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Published: Sunday, 5/29/2011

Close tax loopholes

Ohio spends more than $7 billion a year — an amount equal to about one-fourth of the state’s general-fund budget — to maintain a broad array of tax deductions, credits, exemptions, and exclusions. Some of these breaks, such as the sales-tax exemption for purchases of prescription drugs, have obvious value.

But many of them have been on the books for decades without any review of whether they still do any good. Other loopholes never were sound public policy, but became law to please special-interest lobbies and the politicians who pocket their campaign contributions.

At a time when Gov. John Kasich and lawmakers are preparing to pass an all-cuts budget that threatens to do grave harm to state services, public schools, and local governments, Ohio’s tax-expenditure system demands immediate attention. More specifically, the efficiency-loving governor and General Assembly need to eliminate state tax breaks that no longer have merit, if they ever did.

Fortunately, three Ohio think tanks from across the ideological spectrum have done the heavy lifting. The Buckeye Institute, the Center for Community Solutions, and Greater Ohio propose the immediate repeal of a slew of tax expenditures in the next budget that would save more than $300 million a year.

Why, they sensibly ask, does the state maintain the $20 personal credit on state income tax returns — at an annual cost of $165 million — when it has cut tax rates over the past five years and indexed tax brackets and personal exemptions to inflation? Why should political donations be tax-exempt? Why should there be a state tax deduction for contributions to college savings accounts, when such savings are already tax-free?

The think tanks would put the savings from dumping these and other unnecessary tax breaks to different uses. The free-market Buckeye Institute would cut taxes for small and medium-sized businesses, while the Center for Community Solutions would invest more in social services. But the point is that state officials have other ways to balance the budget than slashing spending on vital programs, if they choose to invoke these options.

Nor is getting rid of dubious tax expenditures tantamount to raising taxes, as politically myopic critics argue. It is simply another way to cut nonessential state spending — something that the Republican leadership in Columbus claims to want to do. It also would make the state tax structure fairer, a worthwhile goal even if it is not a Statehouse priority.

The think tanks’ plan has other appealing features. It would create a formal process for reviewing the costs and benefits of all of Ohio’s 128 tax expenditures, along with any new ones. All tax expenditures would automatically expire after eight years unless the governor and lawmakers reauthorize them.

The proposal also calls for creation of a nonpartisan commission to study the fairness, adequacy, and effect on Ohio’s business climate of local as well as state taxation. As the state continues to ignore its mandate from the Ohio Supreme Court to develop a way of funding public schools that relies less on local property taxes, such a review could yield a more flexible, efficient, and stable tax code.

The reforms the think tanks propose deserve more than the expressions of polite disdain they have heard so far from Mr. Kasich and legislative leaders. They offer ways to help the state cope with its immediate budget miseries, and to develop a tax system for the long term that would better serve the interests of Ohio taxpayers. Such ideas deserve to be embraced, not ignored.



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