Researchers Question Auto Bailout Plan

Gongwer News Service - November 23, 2005

Gongwer News Service

Auto Industry Aid: Issue 1 isn’t the only priority bill that’s come under some criticism of late. Policy Matters Ohio sent a letter to lawmakers this week warning that a proposal to significantly expand the Job Retention Tax Credit program (HB 414) would severely diminish state tax revenue and possibly result in job losses.

Delphi Corporations recent announcement of a company reorganization, which entails job cuts that could hit the Dayton area hard, prompted the bill’s introduction at the behest of Speaker Jon Husted (R-Kettering). (See Gongwer Ohio Report, November 3, 2005)

Policy Matters Research Director Zach Schiller said the bill, while written to apply only to General Motors Corp., Ford Motor Co., DaimlerChrysler, Honda of America and Delphi by virtue of the minimum 7,500 Ohio workers required to qualify for the tax credits, would “drain state revenue and subsidize companies that reduce their Ohio workforce without providing real assurances that it will retain additional jobs in Ohio.”

As proposed, Honda could tap into the tax credits “without making additional commitments beyond what they have already planned to do anyway, Mr. Schiller wrote. On the other hand, Delphi might experience difficulties in qualifying based on requirements of economic soundness that must be determined by the Ohio Tax Credit Authority.

Mr. Schiller noted the proposed tax credit expansion would also erode the base of the new commercial activity tax (CAT), currently in a five-year phase-in period. As it stands now, the CAT is not an adequate revenue replacement for the taxes it is replacing,” he said. “This new credit is unfair to other taxpayers, including the many other automotive suppliers in Ohio, and is a recipe for state fiscal problems.”

Finally, the researcher said the current proposal allows companies such as Delphi to access the credits even if “shuts down most of its Dayton-area operations,” as long as other plants in the state remain open. “In fact, it could move operations out of the country, and those operations could benefit from the credit if they shipped product to Ohio,” Mr. Schiller said.

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