Breaking bad

Akron Beacon Journal - August 16, 2012


John Kasich recently signaled his intention to examine closely the roughly $7.5 billion a year the state dishes in tax credits, exemptions, deductions and exclusions. The scrutiny cannot arrive too soon (if the governor’s accompanying designs for an income tax cut can wait). As a recent report from Policy Matters Ohio reveals, lawmakers keep adding to the pile of tax breaks, their actions contrasting with the squeeze the Statehouse has put on public schools and local governments.

Tellingly, the Cleveland-based think tank found that estimates about the cost of the new tax expenditures (as they are labeled in the budget) are hard to develop. Too little is known about their reach and function. Imagine lawmakers moving so breezily to increase direct spending on programs.

Consider that this year lawmakers granted property tax exemptions for the convention centers in Columbus and Youngstown, the relief applying “regardless of whether the property is leased to or otherwise operated or managed by a person other than the city.” Lawmakers approved a bill permitting companies to extend the job creation tax credit to home-based employees, lowering the eligibility threshold to 131 percent of the federal minimum wage, or $9.50 per hour.

In 2009, a study, ordered by state lawmakers, recommended changes in the flabby enterprise zone tax abatement program. Lawmakers largely ignored the advice. Instead, they recently extended the program. They also widened the exemption from the sales tax for direct marketing firms, allowing room for loosely aligned affiliates.

Lawmakers boosted the tax credit for the movie industry from $20 million a year to $40 million a year. A recent report declared the movie credit a winner for Ohio, generating $1.20 in economic activity for every $1 the state spends. Policy Matters Ohio rightly points out that the credit still doesn’t pay for itself, the local and state tax revenue failing to cover the credits paid out.

The Policy Matters report notes that a new grant program for companies that create jobs in once-vacant properties started as a proposed tax credit. The report rightly uses the change to stress how tax breaks work like spending programs, the state routing public money to a particular item. To his credit, the governor did veto an exemption from the sales tax for purchases related to research on aircraft and other aerospace vehicles. One loophole actually was closed, involving relief from the sales tax in the purchase of boats, planes and other recreational vehicles.

Such closures are a rarity, some tax expenditures remaining on the books for decades, dating as far back as the 1930s. No surprise that tax breaks proliferate, lobbyists advocating, lawmakers and governors with the tool available. As it is, Ohio needs a rigorous process for regularly examining the effectiveness of tax expenditures, as some states have done. Otherwise, the breaks keep multiplying at the expense of key priorities.

Breaking bad

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