Are Ohio’s tax breaks valid? Rep. Denise Driehaus want them reviewed, assessed
David Holthaus - March 16, 2012
Ohio gives up more than $7 billion in revenue each year through tax breaks to businesses, homeowners and working people. But no one is responsible for methodically examining these tax breaks, all 128 of them.
That could change. Rep. Denise Driehaus, a Cincinnati Democrat, has introduced a bill that would set up a panel to regularly review each tax break and recommend which ones should continue.
In state budget parlance, these exemptions, credits and deductions are called “tax expenditures.” They’re not expenses, but they represent tax dollars the state has agreed to do without.
In 2011, $7.2 billion in tax expenditures were recorded, so the impact on the $55 billion two-year state budget is enormous.
With Ohio struggling to close multibillion-dollar budget deficits, and local cities, counties and townships feeling the pinch of state budget cuts, more attention is being paid to how much the state gives up in tax breaks.
The state tax department issues a report each year detailing how much Ohio gave up through each one of the 128 tax breaks. But the report does not attempt to determine whether they’re worth it, whether they should continue or if they should be changed.
One of the tax breaks most sought after by businesses is the Job Creation Tax Credit, awarded to companies relocating or expanding in Ohio. The Ohio Department of Development is required by law to publish a report by August every year that lists the businesses receiving the credit, how many jobs they’ve created and retained and how much they’ve invested in new equipment or real estate.
But the last report available is for 2009. The report for 2010 is six months overdue. Department spokesperson Katie Sabatino said the report should be published in the next few weeks and that day-to-day operations and changes in how the department is organized have delayed the report.
Last year, about $55 million in tax credits were awarded to Ohio businesses in return for creating jobs. But The Enquirer reported in January that only half of the companies that received tax breaks for new jobs actually created the number they said they would.
Those findings were supported by Ohio attorney general Mike DeWine, whose staff studied 420 projects that had reached the end of their tax incentive agreements in 2010. Only 220, roughly half, had complied with all the terms of their agreements.
Most tax breaks made their way into state law years ago and have stayed there, diminishing tax revenue year after year with little follow-up to ensure they are still serving the public purpose they were meant for.
“They do not get reviewed,” Driehaus said. “We need a review to make sure these expenditures are serving their stated purpose.”
Exemptions abound for so many entities
Dozens of arcane tax breaks are on the books, each one costing the state money year after year.
By far the biggest category comes from the individual state income tax, something most taxpayers would be very reluctant to give up. Nearly $1.8 billion in individual income tax breaks were awarded in 2011 through personal and dependent exemptions, the joint filer credit, the retirement income credit and 29 others.
For businesses, 16 exemptions from the corporate activities tax, the state’s chief business tax, are available, and four from the corporate franchise tax.
Four breaks from the alcoholic beverage tax are available, including a sacramental wine exemption and a tax credit for small brewers.
Although the state budget, the framework for $55 billion in spending, gets detailed review and must be formally approved every two years by the legislature, that’s not the case with the long list of tax breaks.
“The main problem with tax breaks is, unlike state spending, they’re not reviewed,” said Zach Schiller, research director with Policy Matters Ohio, a Columbus-based policy group.
His group backs the Driehaus bill. “It’s long overdue,” Schiller said.
Driehaus suggests that some of the breaks have outlived their usefulness, and could be ended, with the money deployed to more worthy programs.
“My suspicion is that there are millions that could be saved here and redirected to create jobs, to local governments for police and fire, to education for teaching jobs,” she said.
There appears to be support across political lines for some sort of regular review of tax expenditures. The Ohio Chamber of Commerce hasn’t taken a position on the Driehaus bill, but it has called for a thorough review and analysis of the benefits of each tax expenditure. “It’s essential for us that there be a mechanism in place, as well as funding, to model the impact of these deductions and credits,” said Dan Navin, a tax policy expert with the Ohio Chamber.
The tax breaks may have an economic return, Navin said, but that should be documented. “The state has to have a system where that kind of information is generated internally,” he said.
Because the legislation is sponsored by a Democrat, it faces an uncertain future in the Republican-controlled legislature. But Driehaus says it could be included as part of the next state budget bill.
The bill has three Republican co-sponsors, and a similar bill has been introduced in the Senate. The Driehaus bill, HB 446, has been assigned to the House Finance and Appropriations Committee.