Death and taxes, life’s two horrible inevitabilities, remain linked here in Ohio, which like 18 other states and the federal government, continues to levy a death tax. The relatively modest and unreliable revenue generated by the tax cannot possibly justify its harmful effects.  It’s therefore long past time for Ohio to repeal the death tax and proclaim that, in Ohio, there will be no taxation without respiration.

The Ohio death tax generated a total of $272 million in tax revenues during fiscal 2006, the most recent year with final data available. Of that total, only $54 million went to the state coffers—less than one quarter of one percent of total Ohio tax revenues.  That’s a blip in the state budget that could be easily eliminated without raising other taxes.

The rest of the death tax proceeds go to local governments but represent less than 2% of total local tax revenues. And because death tax revenues are so erratic—it’s hard to predict when a wealthier resident in a particular town will die—local governments don’t include them in their budgets, but treat them as “found money” to spend on political pet projects and other spending not important enough to be included in regular budgets.

The death tax is widely condemned by major economists. It is bad public policy because it creates a substantial dead weight loss. To witness this fact, just open a phone book and notice how many estate planners are out there. With this tax, the government has created an entire cottage industry of accountants, lawyers, and insurance companies that divert an awful lot of time and money to avoiding the death tax.  One key test of good tax policy is simplicity, and the death tax fails this test miserably.

The death tax also punishes virtue and rewards vice. By telling those nearing death that they can’t take it with them or leave it to their kids, the tax rewards reckless consumption.  It discourages the traditional American values of hard work and thrift and leaving the next generation better off.   At a time when rising consumer debt is becoming a serious concern, government should be rewarding frugality not punishing it with confiscatory taxation.

Taxes are necessary, but double taxation is not. Sound tax policy dictates that money be taxed once. When the death tax is levied, the deceased have already paid income taxes, sales taxes, and property taxes. We pay taxes all our lives—when we die the state of Ohio shouldn’t tax us again.

Proponents of this tax contend that it reduces the income gap between the rich and the poor. They argue that those who have been successful should not be able to leave their money to spoiled heirs like Paris Hilton. In practice, this tax burdens mostly the entrepreneurial class which has invested in fixed capital on family farms and small businesses.  The super wealthy avoid the tax through expensive estate planning techniques or by moving to states that don’t levy death taxes (most state do not) such as Florida. Ohio’s economy suffers when we encourage our most economically successful people to move away.

This tax does little to benefit the poorest Ohioans. Through the allocation process of returning money to the local governments the money raised through the death tax stays in wealthy communities.

The death tax is a hated tax.  Polls consistently show that vast majorities of Americans do not believe death should be a taxable event.  In fact, the Founding Fathers viewed the seizures of estates as such a pernicious event that the United State Constitution forbids seizing an estate at death as a penalty for treason.  We should not impose such an odious penalty on Ohio residents for nothing more than being successful.

With high compliance costs and the perverse effects of punishing frugality and encouraging people to leave, the negatives of the death tax far outweigh any possible social or fiscal benefit.  Ohio will become a more prosperous and humane state if it finally buries its death tax.

Americans for Prosperity - Ohio is sponsoring a contest with cash prizes to find stories about how the Ohio Estate Tax has harmed the lives of Ohio citizens.  Please go to our web site at https://ex03.mindshift.com/exchweb/bin/redir.asp?URL=http://www.afphq.org and click on the Ohio link for details. 

-- Mr. Boyle is the Ohio Director for Americans for Prosperity.