Rein in state tax loopholes
Posted August 15, 2012 in Press ReleasesEditorial
The State of Ohio spends $7 billion a year on tax expenditures -- a variety of breaks and loopholes in the state budget that often enable politically powerful industries and wealthy individuals to cut their tax bills. That amount is nearly as great as the projected $8 billion gap that Gov. John Kasich and the General Assembly had to close in the current two-year budget, largely by cutting essential state services and slashing aid to local governments and school districts.
Public money diverted to tax breaks is money that cannot be spent on productive investment in Ohio's economy and people. In Columbus as in Washington, politicians routinely talk about eliminating unnecessary and obsolete tax giveaways on a broad scale, but somehow never get around to doing it.
To their credit, Mr. Kasich and lawmakers have vetoed or ended a handful of special-interest tax breaks. At the same time, though, they are carving out even more deductions, exemptions, and credits, worth tens of millions of dollars.
Among the latest beneficiaries of new or widened state tax breaks: banks, insurance companies, and other financial institutions; movie producers, convention centers; vendors to direct marketers, and companies with employees who work at home. One proposal would even reinstate the sales-tax exemption for investment coins and bullion -- an element of the Tom Noe "Coingate" scandal.
This pork parade needs to end. Some tax expenditures, such as the sales-tax exemption for consumer purchases of prescription drugs, have value and deserve to be maintained. But many loopholes in the state tax code have politically influential defenders who benefit from them, and lobby -- and make generous campaign contributions -- to protect them.
A new report by the advocacy group Policy Matters Ohio notes that taxes are not the only, or even most important, factor that determines economic development in the state. Tax breaks often reward private companies for doing things they would have done anyway, the report concludes, while paying for these loopholes can require reductions in public services and layoffs of public workers.
Mr. Kasich has talked about closing tax loopholes to help pay for his proposed reduction of the state income tax. But the governor's plan, on the heels of a 21-percent income tax cut since 2005, would disproportionately benefit Ohio's wealthiest taxpayers. Weeding out unneeded tax breaks is important enough a job that it need not be tied to any other scheme.
More than a year ago, Ohio think tanks across the ideological spectrum proposed the immediate repeal of a number of tax expenditures that would save more than $300 million a year. They called for a formal procedure for reviewing the costs and benefits of all existing and proposed tax expenditures, and for legislation that would require tax breaks and loopholes to expire after eight years unless they are specifically reauthorized.
These ideas have gone nowhere in the Statehouse, despite expressions of allegiance by the Kasich administration and lawmakers to fiscal responsibility and efficiency. It's time to embrace these proposals, not continue to ignore them.
Reversing the trend of ever-growing tax loopholes would make the state budget more efficient. It could help start to repair the damage done to state and local services during the Great Recession. It would make the tax code fairer to all Ohio taxpayers. It needs to happen.