State budget diverts more than $9 billion a year to special-interest tax giveaways
Posted August 25, 2021 in Press Releases
As they eliminated the committee that scrutinizes state tax expenditures, Ohio lawmakers passed a 2022-23 state budget that expanded the $9 billion the state spends every year on tax breaks. A new report by Policy Matters Ohio shows that the state budget signed by Gov. Mike DeWine in July includes a host of new and expanded tax breaks, the biggest share of which benefit for-profit corporations.
Tax expenditures — also known as tax breaks or tax loopholes — are spending through the tax code that diminish public revenue by exempting certain people, organizations or corporations from paying taxes they would otherwise owe. Lawmakers increased spending on tax breaks over the past decade. The state tax expenditure report included 128 tax breaks that were projected to cost $7 billion a year during the 2012-13 budget period; by 2020 lawmakers had increased the number of tax expenditures to 138 which were projected to cost $9.2 billion in 2022 and $9.5 billion in 2023. They added eight more in the 2022-23 budget, draining over $300 million a year from public coffers.
The Tax Expenditure Review Committee (TERC) was created in 2016 by the Ohio legislature to better scrutinize these rapidly growing special-interest tax breaks. In this budget bill, they eliminated it.
“Ohioans deserve to know how elected officials are using our public resources — especially when it benefits narrow, corporate or special interests instead of making our communities stronger,” said Policy Matters Ohio Senior Project Director Wendy Patton. “Too many tax loopholes in our budget come at the expense of funding our kids’ education and our neighbors’ health.”
Just under three-fifths of the revenue lost to tax giveaways goes to for-profit corporations and developers. For example, one new loophole incentivizes employers to use temporary workers instead of permanent hires by giving them a sales tax break for those services. This alone will cost state and local governments an estimated $230 million over the next two years.
Many of the tax breaks the legislature included in the budget disproportionately benefit Ohioans who are well-off. The controversial LLC loophole allows business owners to avoid paying taxes on the first $250,000 they make — in addition to paying a rate much lower than the state’s top income tax rate on all earnings over that. The LLC loophole will cost Ohio more than $650 million a year over the next two years. Three new tax breaks encourage parents to home-school their children or send them to private schools — undercutting public schools and costing the state as much as $100 million over two years. Lawmakers committed hundreds of millions to tax breaks that will start well beyond the budget period, such as deductions for people who profit from selling their business and for profits made from risky venture capital investments.
“Some lawmakers claimed they couldn’t commit future funding to phase-in Ohio’s new school funding formula, but they happily committed future funds for hundreds of millions in tax breaks that will primarily help the wealthy few and corporations,” Patton said. “The people we elect to be stewards of our public dollars should use them to achieve the most good for the most people.”