COMMENTARY

Forget income tax cut; keep tobacco, fracking levies

3/16/2014

Gov. John Kasich’s election-year plan to cut Ohio’s income tax — again — will dominate the legislative and campaign debates over the state budget changes he recommended last week. But that bad proposal shouldn’t obscure the better tax ideas in the governor’s package.

In an essay on this page, Gavin DeVore Leonard of One Ohio Now explains why the tax-cut strategy that state government has pursued so aggressively over the past decade, in the name of creating jobs and promoting economic growth, hasn’t worked and won’t work. That hasn’t stopped leaders of both parties in Columbus from chasing after it, or Mr. Kasich and his fellow Republicans in the General Assembly from expanding it.

Still, several of the ways in which the governor would pay for his tax cut deserve to — but won’t — get enacted on their own merits: boosting Ohio’s cigarette tax (while equalizing taxation of all other tobacco products, including e-cigarettes), and raising taxes on oil and natural-gas producers who seek to extract the state’s nonrenewable resources.

The governor’s proposals in these areas don’t go far enough. But they at least start the conversation, if state lawmakers and voters are willing to have it.

Mr. Kasich wants to increase the state’s cigarette tax from $1.25 a pack to $1.85 over two years. Research makes clear that higher taxes deter people, especially young people, from using tobacco, which remains the leading cause of preventable death in this state and nation.

Many public-health lobbyists argue that the tax increase needs to be even higher — at least $1.50 a pack — and immediate to make a big-enough difference. More tax revenue, they add, would enable the state to invest more effectively in tobacco prevention and cessation, areas in which Ohio has defaulted disgracefully in recent years.

They’re right. But in this instance, the perfect shouldn’t become the enemy of the good. Ohio’s cigarette tax hasn’t increased in nine years, and is in the bottom half among states.

Meanwhile, our state’s smoking rate is the 10th highest in the nation — 23.3 percent of adults. That rate has risen in recent years, while smoking has decreased nationwide. Among Ohio high-school students, the smoking rate is 21.1 percent.

One objection to raising the cigarette tax is that the levy is regressive, falling harder on lower-income consumers who are more likely to smoke than on wealthier ones. That case would be compelling if cigarettes were a necessity of life, like food or shelter.

But they aren’t; they are instead a thief of life. If you don’t want to pay more taxes on cigarettes, then stop smoking — or don’t start.

No one denies your right to smoke, but that right doesn’t mandate cheap cigarettes. Smoking has social costs — higher health-care expenses in Medicaid and other programs, reduced workplace productivity — as well as individual effects on smokers and their families. A cigarette tax fairly forces users of the product to pay to help mitigate the costs that affect smokers and nonsmokers alike.

There’s a valid argument against using a tobacco tax hike to help pay for a tax cut that will primarily benefit rich Ohioans. There’s no excuse for doing nothing.

As with the cigarette tax, a higher state tax on oil and gas extraction will help defray the social costs created by Ohio’s boom in hydraulic fracturing. These costs include greater demands on roads and other infrastructure, the need for more public-safety and emergency services, rising prices for housing in fracking communities, and environmental risks — such as waste disposal — that need to be regulated adequately so they don’t cause public harm.

Governor Kasich proposes a new 2.75 percent tax on the gross receipts of most oil and gas producers. The state’s current severance tax rates, set nearly four decades ago, are ludicrously low and can’t respond to the rapid increase in drilling here over the past five years, mostly by out-of-state companies. That activity is only going to grow.

The liberal advocacy group Policy Matters Ohio, and its counterparts in Pennsylvania and West Virginia, offer an intriguing suggestion: Since the Utica and Marcellus shale formations in which oil and gas producers are drilling lie beneath all three states, the governments of these states should take a common approach to severance taxes.

The policy groups propose using West Virginia’s 5-percent tax rate, without loopholes, as a floor for the three states. That rate is higher than Pennsylvania’s tax treatment and the tax increase Mr. Kasich seeks in Ohio, but generally lower than the tax rates in gas-producing states in the south and west. The groups argue that a regional approach would discourage Ohio and its neighbors from engaging in a race-to-the-bottom competition to attract producers with the promise of artificially low taxes.

The Ohio Department of Natural Resources is assessing whether two earthquakes in Mahoning County last week were related to fracking operations in the area. Regulation will need to become more extensive — and likely more expensive — as drilling expands.

Good public policy would discard Mr. Kasich’s ill-advised income tax reduction and enact the tobacco and severance taxes on their own. Will our backward-facing General Assembly do that? You’re kidding, right?

Lawmakers who have shown themselves to be more afraid of offending the state’s oil and gas lobby than of defying the governor have defeated Mr. Kasich’s previous efforts to raise the severance tax. As they launch their re-election campaigns, they’re no more likely to want to alienate the “smoker’s rights” brigade.

During the opening hearing last week on the governor’s tax proposal, lawmakers already were looking for ways to pass the tax cut, or even a bigger one, without paying for it responsibly. That’s why responsible voters should be looking for a new legislature in November.

Meanwhile, let’s have a serious discussion about these issues — if not in the Statehouse, then on the campaign trail and in our own houses.

David Kushma is editor of The Blade.

Contact him at: dkushma@theblade.com or on Twitter @dkushma1