Tax Justice Digest stories about Ohio

Ohio Report Highlights Need for State EITC

April 24, 2009 4:48 PM | Permalink

A new report from Policy Matters Ohio offers a wealth of information on the benefits of enacting a state level EITC. Over twenty states already offer such a credit, though as the report points out, Ohio policymakers in recent years have instead focused on providing "extensive reductions in tax payments for higher-earning taxpayers." The report includes data on the use of the federal EITC in Ohio, data on the breakdown by district of benefits from a state EITC, and a distributional analysis from ITEP.

Making the News: Progressive Changes to Ohio, Minnesota, and Montana's Income Tax

February 27, 2009 3:04 PM | Permalink

We've been lamenting for the past several years about the folly of Ohio's former Governor Bob Taft pushing through a phased-in 21 percent cut in income tax rates. Of course, the tax reductions made Ohio's overall tax structure less fair. Policy Matters Ohio recently released a report detailing the impact of the Taft tax cuts. Analysts there found that "key economic trends continued to go in the wrong direction after the tax overhaul." Despite this evidence, current Governor Ted Strickland has vowed to continue Taft's tax cutting legacy. But there is some hope brewing in the Buckeye state.

Representative Michael Skindell has called for freezing the phase-in of the Taft tax cuts for the wealthiest Ohioans. It's estimated that adopting Skindell's recommendation would bring in over $200 million and it's certainly a step toward making Ohio's income tax more progressive.

For tax justice advocates in Minnesota, it's a bleak time. Governor Tim Pawlenty is vehemently anti-tax, and his 21st Century Tax Reform Commission has largely followed his lead with recommendations to eliminate the state's corporate income tax and enact several investment tax credits, though in fairness the Commission does recommend two revenue raising options: expanding the sales tax base and increasing cigarette taxes. It's too bad that progressive revenue raising options weren't mentioned. It's hardly a surprise that some would like to see income tax cuts for the wealthiest Minnesotans preserved. But Wayne Cox at Minnesotans for Tax Justice argues against tax cuts in a recent commentary, correctly arguing that increasing the progressivity of Minnesota's tax structure would not harm the state's business climate. He warns that "the alternative is carrying out an even riskier plan that trims muscle, not fat."

There are more good proposals on improving the progressivity of state income taxes. Next we turn to Montana where Representative Dave McAlpin is trumpeting a "fix" to the state's 2003 major tax revision that reduced the top tax rate and bracket. State estimates were that the tax changes were supposed to cost $26 million a year, but in reality they actually cost the state $100 million. His legislation would introduce a new top income tax rate of 7.9 percent on Montanans with taxable incomes over $250,000, and help to right the wrongs of the 2003 revisions. If Rep. McAlpin's bill is adopted, the state could see $26 million in additional revenue and improve the progressivity of Montana's tax structure.

For more on the importance of progressive income taxes read ITEP's policy brief on this topic.

How Ohio's Former Governor Taft Turned the Business Tax into Swiss Cheese

February 2, 2009 3:19 PM | Permalink

In 2005, Ohio's former Governor Bob Taft signed sweeping tax legislation that phased out the state's Corporate Franchise Tax, the state's corporate income tax, and the Tangible Personal Property Tax, a local tax on things like machinery and equipment, and replaced all these important revenue generators with the Commercial Activity Tax (CAT). Four years later, the CAT is one of the reasons why Ohio is facing an enormous budget deficit and the tax itself has come to resemble swiss cheese.

Proponents of the CAT, a gross receipts tax, said that it would make Ohio's business climate less burdensome and remove pesky exemptions and deductions that benefit select Ohio companies with access to legislators and lobbyists. But a report released this week by Policy Matters Ohio explains that the CAT is one reason why the state faces an enormous budget shortfall and that the low-rate, broad-based tax that its advocates promised has not come to fruition. Instead, the CAT has become a victim of lawmakers eager to insert special provisions and deductions, just as happened with the taxes that it replaced. The paper offers specific recommendations for how Ohio's business taxes could be improved. Let Ohio's experience be a lesson to other states interested in business tax reform.

New Report: Tax Cuts Don't Improve Ohio's Economy

January 16, 2009 4:25 PM | Permalink

In 2005, the Ohio Legislature adopted, and then-Governor Taft signed into law, House Bill 66, a sweeping change to the personal income tax that reduced tax rates "across the board" by twenty-one percent over five years. The cuts were passed with the promise that they would improve economic conditions for Ohioans and make the state more competitive both nationally and internationally. How did the tax cuts perform? Did Ohio see even miniscule growth in key economic indicators?

According to Policy Matters Ohio the answer is simply no.

In a report released this week, Policy Matters Ohio writes, "The results are very clear. Even before the current economic downturn, Ohio was not keeping pace with the nation. Key economic trends continued to go in the wrong direction after the tax overhaul. The report finds unmistakable evidence that the state's relative economic decline accelerated since H.B. 66 was passed." In terms of important economic indicators including economic output, productivity, manufacturing and income, Ohioans haven't enjoyed any of the promises that tax cuts were said to provide.

The enormous tax cuts have already taken millions of dollars away from government's ability to do its work and the state has little to show for its efforts. In fact, according to the report, the state joins the majority of others in facing an enormous budget shortfall of between $4.7 billion and $7.3 billion for the next budget biennium and the gap between services available and those needed is actually widening.

Despite the drastic mistake policymakers made when passing these cuts, it's not too late to undo the mess. Governor Strickland and legislators would be wise to follow the recommendations of Policy Matters Ohio and revise the current income tax structure, introduce an EITC and shore up the state's business taxes.

Buckeye State: Solutions Already Available

July 11, 2008 3:08 PM | Permalink

Ohio is one of many states that are facing a budget shortfall. One reason for the state's budget woes is the permanent income tax cuts championed by former Governor Bob Taft. The drastic cuts amount to an across the board twenty-one percent reduction in income tax rates over five years. The last round of these cuts is scheduled to take place in 2009.

Earlier this year, Policy Matters Ohio released A Step Towards Fiscal Balance: Options for Ohio's Income Tax.The report cites ITEP data and offers realistic alternatives to policymakers interested in raising revenue to fill the budget gap instead of relying on painful reductions in services. For example, freezing income tax rates at 2008 levels is offered as an option that should not be dismissed.

Momentum is building for these sound solutions. This week an Akron Beacon Journal editorial cited this report saying that it, "offered the start of an answer for a state lacking the resources to cover basic services."

State Budget Math: Economic Downturns + Enormous Tax Cuts = Painful Spending Cuts

May 2, 2008 2:35 PM | Permalink

Like many states, Ohio currently faces a serious budget deficit, one that has prompted the administration of Governor Ted Strickland to announce plans to cut agency budgets by more than $400 million for the FY08-09 biennium. The consequences of those cuts are already being felt around the state, but, as a recent column from Joe Hallett of the Columbus Dispatch implies, they shouldn’t be entirely unexpected. The combination of recent income and property tax cuts and the only-partial replacement of Ohio’s corporate income tax with a new commercial activities tax (CAT) will mean that the state will lose in excess of $10 billion in tax revenue between 2006 and 2010, making spending cuts all but inevitable.

As Hallett notes, “Tax cuts are easy to love. But the reality is that taxes pay for services citizens want and need.” This latest report from Policy Matters Ohio details the substantial revenue losses Ohio will experience as a result of reductions in personal income tax rates and explains how heavily those reductions are tilted in favor of the rich.

States React to Economic Turmoil

February 15, 2008 2:27 PM | Permalink

Many states are in a fiscal crunch and the number of states facing budget shortfalls may be growing. This week the Center on Budget and Policy Priorities released a state fiscal update saying that, "At least twenty-five states, including several of the nation's largest, face budget shortfalls in fiscal year 2009." A sluggish economy, bursting housing bubble, and the decline of tax revenues have all had a significant impact on states and their ability to keep budgets balanced.

It's not always clear that states can act as effectively as the federal government to kick start a sluggish economy, but that doesn't stop them from trying. For any legislation to be effective as a stimulus to counteract a recession, it must be "temporary, timely and targeted," as argued by the Center on Budget and Policy Priorities. Some of the stimulus initiatives being proposed on the state level meet these goals better than others. Tax cuts that are not temporary can do more harm to states in the long-run, and provisions that will not have any benefit until after a recession has passed are useless as a stimulus. Most importantly, those tax cuts not targeted towards low- and middle-income people are not likely to result in new spending that immediately spurs the economy, but will go largely towards savings, which takes much longer to have a positive effect.

Stimulus Plans in the States: Connecticut, Iowa, Georgia, and Ohio

In Connecticut, Governor Jodi Rell has asked legislators to reconsider their economic stimulus proposals, arguing that there is no money available to pay for tax cuts. Senate Democrats there proposed increasing the state's property tax credit by $250 and House Republicans proposed offering tax credits to offset medical and energy costs. It's certainly not obvious that an increased property tax credit is well-targeted, since property-owners tend to have higher incomes than everyone else. Depending on how it's implemented, it may not be timely either.

Policymakers in Georgia have proposed legislation to expand the state's personal exemptions temporarily. The legislation is targeted to the degree that it benefits middle-income people, but it doesn't reach those too poor to pay state income taxes. It's also flawed because it's not entirely timely. A lot of people won't benefit until next year.

Some Iowa lawmakers have adopted a completely different approach to providing economic stimulus by proposing a five-year property tax break for Iowans who improve their homes. According to one state senator, the tax break "really rewards all homeowners that have pursued the American dream of owning their own home." But a five-year tax break does not qualify as temporary, at least for the purpose of responding to a recession. It's also hard to believe that it would be targeted to those who need help and will spend the extra money right away, and it's not clear that any home improvements that result will happen quickly enough to qualify this as timely. Another idea being tossed around is a proposal that would expand the state's sales tax holiday to include all items subject to the sales tax. ITEP has long argued that sales tax holidays are not good policy. In this context it's worth noting that they are usually not targeted well at all, since the benefits go to everyone who shops during the sales tax holiday and because people who need help the most are less capable of shifting the timing of their consumption to take advantage of it.

Ohio Governor Ted Strickland isn't proposing increased tax credits. Instead, his plan includes borrowing $1.7 billion in an attempt to stimulate the state's economy and create 80,000 jobs. If approved by voters, more money would be available for transportation, renewable energy technologies, and local infrastructure projects. Borrowing to fund important investments makes sense in some contexts, but as a stimulus it's unclear whether these investments will give a timely boost to the economy to counteract a recession that is occurring now.

Opportunity for Ohio to Save Money

June 8, 2007 8:53 PM | Permalink

Newly elected Ohio Governor Ted Strickland has proposed expanding the state's means-tested homestead exemption by eliminating the exemption's current income limits. This year, the homestead exemption is only available for seniors and the disabled with incomes less than $27,000; the benefit of the exemption decreases as incomes grow closer to $27,000. Governor Strickland's plan would provide a blanket property tax exemption for the first $25,000 of a property's market value for elderly and disabled homeowners at all income levels. This week, Policy Matters Ohio and the Institute on Taxation and Economic Policy teamed up to analyze the impact of the Governor's proposal and also to offer less expensive alternatives that provide targeted tax relief - instead of simply providing an exemption that goes to everyone regardless of their need. By targeting property tax relief to select homeowners, Ohio could save $118 million annually. To read the full Policy Matters Ohio report click here.

Grossly Overrated

May 11, 2007 8:57 PM | Permalink

Gross Receipts Tax Is Not a Cure-All for the States

Over the past few years, both Texas and Ohio have enacted major changes to their tax systems, choosing to replace existing business taxes with taxes based on companies' total receipts. This takes the form of a "margins" tax in Texas and the "commercial activity" tax in Ohio. Two other states, Illinois and Michigan, are also now considering whether to follow suit by implementing taxes based, at least in part, on gross receipts.

IL Gov Won't Raise Taxes on People, Just Taxes That Are Passed onto People

Despite Illinois Governor Rod Blagojevich coming before the Illinois House in a rare all-day hearing to promote his plan for implementing a gross receipts tax (GRT) his proposal was unanimously defeated by the Illinois House in a 107-0 vote. The Governor's proposal barely passed the Senate Executive Committee. Analyses by the Center on Budget and Policy Priorities and the Institute on Taxation and Economic Policy suggest that gross receipts taxes are generally passed on by businesses to consumers. The Governor, however, said in his address to the House, "I will not raise taxes on people. I won't do it today. I won't do it tomorrow. I won't do it next week, next month, next year." Ironically, the Governor also said that he would oppose any income or sales tax hike because "It's regressive, and people already are paying to much" but many experts think that the GRT is regressive and hits low- and middle-income people hardest.

Eliminating Revenue Source + No Plan to Replace Revenue = Government Shutdown

Since voting last year to repeal the state's Single Business Tax (SBT), which is set to expire on December 31, Michigan lawmakers have been in almost continuous debate regarding ways to replace this vital revenue source. Fearing a government shutdown, the Michigan House and Senate have passed very different tax proposals. The Senate-approved plan would not completely replace the revenue lost from the SBT, while the Governor-supported House plan will raise the same amount of revenue as the current SBT, but would allow for large tax credits for Michigan-based businesses. The House and Senate proposals both have a business income tax component, but the Senate plan relies more heavily on a gross receipts tax element. In the coming weeks, compromise is needed before Governor Granholm has the opportunity to sign this important yet contentious legislation.

Ignore Those Lobbyists Boring Holes into the Gross Receipts Tax

Part of the allure of gross receipts taxes - to hear proponents like Governor Blagojevich tell it, anyway - is that they don't have many of the same loopholes as corporate income taxes and will expand the base of economic activity and economic actors subject to taxation. The reality may prove quite different, however. Gross receipts type taxes have scarcely settled onto the pages of law books in Texas and Ohio, yet businesses in both states have already begun clamoring for - and will soon start receiving - concessions and special treatment. In Texas, the House of Representatives last week approved a bill that would double the exemption for small businesses under the margins tax, would lower the taxes paid by multistate financial services companies under the tax, and would attempt to prevent Sprint Nextel from passing the tax along to its customers.

In Ohio, a provision of the commercial activities tax designed to raise tax rates automatically - should the total amount of revenue generated by the tax begin to fall - will soon be eliminated, thus leaving the state without an important stopgap. These changes may not have a deleterious impact on the fiscal situation in either Texas or Ohio. The changes being debated in Texas would be offset by other revenue measures, for instance. Still, they should give policymakers in Michigan and Illinois pause. What they enact now may ultimately look quite different from what they envision.

EITC Expansion: A Good Idea in Every State

February 23, 2007 12:35 AM | Permalink

In a welcome trend, lawmakers and advocates in Connecticut, New Jersey, North Carolina, Nebraska, New Mexico, Montana, Hawaii, Utah, Ohio, and Iowa are considering enacting Earned Income Tax Credits — or expanding existing EITCs. The federal EITC has been hailed by policymakers of all stripes as an especially effective tool for lifting working families out of poverty. At the state level, the EITC offers the additional benefit of helping to offset the regressive sales and property taxes that hit low-income families hardest. To find out more about whether EITC legislation is active in your state, check out the Hatcher Group's State EITC Online Resource Center.

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