10 Ways to reform the state budget

by Zach Schiller, in The Cleveland Plain Dealer 

2 opinions on 10 ways to reform the state budget (part 1)

1. Restore the 7.5 percent state income-tax rate on income over $200,000 (it’s now 5.925 percent).

Savings: $940 million*

2. Return other income-tax rates to 2007 levels, before the last two years of rate cuts. Savings: $1.38 billion**

3. Institute a 5 percent state earned-income tax credit for low- and moderate-income families.

Cost: $146 million

4. Restore Ohio’s all-but-defunct corporate franchise tax, set at 2007 rates, two-fifths its previous level.

Savings: $1.1 billion

5. Means-test the homestead exemption and other property-tax rollback programs.

Savings: $245 million

6. Extend the sales tax to cover lobbying, public relations and debt collection.

Savings: $66 million

7. Eliminate the special tax covering payday lenders, mortgage brokers and finance companies so they pay the same tax rate as banks.

Savings: $20 million

8. Don’t approve new or expanded tax breaks, such as the loosening of requirements for the job retention tax credit.

Savings: Potentially, some tens of millions

9. Adopt reforms that will allow minor offenders to stay out of prison.

Savings: $50 million

10. Reduce nursing-home funding in favor of in-home and community care.

Savings: $100 million

Notes: The proposed revenue adds up to more than the total deficit, but the extra is needed to start preparing for the future; without the federal stimulus and other one-time money in the next budget cycle, we are going to be at least another $5 billion in the hole.

All figures are for the two-year budget period.

* Revenue for this and other options may be somewhat less because of the decline in the economy.

** Excludes revenue from restoring top tax rate in point one.

What Ohio Needs is a Tax Boost

By Zach Schiller
Friday, June 26, 2009

Cleveland Plain Dealer

Four years ago, the Ohio General Assembly ap proved the biggest overhaul of Ohio’s tax system in a generation. The income tax and business taxes were slashed in overall tax cuts worth more than $2 billion a year. The idea was to spur investment and jobs. As legislators meet in Columbus to decide how to balance the state budget, it’s a good time to ask: Has tax reform worked?

In a word, no. If Ohio’s total non-farm payroll employment growth since June 2005 had matched the nation’s, the state would have had 228,000 more jobs in May 2009. Manufacturing jobs, too, have suffered compared to the country as a whole. Only two other states had lower growth in inflation-adjusted economic output between 2005 and 2008. And the gap between personal income per person in Ohio and the nation increased from $3,018 in 2005 to $4,240 in 2008.

Clearly, the tax changes have not improved Ohio’s national standing.

Ohio should reverse course and increase taxes, based on the ability to pay.

The state must balance its budget. Thus, every dollar of tax cuts also means a dollar in reduced spending. During the discussion of a national stimulus plan earlier this year, most economists agreed that spending boosts the economy more than tax cuts. Tax cuts can be saved or spent outside the state instead of recirculated in the local economy. In fact, spending cuts will hurt Ohio’s economy more than raising taxes.

It’s not really a surprise that the tax cuts didn’t bring an economic renaissance. State and local taxes aren’t the main factor in business decisions. Overall, states with relatively high tax levels – and thus bigger investments in public services that businesses need, like education – do as well economically as those that keep taxes low.

Obviously, the deep recession has plunged Ohio into financial hot water. However, the $2 billion annual loss of revenue from the tax cuts is an important reason why we can’t provide needed services.

Gov. Ted Strickland’s proposed cuts would touch the lives of most Ohioans. We’ll see sharp cuts to libraries, community health centers, public transit. Meals and transportation for seniors, early childhood education, alcohol and drug treatment and prevention will be slashed. Access to some state forests and campgrounds will be limited. We’ll sacrifice more than $400 million in federal Medicaid money because the state is cutting its own spending. Scholarships for college students, services for abused and neglected seniors, investigations of child abuse: All these and more will be reduced.

Meanwhile, Ohio is cutting its taxes this fiscal year by 2½ times more than any other state in the country.

Those who say we should give the tax reform more time should be asked: Why should Ohioans experience drastic cutbacks in public services to test their theory, incorrect so far, that tax cuts will fuel an economic revival?

Ohio needs more revenue to pay for today’s needs, invest in the future and provide a stable source of funding in the future. Legislators need to reverse key elements of the 2005 tax changes.

They should restore the previous 7.5 percent top rate of the state income tax on income over $200,000 a year, first enacted under Gov. George Voinovich. This would affect fewer than 2 percent of Ohio taxpayers and generate more than $400 million a year. Overall income-tax rates should be rolled back to 2007 levels, while a state earned income tax credit should be created to help low- and moderate-income taxpayers.

Businesses pay a far lower share of Ohio’s taxes than they did a generation ago. The General Assembly should restore Ohio’s corporate income tax, so that companies pay taxes on profits as they do in all but a handful of states.

In addition, legislators should take steps to eliminate tax loopholes. Sales tax is not paid now when someone employs lobbyists or debt collectors; it should be. Payday lenders and mortgage brokers should pay the same tax rate banks do. Instead of adding and expanding tax breaks, as both the House and Senate are poised to do, we should eliminate some of the $7 billion worth of exemptions and credits that already cram the state’s tax code.

Each of Ohio’s last five elected governors, Republican and Democrat, have approved major tax increases when times demanded it, with bipartisan support from the General Assembly. Our governor and legislators should do the same now.

Schiller is research director of Policy Matters Ohio.

________________________________________________________________

Cleveland Plain Dealer Home

What Ohio needs is a tax boost

by Zach Schiller, in The Cleveland Plain Dealer 

Four years ago, the Ohio General Assembly ap proved the biggest overhaul of Ohio’s tax system in a generation. The income tax and business taxes were slashed in overall tax cuts worth more than $2 billion a year. The idea was to spur investment and jobs. As legislators meet in Columbus to decide how to balance the state budget, it’s a good time to ask: Has tax reform worked?

In a word, no. If Ohio’s total non-farm payroll employment growth since June 2005 had matched the nation’s, the state would have had 228,000 more jobs in May 2009. Manufacturing jobs, too, have suffered compared to the country as a whole. Only two other states had lower growth in inflation-adjusted economic output between 2005 and 2008. And the gap between personal income per person in Ohio and the nation increased from $3,018 in 2005 to $4,240 in 2008.

Clearly, the tax changes have not improved Ohio’s national standing.

Ohio should reverse course and increase taxes, based on the ability to pay.

The state must balance its budget. Thus, every dollar of tax cuts also means a dollar in reduced spending. During the discussion of a national stimulus plan earlier this year, most economists agreed that spending boosts the economy more than tax cuts. Tax cuts can be saved or spent outside the state instead of recirculated in the local economy. In fact, spending cuts will hurt Ohio’s economy more than raising taxes.

It’s not really a surprise that the tax cuts didn’t bring an economic renaissance. State and local taxes aren’t the main factor in business decisions. Overall, states with relatively high tax levels – and thus bigger investments in public services that businesses need, like education – do as well economically as those that keep taxes low.

Obviously, the deep recession has plunged Ohio into financial hot water. However, the $2 billion annual loss of revenue from the tax cuts is an important reason why we can’t provide needed services.

Gov. Ted Strickland’s proposed cuts would touch the lives of most Ohioans. We’ll see sharp cuts to libraries, community health centers, public transit. Meals and transportation for seniors, early childhood education, alcohol and drug treatment and prevention will be slashed. Access to some state forests and campgrounds will be limited. We’ll sacrifice more than $400 million in federal Medicaid money because the state is cutting its own spending. Scholarships for college students, services for abused and neglected seniors, investigations of child abuse: All these and more will be reduced.

Meanwhile, Ohio is cutting its taxes this fiscal year by 2½ times more than any other state in the country.

Those who say we should give the tax reform more time should be asked: Why should Ohioans experience drastic cutbacks in public services to test their theory, incorrect so far, that tax cuts will fuel an economic revival?

Ohio needs more revenue to pay for today’s needs, invest in the future and provide a stable source of funding in the future. Legislators need to reverse key elements of the 2005 tax changes.

They should restore the previous 7.5 percent top rate of the state income tax on income over $200,000 a year, first enacted under Gov. George Voinovich. This would affect fewer than 2 percent of Ohio taxpayers and generate more than $400 million a year. Overall income-tax rates should be rolled back to 2007 levels, while a state earned income tax credit should be created to help low- and moderate-income taxpayers.

Businesses pay a far lower share of Ohio’s taxes than they did a generation ago. The General Assembly should restore Ohio’s corporate income tax, so that companies pay taxes on profits as they do in all but a handful of states.

In addition, legislators should take steps to eliminate tax loopholes. Sales tax is not paid now when someone employs lobbyists or debt collectors; it should be. Payday lenders and mortgage brokers should pay the same tax rate banks do. Instead of adding and expanding tax breaks, as both the House and Senate are poised to do, we should eliminate some of the $7 billion worth of exemptions and credits that already cram the state’s tax code.

Each of Ohio’s last five elected governors, Republican and Democrat, have approved major tax increases when times demanded it, with bipartisan support from the General Assembly. Our governor and legislators should do the same now.

Schiller is research director of Policy Matters Ohio.

Testimony on S.C.R 15 on Federal Cap and Trade Legislation

In 2005, we published a report called ‘Generating Jobs, Generating Energy,’ which showed how Ohio could be one of the top five states in job creation for clean and renewable energy. Job growth in these sectors is already occurring. A recent study by the Pew Charitable Trust fund found over 2000 firms with more than 32,000 workers already serving green markets in Ohio. This growth could accelerate. …

Full Testimony

Amy Hanauer and Susan Helper meet with Joe Biden on task force initiative

Policy Matters Executive Director Amy Hanauer and Board Secretary Susan Helper met today with Vice President Joe Biden as part of his middle class task force initiative. Hanauer and Helper were panelists in a discussion on promoting American manufacturing in the 21st century. Click here to view more information about the event.

Paying More, Renting Debt: Why Rent-to-Own is a Bad Deal for Ohio Consumers

For customers with limited savings, rent-to-own stores offer a tempting way to obtain appliances and furniture immediately but shoppers usually ultimately pay a price that is several times the worth of the item. This study from Policy Matters surveys local rent-to-own stores, maps these stores in Ohio, compares prices to those in retail stores, and compares Ohio law to the law in other states. This study finds that these stores charge up to 4.5 times what is charged in regular retail stores for items like stoves, refrigerators and washer-dryers. Ohio ranks third in the country in number of rent-to-own stores, which are spread throughout the state, but concentrated in urban and low-income communities. We end with proposals to better protect Ohio consumers.

Press Release

Executive Summary

Full Report

Rent to Own Stores Challenged

Listen to mp3

Unemployment in Hard Hit States: Michigan, Ohio & Oregon

On June 5, when the Bureau of Labor statistics released national unemployment and
jobs data for May, everyone was relieved that the loss of 345,000 jobs was not as severe
as in previous months. Many commentators suggested that the worst may be behind us,
and these numbers signal the beginning of a turnaround in the labor market. While their
optimism is certainly admirable (After all, who doesn’t want things to start getting
better?) our long experience at EPI tracking the trends and dynamics in the labor market
tell us that it is very premature.

Full Report

June 2009 News from Policy Matters Ohio: Saving Students, Capping Carbon, Bolstering Budgets

Welcome Aboard - We’re thrilled to welcome Julian Rogers, Executive Director of Education Voters of Ohio, to our board of directors. Julian’s progressive leadership, keen insights, and warm personality make him a perfect addition to our board.

Honored - Policy Matters has been selected as the Member of the Year for Greater Cleveland Community Shares, a workplace giving campaign that supports social justice and social change organizations in northeast Ohio. Come to their annual event, June 19, to celebrate this great resource for greater Cleveland.

Worth Paying For -  If you knew of a program that could save more than three dollars for every dollar it spent, keep some of Ohio’s most vulnerable boys in school, reduce educational disparities and increase urban graduation rates, would you eliminate its funding or expand it? That’s the question facing Ohio policymakers this week, as we release this report documenting the costs and benefits of Ohio’s Initiative on Increasing the Graduation Rate.

How to Pay for it - The successful dropout prevention program is just one of many crucial government functions being slashed in Ohio. We took a look at Ohio’s tax expenditure report, which examines credits, deductions and exemptions in the tax code that reduce the amount of revenue the state would otherwise receive. This year’s report, prepared by the Ohio Department of Taxation, estimated that in both Fiscal Years 2010 and 2011, 122 such exemptions and credits amounted to more than $7 billion in foregone revenue to the state’s General Revenue Fund. As it struggles to fill an enormous budget gap, policy makers should limit or eliminate unnecessary credits and exemptions. Learn more in this June 2009 brief.

Strengthening Schools - Collaboration and professional development can strengthen schools, particularly if teachers are given time to participate in enhancement efforts. In interviews with 37 teachers and administrators in 18 districts, we found widespread support for the Ohio Improvement Process. What we found counters the myth of the go-it-alone leader who can single-handedly save a school without also empowering the teachers who are key to meaningful improvement. Read Leaders at Many Levels.

Assist and Adjust - Trade Adjustment Assistance, which provides income and retraining to workers who lose jobs to rising imports or overseas production shifts, will expand because of the American Recovery and Reinvestment Act. Benefits will rise and more workers will be covered. Our May report found 20,912 Ohio jobs certified as lost to trade between January 2007 and March 2009, and an underused program, with fewer than 2,000 workers receiving training in the most recent year measured. The expansion is good – Ohio’s trade-battered communities need the help. The underuse is bad, but better outreach will allow more trade-affected workers in Ohio to benefit. Learn more here.

Capping Carbon (and reinvesting in the economy) -  Climate legislation is heating up in DC and Ohio’s federal delegation is front and center, promoting opportunity (green jobs) and protecting assets (industrial retention). To promote: Thousands of green jobs already exist in Ohio and thousands can grow from federal stimulus funds and provisions in the Waxman-Markey carbon cap. To protect: Existing industrial jobs and the household budgets of low- and moderate-income families. Energy efficiency is at the heart of both, and retooling for new energy markets is critical for keeping good jobs in Ohio. Policy Matters is making sure that jobs and energy are discussed together. Learn about the carbon cap here.

Taking Credit - In tax year 2005, more than 800,000 Ohio families received the federal Earned Income Tax Credit, a refundable tax credit for families that work but make less than $42,000. The average EITC in Ohio was $1,756, bringing more than $1.4 billion into Ohio communities. Adding a 5 percent Ohio EITC to supplement the federal credit, as 24 states have done, would cost Ohio $73 million, less than one percent of 2008 state expenditures. This report examines the EITC in Ohio and analyzes a possible state credit.

Extra Time -  The transportation budget signed by Governor Strickland in April will relieve some pain for Ohio’s jobless workers. Thousands will receive an extra 20 weeks of benefits from the federal unemployment trust fund. In tough times, we need the relief described in this brief.

Rage of Reason - Check out the great column by Pulitzer-prize winning columnist Connie Schultz, explaining to an insulted banker why some so-called “populist rage” might be justified. Read The Rage of Reason, to see what Connie and our director, Amy Hanauer, had to say about rage and (upward) redistribution.

Clawing Back -  Wal-Mart is shutting an optical lab in Lockbourne, near Columbus, eliminating 646 jobs. Our sympathies go to those workers. One small consolation for Ohio: strict provisions covering the tax credits meant that Ohio recouped $1.7 million it had given to Wal-Mart to open the plant. We’re glad Ohio has in place “clawbacks” that require companies to make good on the promises they make or pay back the incentives they’ve gotten. The General Assembly should take this opportunity to review accountability for all of Ohio’s economic development incentive programs and strengthen them as needed.

Conference on Climate - See summaries and photos from our fabulous May 18 conference on Labor and the New Energy Economy. Thanks to Sherrod Brown, Joe Rugola, Harriet Applegate and other union, political and environmental leaders for their hard work on tough conversations.

Welcome Summer Interns -  We want to welcome Cleveland Executive Fellow Jeanne Romanoff, Howard University’s Austin Thompson, Amherst College’s Alexander Hurst and Nathaniel Hopkin, CWRU’s Mirela Turc, Miami of Ohio’s Devon Washington, Harvard’s Eric Lu, Northwestern’s Kevin Rinz, and Ohio University’s Julie Van Wagenen. Ongoing thanks to Tim Krueger (that was his work on the school retention program) and Sapna Mehta. This bright, energetic crew is reviving the office atmosphere.

That’s all!
The Policy Matters Ohio Team 

Briefing Paper: The Apollo Alliance Green MAP Proposal and the Ohio Economy

As Congress weighs sweeping energy and climate legislation, Senator Sherrod Brown is introducing a new initiative that would address immediate challenges faced by America’s manufacturing industry and support development of domestic clean energy manufacturing and production. Brown’s bill would provide $30 billion in bridge loans to help auto suppliers and other manufacturers retool for the clean energy industry. The bill adopts many of the key provisions of the Apollo Alliance’s Green Manufacturing Action Plan proposal.

This briefing paper released by Policy Matters Ohio provides a county- by-county interactive map, which illustrates firms that currently produce in sectors that serve new energy markets. We found over 3,000 Ohio facilities employing 250,000 workers currently producing in markets that could serve green energy component manufacture. This interactive map demonstrates where these firms are located in Ohio. A second interactive map highlights energy intensive firms that might be vulnerable to price shock as greenhouse gases are priced. Senator Brown’s legislation would provide financial and technical assistance to allow them to install new processes, protocol and equipment for energy efficiency. Although the map, found here, highlights the most energy intensive firms, all manufacturers of small and medium size would be eligible for assistance under the provisions of the proposed bill.

This legislation will help Ohio firms adapt to the new energy economy.
This paper from Policy Matters provides the detail.

Press Release

Full Report