Tuesday, Jun 19, 2018
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Taxes, good and bad


Gov. John Kasich would help pay for his tax cut by boosting state taxes on tobacco products and on oil and natural-gas drilling.


There is much to like in the plan Gov. John Kasich proposed Tuesday to update the two-year state budget at its halfway point. So it’s to be hoped that state lawmakers who are obsessed with getting re-elected this year won’t seize on the governor’s most politically appealing but economically dubious idea — a further cut in the Ohio income tax — and discard or ignore his more substantive initiatives.

As expected, Mr. Kasich is calling for a three-year, 8.5 percent cut in state income taxes, reducing the top tax rate to less than 5 percent — a seemingly magical level that the governor insists will help “keep Ohio moving forward.” But an across-the-board cut in the state’s graduated income tax would give most of the tax relief to the richest Ohioans, and disproportionately little to middle-income, working-class, and poor families.

The governor offers better-targeted relief with his proposal to set the state’s earned income tax credit at 15 percent of the federal credit; it’s now 5 percent. The credit should be made refundable.

He also would raise the personal income-tax exemption for low and middle-income Ohioans. Both gestures are welcome, but they would not offset the regressive nature of the broader tax cut.

Ohio has cut taxes again and again since 2005 without realizing the economic growth, job creation, or shared prosperity that advocates in both parties promised. At the same time, these cuts have cost the state billions of dollars that could have been invested in education, infrastructure, aid to local governments, and other vital services. More of the same is not the answer.

The governor would help pay for his tax cut by boosting state taxes on tobacco products — including electronic cigarettes — and on oil and natural-gas drilling. These are both such useful ideas that they deserve enactment without getting yoked to the income tax plan.

Mr. Kasich proposes raising the state tax on a pack of cigarettes from the current $1.25 to $1.85 over two years. Taxes on other tobacco products would rise to equivalent levels.

About 23 percent of Ohio adults smoke; that rate rose in recent years while it declined nationally. Higher tobacco taxes would discourage Ohioans, especially young people, from acquiring the habit, and encourage others to quit. That would reduce the economic and health-care costs related to smoking that all Ohioans bear, as well as the anguish created by the leading preventable cause of death.

Public-health advocates argue plausibly that a higher tax, perhaps $1 a pack, would be preferable. But if the proposed tax increase did not have to help finance an income tax cut, its revenues could be added to money Mr. Kasich already is setting aside for tobacco cessation efforts.

Similarly, the governor’s proposal to levy a 2.75 percent tax on the gross receipts of most oil and natural-gas producers in Ohio appears inadequate, compared to the higher severance-tax rates in other states. But as an alternative to keeping the state’s ludicrously low, four-decade-old tax rates in place, it would at least allow Ohioans to start to share in the benefits of the state’s fracking boom.

Mr. Kasich’s proposal would earmark some revenues from the severance tax increase to help communities deal with the effects of drilling on local infrastructure and public services. The petroleum lobby’s complaint that the governor’s modest plan would have a “chilling effect” on oil and gas production is likely to find its greatest adherents among lawmakers who have blocked his previous efforts to raise the severance tax.

The governor’s budget review has other attractive features. It would create an office of innovation in the state Department of Jobs and Family Services to improve the delivery of human services. A similar Kasich administration effort in the state’s Medicaid program has reduced costs without diminishing the quality of health care or access to it.

The budget plan incorporates ideas the governor outlined in his State of the State speech this month: dropout prevention and recovery, school-community partnerships, enhanced vocational education and job training, greater academic credit for military veterans and talented high-school students, more attention by state universities and colleges to graduation rates than enrollment numbers. It increases state support for mentally ill and addicted Ohioans and people with autism. These are all sound proposals.

The worst possible response to Governor Kasich’s budget package would occur if the General Assembly were to embrace its tax cut and reject its more humane elements. That outcome seems all too plausible, given the legislature’s generally dreadful record this session.

But if nothing else, the performance of Mr. Kasich and lawmakers in this year’s budget talks will prove instructive before Ohioans vote this November.

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