Ohio lawmakers want to help the auto industry – That doesn’t necessarily mean they will help the state

Akron Beacon Journal - January 15, 2006

Reflex in the Rust Belt
The Akron Beacon Journal

Who doesn’t understand the impulse of Ohio lawmakers seeking to aid a troubled auto industry in the state? The industry employs roughly 150,000 Ohioans. General Motors faces a painful restructuring. So does Ford. Both have seen their share of the American market diminish. Delphi, the country’s largest auto parts maker with 13,000 workers in the state, has entered bankruptcy.

Lawmakers want to do what they can to save jobs, often higher paying, certainly part of the fabric of this state and others in the Great Lakes region.

Jon Husted has in mind lowering the threshold for auto suppliers and manufacturers to qualify for the state’s Job Retention Tax Credit
program. The House speaker argues the change would encourage Delphi, GM and others to invest in their plants and keep jobs in Ohio.
The incentives, if fully exploited, could cost the state as much as $100 million a year.

Gov. Bob Taft intended to pitch the proposal during a visit to the North American International Auto Show in Detroit last week. The state
Senate has been exploring a more modest initiative, providing credits on the state’s electricity kilowatt-hour tax, amounting to a fraction
of the cost of the House proposal.

Would either approach make much of a difference? Industry analysts are doubtful. They note that General Motors lost nearly $4 billion in
the first three-quarters of 2005. Delphi has admitted that much as it appreciates the gesture, it remains uncertain about its structure, let
alone whether the Ohio incentives would apply.

An assessment by Ohio Policy Matters reinforced the point, noting the lack of precision in crafting the House proposal. The Cleveland think
tank cited the likelihood that even healthy automakers would be eligible for the incentives without requiring additional investments beyond
steps they already intend to take. Telling, too, is that the state’s tax system isn’t the problem for an industry coping with mammoth
problems on a global scale. Michigan has been similarly suffering. It has a very different tax code.

Worth highlighting is that Ohio lawmakers put aside the concerns of Ford about the state shifting to a commercial activity tax during the
next four years, the current tax on corporate profits giving way to a levy on gross receipts. The governor and others touted the broad base
and low rate of the commercial activity tax. Now they are eager to help? The worry is, the incentives would set in motion further erosion of
the new tax — even before it is fully implemented.

Perhaps a well-crafted set of incentives would make a small difference. As it is, the governor and lawmakers should resist acting more in
panic. Better to take a deep breath and think about the future. Ohio must lay the foundation for a new economy. Tax reform is part of the
effort. Even more important is investing in the skills of Ohioans. That $100 million? It could be put to better use.

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