Ohio Prepares Tax Overhaul

Akron Beacon Journal - June 21, 2005

The Akron Beacon Journal

By Dennis J. Willard and Doug Oplinger

COLUMBUS – Gov. Bob Taft will have 10 days to peruse, review and possibly apply his line-item veto pen to a new two-year state budget as lawmakers prepare to vote today to pass the $51.2 billion spending plan.

Republican House and Senate members are prepared to enact the broadest overhaul of Ohio tax laws in more than 50 years — changes that over time will shift the cost of paying for some governmental services from the state to localities.

The broad tax changes, touted as a way to kick-start Ohio’s ailing economy and to create jobs, are reminiscent of President Reagan’s trickle-down theories: The government reduces taxes on business and the wealthy with the view that the additional dollars will be reinvested in the state.

The two-year budget tackles the two largest spending items: Medicaid, by reducing overall funding for costly nursing homes; and public education by providing little or no increases to many of Ohio’s 612 school districts.

The growing cost of primary, secondary and higher education will be passed along to homeowners and families, in part because the state will shift more school funding onto local real estate taxes. Public universities will be allowed to raise tuition by 6 percent a year — about twice the rate of inflation.

Details of the budget provisions were sketchy after a six-member conference committee worked throughout the weekend to resolve more than 500 differences between separate House and Senate budget bills passed earlier this year.

There were no plans to release an analysis of the bill until today — when lawmakers in both chambers are expected to vote on the compromise.

Democrats skeptical

Democrats are expected to withhold support, arguing the budget does little to address school funding, equitable taxation and funding for the poor.

“Overall the budget looks out more for the top 5 percent of the income brackets. The middle class will not have the benefit of this budget,” said state Sen. Tom Roberts, D-Dayton.

Two years ago, Taft’s efforts to overhaul Ohio’s tax code were rebuffed, as were his efforts to control nursing home costs.

Mark Rickel, Taft’s spokesman, said the governor’s tax plan is about to pass intact.

“The governor has worked on this historic tax reform and is pleased the state is on course to a new tax code that will attract business and create jobs,” Rickel said.

Sen. Ron Amstutz, R-Wooster, a conference committee member, said the bill lays “the best economic strategy the state could advance.” He added that the reforms shift the tax burden from business investment and apply the tax code in a broader way across the economy.

“It will be the centerpiece of the state’s role in redeveloping the state’s economy. Not the only piece, however, because we have more work to do,” he said.

Expected changes

After the governor signs the bill (required by June 30):

• The personal income tax rate will be cut 21 percent across the board.

• The corporate franchise tax on business will be replaced with a new commercial activity tax.

• Business taxes on inventory, machinery and equipment — the personal tangible property tax — will be phased out.

• The state’s temporary 1 percent sales tax destined to expire July 1 will be replaced with a permanent half-percent increase.

Zach Schiller, a researcher at Ohio Policy Matters, said he is concerned that the restructuring may not adequately fund the budget and cuts taxes that are generated at the local level.

“The biggest issue here is that they cut the income tax substantially in a way that will reduce state revenue,” he said.

Last-minute surprises

The weekend session included some last-minute surprises.

A Republican amendment would stop anyone from running simultaneously in a congressional primary while seeking nomination for governor in next year’s primary.

The measure apparently was aimed at U.S. Rep. Ted Strickland, D-Lisbon, who plans to run for governor next year.

Strickland, however, said Monday that someone was wasting time, because he never intended to run in both primaries.

To do so, “would discredit me,” he said.

Strickland said he first learned of the provision Monday while reading a newspaper. On the same page, he said, was a story about more Ohioans in poverty.

“I wish the legislature was more concerned about the serious things than political strategies,” he said.

Lawmakers also surprised the health-care community that has been tackling Ohio’s high smoking rate that contributes to the state’s poor health record.

The conference committee raided the state’s tobacco settlement fund of $216 million to pay for school construction; managed care for aged, blind and disabled Medicaid recipients; lung cancer; and disease research.

Susan Jagers, vice president of government relations for the American Cancer Society, said her organization was shocked to see the money moved in the final hours of deliberation Sunday.

“Keeping our kids from smoking is obviously a low priority for this General Assembly,” Jagers said.

The Ohio Tobacco Use Prevention and Control Foundation began promoting anti-smoking programs in 2002 with initial startup money, and points to such successes as youth smoking down 45 percent and 375,000 fewer adult smokers in Ohio.

State lawmakers have earmarked $568 million in settlement dollars elsewhere since 2002.

In recent weeks, revised estimates for revenues provided lawmakers with an additional $800 million to spend along with a $500 million budget surplus for the fiscal year ending June 30.

The new money provided lawmakers an opportunity to restore severe cuts in local government funds and to kill a plan to increase the kilowatt-hour tax on electricity.

Lawmakers also included a $750,000 funding bump for Ohio Inspector General Tom Charles to hire an independent firm to investigate the unfolding Bureau of Workers’ Compensation investment scandal.

GOP operative Tom Noe allegedly lost $12 million to $14 million after being given $55.4 million to invest in rare coins. A Pittsburgh firm lost another $215 million it was managing in a $350 million hedge fund.

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