Both sides will be watching to see the details of the tax change proposals Gov. Bob Taft outlined in his State of the State address.

State Rep. Scott Oelslager, R-North Canton, and state Sen. Kirk Schuring, R-Jackson Township, both say changes are needed in the way Ohio taxes its businesses and citizens, however, the broad strokes Taft gave Tuesday leave a lot of details to be worked out in the state legislature.

But Zach Schiller, research director for Policy Matters Ohio, a Cleveland-based research group that concentrates on issues affecting low- and middle-income citizens, said some of Taft’s proposals don’t sound good for the state.

Taft’s proposed 21-percent income tax reduction across the board won’t help the $4 billion deficit the state already faces, Schiller said.

Because state income taxes are deductible from federal taxes, Ohioans will pay a higher percentage of federal taxes with the reduction.

And, because Ohio has a graduated income tax, the top 1 percent of taxpayers — who average $640,000 per year — would receive 23 percent of the break, while taxpayers who make less, and thus pay less in taxes, would see a much less significant break.

Oelslager said most legislators will be willing to take a look at the tax cut, but the key will be to “make sure the middle class gets the bulk of that.”

But the spending side also needs attention, he said. Medicaid, which takes 37 percent of the state budget, is growing and serves “the most helpless of Ohio’s citizens.” The effect on programs must be weighed against other benefits, he said.

The tax also affects small businesses, and Schuring said that although Ohio has one of the highest income-tax rates in the country, it’s in the bottom third in collection.

The answer is to “flatten it out, spread out the base” of companies paying into it, and “make sure everybody is paying it,” he said.

Taft also proposed eliminating the tax on equipment and inventories, called tangible personal property, and replacing the state corporate franchise tax with a commercial activity tax.

Schuring said the activity tax is “an intriguing idea” because it would allocate taxes more fairly across manufacturing and service industries, while the current system hits manufacturing harder.

The legislature likely will have to “massage it and amend it here and there” to make it work, he said.

Oelslager said that the state’s high corporate franchise tax has discouraged businesses from locating or expanding here, but “Ohio has a lot of incentives in the system” that reduces the tax rate.

Both legislators called the personal property tax “onerous.”

But Oelslager said the tax provides about $800 million each year, mostly to school districts. With schools already strapped, that funding must be replaced before the tax is eliminated, he said.

Schuring said the personal property tax is another item that has unfairly targeted manufacturing, which requires expensive equipment and inventory.

Schiller said it’s a myth that Ohio is too taxing on business. Studies have shown that the state is below average in how much businesses pay, and that the state’s businesses pay less than they used to in comparison with the amount individuals pay.

Ohio needs to preserve and strengthen the franchise tax and strengthen help for small businesses, but there is something to be said in favor of expanding the base of businesses that pay taxes, Schiller said.

“There is a long way to go yet,” Oelslager said. “A lot of details haven’t been presented,” and that’s where the legislature’s hard work will be.

Schuring said “tax reform is long overdue,” but the governor has only given concepts.

“As we begin to work, it will require a lot of pieces of the jigsaw puzzle to be put together.”

You can reach Repository Business Editor G. Patrick Kelley at (330) 580-8323 or e-mail:

pat.kelley@cantonrep.com

 

Canton Repository  02/09/2005