps 20 percent of that revenue, while the rest is divided proportionally among the municipalities whose residents paid the tax. In larger cities and counties, the revenue from the tax is reliable enough that governments are comfortable enough to plan on it when writing budgets. In smaller cities, the windfall that accompanies the collection of the tax is typically used to take on some kind of capital project that has perhaps been long planned-for but unfulfilled because of funding problems.

Benefits
One of the fundamental principles of tax fairness is progressivity, the extent to which a tax is levied based on ability to pay. Taxing everyone at the exact same rate may seem fair at first blush, but a person whose income leaves her struggling just to keep the lights on and feed her children will feel the impact of a 20 percent income tax much more acutely than someone who has more wealth than he knows what to do with. Further, the more the poor are taxed, the more reliant they are likely to become dependent on taxpayer-funded social services, making those taxes more and more impractical and inefficient. In this respect, one of the most attractive features of the estate tax is its progressivity. Only the wealthiest 2 percent of taxpayers are subject to the federal tax, and most states have also structured their taxes to target only the highest-income earners.

In Ohio, roughly 8,300 people paid the estate tax in 2008, generating nearly $373 million for the state and local governments. Again, all of those taxpayers holding on to at least $300,000 in assets at the time of their death, and more than a quarter of them left behind assets of at least $1 million, often after very aggressive planning to limit their estate tax liability. Because the "taxable estate" generally excludes farm property, funeral costs, costs associated with administering the estate, outstanding claims against the estate, unpaid mortgage debt and charitable contributions, many estates that would otherwise be taxable are never touched, and the burden of the tax is substantially reduced for those administering the estate.

There also exist arguments that the estate tax prevents social ills associated with unearned wealth. The claim dates at least back to 1924, when Winston Churchill praised the British system for discouraging "a race of idle rich." He went on to say that "If they are idle, they will cease in a few generations to be rich," suggesting that he sought not to discourage wealth, but rather to maintain its association with productivity and industriousness.

Supporters also claim that the tax is a less direct disincentive to work than the income tax, that the assets that tend to be taxed have generally not already been subject to taxation, and that the tax helps to mitigate the destabilizing effects of wealth disparity.

Disadvantages
Along with fairness, another fundamental principle of sound tax policy is neutrality: a properly levied and administered tax should have as little impact as possible on a payer's decisions in the free market. Here, the estate tax is considered to be far from neutral by supporters and opponents alike. There is broad agreement that the wealthy take great pains to avoid estate tax liability, though they may disagree whether that is because the rates are too high or because the law has too many loopholes. Either way, people's aversion to paying also lends to its inefficiency.

Further, there are concerns that beyond having an effect on taxpayer's conduct in the market, the tax is exerting control over people's very lives. A 2001 study of U.S. estate tax returns found that "some people will themselves to survive a bit longer if it will enrich their heirs," and another study found that when Australia abolished its estate tax, "a disproportionately high number of people died in the week after the abolition as compared with the week before." And a 2008 study warned physicians that the year-long repeal of the federal estate tax in 2010 could have profound effects on patients' end-of-life decisions, as it would create great incentives for those terminally ill at the end of 2009 to avail themselves of procedures to prolong their lives into the next year. Conversely, it could discourage patients at the end of 2010 from accepting treatments that could keep them alive into 2011, when the estate tax would effectively jump from 0 percent to 55 percent. The estate tax is no longer scheduled for a full repeal, but whatever one thinks about its merits, it seems obvious that sound tax policy should avoid becoming a critical factor in end-of-life planning.

Political positioning
Because the estate tax has in the last decade become a somewhat hot political issue, there is plenty of groundwork already laid for those looking to launch campaigns to repeal it or to prevent its repeal. The debate over the 2001 bill to phase out the federal estate tax, as well as subsequent efforts to make that repeal permanent, provided a wealth of experience and material for strategists looking to hone their message. Since then, there have also been numerous state-level efforts to roll back estate taxes, including Initiative 920 in Washington, which unsuccessfully sought to repeal the states's estate tax in 2006.

For repeal
Estate tax opponents have formed a political action committee, Citizens United to End Ohio's Estate Tax, to coordinate their efforts. The group's website, endohioestatetax.com, makes it clear that the PAC plans to focus on three main themes: economic development, appealing to voters' sense of fairness, and playing to voters' fears of being hit with the tax themselves. Portraying the tax as a burden on middle-class families, as likely to strike you or the family next door as the real estate tycoon living on the much nicer side of town, may seem like unlikely choices because they are based in such easily refuted misperceptions, but it appears that they have been very effective just the same.

Although the estate tax's fairness and progressivity are two of its greatest strengths, it is likely that advocates of its repeal will seek to reframe the debate by casting it as fundamentally unfair, just as they have done in debates at the national level and in other states. And independent polling seems to suggest the message is powerful; A survey conducted in 2006 found that the estate tax was considered the "least fair" or "worst" federal tax by 31 percent of respondents, outpacing its nearest competitor, the personal income tax, by six points. And more recently, the 2009 iteration of that same survey found that 65 percent of respondents considered it "somewhat" or "very unfair," and roughly the same amount favored fully repealing the tax.

Despite the success of those messages, it appears that the PAC is making a calculated decision to focus more heavily on an argument that the estate tax is having a negative impact on the jobs outlook in the state. Its website claims the tax "drives jobs and capital out of Ohio" and focuses more heavily on economic arguments than on emotional arguments, though it is suspiciously light on data to support its claims. If the Obama administration can't figure out how many jobs the stimulus bill has created, proving or disproving a connection between the estate tax and job creation is likely to be a tall order.

Just the same, jobs are a very salient issue in Ohio, which was already hurting for work before the economy tanked in 2008. It seems that politicians will use jobs to sell or squash any issue that comes their way. Candidates for various offices have tied the promise of jobs to all kinds of issues, including campaign-finance reform, repealing the state income tax and even a proposal for a tax calculator on the Department of Taxation's website.

One minor messaging tactic also bears mention. For about 10 years, the Republican Party and those opposed to the estate tax have nearly scrubbed the words "estate tax" from their vocabulary. Instead, they've rebranded the tax as the "death tax," which they believe conjures up negative images and associations that diminish support for the tax. Although the neologism was apparently created by Jack Faris, then the president of the National Federation of Independent Business, much of the legwork in introducing it to a broader audience is credited to Frank Luntz, a pollster who provided messaging advice that helped drive the Contract with America and the 1994 "Republican Revolution." Luntz wrote that "death tax" creates an impression of a tax that is not only immoral but also one that they are more likely to one day be forced to pay. Such a minor change could easily be dismissed as meaningless, but Luntz's polling showed that calling the tax a "death tax" led to a 10-point uptick in perceptions that the tax was unfair. "And while a narrow majoirty would repeal the 'inheritance tax' or 'estate tax,' an overwhelming majority would repeal the 'death tax,'" Luntz said. "If you want to kill it, always refer to it as the 'death tax.'"

Against repeal
Because they are the group working to challenge the status quo, the pro-repeal forces necessarily have a head start on organizing their campaign. The groups likely to oppose the initiative do not yet have any apparent campaign apparatus. However, their strategies are likely to mirror those of their counterparts at the federal level and the opponents of Washington's Initiative 920.

Rapid-response teams and "truth squads" are becoming more prevalent in political campaigns, and such an effort may be useful in this case. Because so much of the pro-repeal rhetoric appears to be based on inaccurate information, those seeking to keep the tax would probably benefit from a high-profile repository of information about how the tax is applied, who actually pays, and what happens to the money it generates.

Claims that the tax "hits the middle class, homeowners, and farmers" are certainly questionable. It's probably a very rare case indeed when the estate tax hits someone who doesn't own at least one home, but it's probably even more rare that a middle-class taxpayer or farmer in Ohio passes on assets worth more than $330,000 after subtracting the value of all the deductions listed above. In fact, of the 106,825 people who died in Ohio in 2006, only 7,706 — or 7.2 percent — were subject to taxation. Estates subject to taxation after generous deductions that year were worth more than $3 million on average — hardly painting a picture of Joe Six-Pack struggling to find anything to pass on to his children after the tax man gets his cut.

This was just the strategy employed by the "No on 920" campaign four years ago in Washington. Sandeep Kaushik, who directed communications for that campaign, said that education was the most important element in his strategy.

"Repeal propoents have been working for decades to mislead people about the estate tax," he said. Washington's tax, which has a much higher threshold, only affects about one-half of one percent of taxpayers. "But about 40 percent of the public thought they would pay the estate tax. Over the course of the campaign, we cut that number in half. [...] We worked hard to provide them with the facts about what the estate tax is and how it works and give them a basic cost-benefit analysis."

Cutting that number, he said, may have been be the deciding factor, as there seemed to be strong links between one's expectation of paying the tax and one's support for its repeal.

Projected outcome
At a time when the state is having so much trouble putting together budgets and fighting deficits, it's hard to imagine how voters could choose to completely repeal a tax that affects so few of them. At the same time, the anti-tax movement seems to be stronger than ever, and the combination of a down economy, contempt for government and Tea Party activism may very well be potent enough to push an issue like this over the top. For both sides, success depends on finding and mobilizing the right voters. Although operatives on both sides of the repeal movement acknowledge that this is not an issue that splits voters into neat partisan categories, they have been able to identify ways to reach the voters they believe will be critical.

Supporters
Anti–estate tax activists have the opportunity to build a somewhat diverse coalition of supporters. Naturally, they can expect support from the wealthy and politically motivated taxpayers who have a stake in the outcome of the issue. As discussed above, despite the small number of people affected by the tax, there is broad opposition to the estate tax among Americans, despite the fact that most of them will never have to worry about it.

Activists are also finding deep support among the newly formed Tea Party set. Dan Regenold, the owner of a frame shop an operative in the campaign to repeal Ohio's estate tax, is currently focusing his efforts on signature-gathering in Cincinnati and Southeast Ohio. He says that as the campaign has been ramping up, it has found tremendous support from Tea Partiers, and he estimates he has been in contact with between 50 and 70 local Tea Party groups, all of which have been supportive of his efforts.

Institutionally, the movement is likely to have help from several types of interest groups. "Liberty groups" such as the Buckeye Institute, Americans for Prosperity and the Coalition Against Additional Spending and Taxes, are already on board and have advocated for estate tax repeal for years. The Ohio Farm Bureau has also lent its support to the campaign, Regenold says.

Opposition
According to Kaushik, opponents of repeal could be wise to focus less on coalition-building and more on education. Opposition to estate tax repeal increased "as you went up the income scale and as you went up the scale of educational attainment." Those voters may have simply been better-equipped to sort out the facts from the fiction regarding whether or not they were likely to be troubled by the estate tax. There are far fewer interest groups likely to be naturally energized by a campaign to keep an estate tax, but one group that did take a very active interest in the Washington campaign was the Washington Education Association, an umbrella group of teachers' unions, which donated nearly half of the money for the No on 920 campaign. Because Washington's tax was primarily used to fund education and its repeal could have meant serious budget cuts or layoffs in public schools, teachers took an enormous interest and played a very active role in the campaign. In Ohio, estate tax revenue is not dedicated to any specific program, but repeal opponents can probably still rely on strong support from public-sector unions, who are already being battered by budget cuts and are unlikely to appreciate threats to cut still more money from the accounts that fund their paychecks.

Swing votes
As in any election, the most important element of the campaign will be persuading the undecided middle to pick a side. Will the antigovernment sentiment that seems to be sweeping the nation be enough to convince voters to cut off longstanding revenue streams? Or will the perennial budget cuts across the state make it too hard for voters to justify getting rid of even a tax that they strongly oppose? The estate tax generally receives poor ratings from the public; just the same, it may not be such a hot-button issue that everyone who opposes it is really ready to simply repeal it. Stopping tax collections will obviously have an impact on some of the state's operations, and the campaigns in Ohio will likely focus on what that impact will be.