Advocates, Analyst Push For Tax Increases in Budget Plan

Gongwer News Service - March 25, 2009

Survey Finds Support for More Revenue to Save Services

Gongwer News Service, Volume #78, Report #58, Article #2

The push for tax hikes in the biennium budget advanced on two fronts Wednesday, as advocates argued that more state revenue is in order given the curtailment of some services and program cuts Gov. Ted Strickland has proposed in his $54.3 billion plan.

Policy Matters Ohio Research Director Zach Schiller prompted a spirited debate with testimony at the House Finance & Appropriations Committee that challenged the sustainability of the 2005 tax system overhaul as well as the argument that some $1 billion in business tax cuts under that plan have kept Ohio’s economy out of deeper water.

Later in the day, the Campaign to Protect Ohio’s Future, a coalition of government service advocacy groups, released the results of a survey indicating Ohio voters would support increased taxes to protect government services.

Up to this point at least, such arguments have yet to gain traction with Democratic Gov. Strickland, who has said repeatedly that a tax increase during such dismal economic times would be counterproductive, and Republicans who control the Senate and have argued instead on the side of tax cuts and reduced state spending.

Reiterating the findings of past Policy Matters Ohio studies on the issue, Mr. Schiller told lawmakers that the so-called “tax reform” plan enacted four years ago has failed in its basic premise of encouraging business development as evidenced by the fact that Ohio still lags other states in that regard.

“Ohio needs more revenue to pay for today’s needs and provide a stable source of funding in the future,” he said.

Mr. Schiller also took issue with Gov. Strickland’s tax breaks in the biennium budget (HB 1), saying they would “ratify a major change in philosophy in Ohio’s economic development efforts” because of proposed changes to Job Creation and Job Retention tax credit programs that would serve to expand the programs by removing certain restrictions.

Additionally, he objected to the New Markets Tax Credit piggyback to the federal program, championed by House Speaker Armond Budish (D-Beachwood), calling it “a misguided effort” because other states would respond in kind.

“In the end, this will simply lead to a reduction in state revenue,” he said.

Mr. Schiller said much the same in regards to the 2005 tax restructuring, which he called on legislators to substantially reverse by, among other things: restoring the 7.5% top income tax rate for people making more than $200,000 a year; restoring the corporate franchise tax; bolstering the commercial activity tax; and eliminating “tax loopholes” detailed in the state’s biennial Tax Expenditure Report.

His comments prompted some adverse commentary from Republican panelists including Rep. Ross McGregor (R-Springfield), an executive in his family-owned automotive part manufacturing business.

If the legislature were to adopt Mr. Schiller’s proposals, the lawmaker asked, “Who should I have to go back to my shop and fire?” He disagreed with the negative assessment of the tax reform’s benefits to the state, saying “the benefits are the people I’m still able to employ” as a result of the tax code changes that, among other things, eliminated the business tangible personal property tax.

Without such business tax breaks, Mr. McGregor added, “The landscape would be devastation in the state of Ohio for manufacturing.”

Rep. Barbara Sears (R-Sylvania) said of Mr. Schiller’s contention that state tax policy isn’t a major component of business location decisions, “I’d like to seriously disagree with you” based on first-hand knowledge, namely a drop-off in clients at her employee benefit and financial planning firm.

“We are losing people all the time,” she said.

Mr. Schiller’s suggestion of a full statutory review of tax expenditures, along with his other contentions, did garner some agreement among Democrats on the panel.

Responding to a question from Rep. Michael Skindell (D-Lakewood), the witness questioned the tax overhaul approach of eliminating the corporate franchise tax, likened to “Swiss cheese” because of the numerous exemptions that were in place. He said the state should have instead closed those “loopholes” in the tax and retained it along with the CAT.

Tax And Services Survey: Members of the Campaign to Protect Ohio’s Future said at a later news conference that a survey the group commissioned with Hart Research Associates out of Washington, D.C. shows most Ohio voters would be amenable to tax changes such as those proposed by Policy Matters Ohio if it meant that government service cuts could be avoided.

Pollster Guy Molyneux said voters favored a “balanced approach” to the state’s budget crunch and that state and local taxes were at the bottom of a list of concerns topped by the economy (62%), education (33%), government spending 29% and health care (26%). Only 14% of respondents said taxes were their chief concern.

“People are not very worried about tax rates in Ohio right now,” Mr. Molyneux said.

Among the key findings of the telephone survey, conducted March 6-9 among 602 registered voters and with a margin of error at plus- or minus-4.1 percentage points:

57% favor a budget proposal that would “roll back some recent cuts in state income taxes, increase income taxes on those with incomes over $200,000, and increase some business taxes to avoid service cuts.” Most voters said income taxes (57%) and sales taxes (61%) are “just about right or too low to support public services,” while 51% said their property taxes are too high.

More than half of the respondents said it was “totally unacceptable” to: cut social services affecting abused and neglected children; cut funding for Pre-K through 12th grade schools; eliminate services for people with mental illness.

“These findings show that Ohioans want a balanced approach to help families that are struggling to make ends meet in this crisis,” Campaign Co-Chairwoman Gayle Channing Tenenbaum said.

“The public realizes that failure to maintain adequate funding in key areas would take away help that people need. This would work against the goal of creating jobs and strengthening the economy.”

Tax Presentation: Separately, Tax Commissioner Rich Levin on Wednesday gave an informational presentation to the House Ways & Means Committee.

He described in detail aspects of the state and local tax base in Ohio and the principles of a high quality tax system: equity, neutrality and simplicity. (Department of Taxation Documents)

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