Tax plan called middle-class sellout

Ohio calls for increased sales charge to offset income rate cut

6/22/2013

COLUMBUS — A major tax overhaul proposed by legislative Republicans at the 11th hour of the budget process sells out the middle-class by raising the sales tax and adding to Ohioans’ local property tax burden to help fund an income tax cut for the wealthy, critics charged Friday.

“We’re cutting income taxes,” said Zach Schiller, research director of the left-leaning Policy Matters Ohio. “Some of it is paid out of natural growth in revenue, but much of it is being paid by a sales tax rate increase and elimination of the $20 credit (for the lower-income), and doing that is regressive. You’re shifting the tax load from upper-income Ohioans to people who make less. It’s as simple as that.”

Supporters of the plan, however, argued before the House Ways and Means Committee on Friday that the shift away from taxing income toward taxing consumption is exactly what Ohio needs to spur job growth.

“This revenue package is not a giveaway to the rich,” said Richard Vedder, professor emeritus at Ohio University, an adjunct scholar with the conservative American Enterprise Institute, and a big fan of Gov. John Kasich’s now dead proposal to greatly expand the sales tax base to professional services.

“[The latest plan] on the whole is good on equity grounds...,” Mr. Vedder said. “It is very rare to have a pro-growth tax plan that also scores well on equity and transparency grounds, which, I think, this one seems to do.”

Either way, the plan is expected to become law. Majority Republicans on a joint House-Senate conference committee will insert it into the $61.7 billion, two-year budget by Tuesday. It is expected to reach Mr. Kasich’s desk by the end of next week.

The various changes of the latest plan shake out as a net income tax cut of nearly $2.6 billion, phased in over three years. It will start with an 8.5 percent cut this year, climb to 9 percent the second year, and reach 10 percent by the third.

According to the Department of Taxation, taxpayers in the $22,000-to-$43,800 tax bracket would see an average annual cut of $79 once the full 10 percent cut is implemented. By comparison, a tax return in the $109,600-to-$219,050 bracket would see an average break of $672.

While budget debate began in February with Mr. Kasich proposing his sales tax expansion along with a cut in the overall tax rate, the legislative Republican plan settled on a sales tax rate hike from 5.5 cents on the dollar to 5.75 cents.

The GOP plan also sets the stage for the state to gradually reduce its role of the last 40 or so years of subsidizing local property tax bills.

The state currently pays 10 percent of local property taxes in general, plus another 2.5 percent for owner-occupied homes as part of what is commonly called the property tax rollback. The new language, however, would stop paying that for new levies passed by local governments or schools while continuing it for existing levies.

“The taxpayer would be responsible for the full amount of their tax bill for new levies, an effective tax increase of 12.5 percent over what they pay under current law ...,” said Barbara Shaner, associate executive director for the Ohio Association of School Business Officials.

“We believe these changes will make it more difficult for school districts to pass new levies,” she said. At the least, she said the effective date of the change should be delayed until after this November’s election because some school districts with new levies on the ballot have already put price tags on them for voters.

Mr. Vedder, however, argued that the current system misleads voters as to who really pays the bill.

"It adds confusion and complexity to the tax code and violates basic canons of public finance calling for transparency," he said. "Since state funds used to compensate local governments for the property tax rollback are themselves the product of taxation [at the state level], this is just a move to use a disguised method of tax payment instead of taxing people directly."

Contact Jim Provance at:

jprovance@theblade.com

or 614-221-0496.