Exempt From Scrutiny: Tax Breaks in Ohio
February 12, 2007
Tax exemptions, deductions and credits often are overlooked in state budget deliberations. Yet the Ohio Department of Taxation estimated in 2005 that such tax expenditures, as they are known, would total $6.27 billion in fiscal 2006 and $7.12 billion this fiscal year. Though the major tax reform enacted in 2005 changed the value of many exemptions, such expenditures are a significant element in Ohio’s state budget, compared with actual state tax revenue of $20.8 billion in FY06.
Ohio’s tax expenditures not only affect a very substantial share of the state’s tax base, they receive no regular scrutiny by the General Assembly though many have been in effect for decades. Many are aimed at economic development, yet we have little idea of who is getting them or whether they are providing the benefits one would demand of a grant or other outright expenditure. Some tax expenditures provide an advantage to one industry or even one company, which may disadvantage other companies or industries. And though a substantial number of tax loopholes are being phased out together with the state’s corporate franchise tax, the General Assembly added numerous other tax breaks when it created the commercial activity tax.
Ohio publishes a biennial tax expenditure report that is a useful tool for understanding the tax system and its exemptions, credits and deductions. However, this tool needs to be sharpened and used more effectively. This February 2007 report provides recommendations on how to make tax expenditures more transparent and eliminate those that are unneeded.