Friday, January 8, 2010

This is going to be hard to swallow, Ohio.

As much as many try, there are some times when you just can't dispute the facts.

And the most recent report from the Tax Foundation is one of those instances.

This is a lot of information, but read it all, it's a great run down of what plagues the Buckeye State.
While Ohio lawmakers found a temporary fix for the state’s budget shortfall by suspending a scheduled 4.2 percent income tax cut, unless they enact permanent reforms to improve the state’s tax system, the out-migration and revenue loss that has plagued the state in recent years can be expected to continue, according a new Tax Foundation report.

Between 1993 and 2008, the state lost 231,000 taxpayers, more than 105,000 of whom left within the past five years. The state lost $19 billion in adjusted gross income (AGI) from 1993 to 2008.


“Ohio’s high tax burden and unfriendly tax environment for business has continued to erode the state’s tax base and shrink its economy,” Hodge said.
Interestingly enough, Emily Riemer from WSYX in Columbus tweeted this morning that once against Strickland's Administration improperly estimated tax receipts. Revenue was down 2.5%, or $37 million dollars.
Ohio has the seventh-highest state and local tax burden in the country, with taxes having consumed 10.4 percent of the state’s income in 2008 – higher than any of its neighbors.

And here the Tax Foundation breaks down specifically what is wrong with Ohio's tax system. Pay close attention. This is the important stuff.
Although Ohio has nearly phased out its corporate franchise tax in favor of a commercial activity tax (CAT), the latter is a particularly harmful type of gross receipts tax that results in what economists call “tax pyramiding” because it applies to all transactions, including business-to-business purchases of supplies and other materials.

The state’s top individual income tax rate of 5.925 percent is about average nationally and regionally, but Ohio’s local income taxes are unusually high. All of Ohio’s neighbors except Indiana have lower combined state and local sales tax rates than Ohio’s 6.83 percent average rate. In addition, Ohio’s sales tax applies to many business-to-business activities, which increases the cost of doing business in the state.

While Ohio’s property taxes are a relatively modest $1,165 per capita, the state undermines its growth potential by being one of 22 states with a capital stock tax (levied on the wealth of a corporation) and one of only 10 states with an intangible property tax (imposed on things such as stocks, bonds and even trademarks). Ohio also imposes its own estate tax, with a low $338,000 threshold.
Quite a mess, eh?

Fortunately, the Tax Foundation doesn't just complain, they provide a few potential solutions.
The first step should be to reduce Ohio's reliance on business taxes by eliminating the Commercial Activity Tax, the capital stock tax, and the intangibles tax. These are the most anti-growth taxes within the Ohio tax system. Reducing the punitive effects of these taxes on business should be job one for Ohio lawmakers.

Economic research supports moving away from these taxes. Economists are finding that in a global economy, taxes on capital and income are more harmful for long-term economic growth than are taxes on consumption or property. The reason is that capital and income are the most mobile factors in production and, therefore, the most sensitive to high taxes.

Next, lawmakers should simplify the individual income tax system by eliminating those multiple brackets and moving toward a flatter system similar to those in Indiana, Michigan, and Pennsylvania.

Another sound reform would be to eliminate the tax pyramiding in the sales tax base by exempting more business-to-business transactions.

Finally, Ohio should get out of the business of doling out incentives to lure business into the state. Fairness and experience tell us that lower tax rates for all are better than incentives for some. North Carolina learned this lesson after giving Dell millions in incentives only to see Dell close down its North Carolina facility in less than five years.

Now even the most skeptical can't deny that Ohio clearly faces an economic disadvantage based on its complex tax-based challenges. Some kind of relief, any relief, has to be considered by Ohio leadership.

Surely in this economic environment, tax reform must be some aspect of Ted Strickland's agenda as we head into 2010, right?

Not so much.

In a post on the Dispatch's political blog, they highlight what Strickland named as his legislative priorities to start the year.
Strickland noted that with a Feb. 3 deadline for the legislature to place an issue on the May ballot, the Thurd Frontier renewal is of immediate importance, as is making election changes and considering a redistricting plan.
A 10.6% unemployment rate and not only is Strickland ignoring what truly plagues Ohio, his big solution is the brain child of Bob Taft. Advocates of the program brag about the program creating 10,000 jobs since its inception in 2005. Even if we ignore the fact that the private sector is far better at creating jobs than the government, why is Strickland focusing solely on a program that has created only 2,500 jobs a year - especially in an economy that has lost 200,000 jobs just in the past year?

This kind of business as usual attitude is what has put Ohio in the position its in now.

Ohioans need to demand change. And the report from the Tax Foundation is a solid start.

Along with a new Governor.

1 comment:

  1. Thanks for posting the report, very interesting reading. I completely agree with the plan of attach they have laid out. Does the Tax Foundation offer any suggestions on how Ohio can still raise revenue in an equitable manner that is attractive for businesses?


No profanity, keep it clean.

Note: Only a member of this blog may post a comment.