Ohio legislators weigh freeze on tax cut

6/17/2009

COLUMBUS - Is stopping a tax cut the same thing as a tax increase?

Ohio's legislative leaders and Gov. Ted Strickland say a tax increase is not a good idea in this economic environment, even as they look into a $3.2 billion chasm in the state budget over the next two years.

If Ohio were to slam the brakes on the phase-in of a 21 percent cut in the personal income tax, the state would hold onto roughly $900 million that could be used to help bridge that chasm over the next biennium.

Human service advocates have suggested the freeze in tax cuts.

"The governor does not support raising taxes,'' said John Kohlstrand, spokesman for the Ohio Department of Taxation. "That said, it would generate $450 million a year.''

On Jan. 1, the withholding rate for Ohioans was adjusted downward by 4.2 percent, the final installment of a five-year rollout. Mr. Kohlstrand said this estimate has not been recalculated to reflect the recent drop in the value of tax collections on the budget because of job losses and pay concessions.

For the typical family of four with two wage-earners grossing $60,000 a year and filing jointly, the reduced withholding translates into $1.63 more in weekly take-home pay for a total of about $85 a year.

If the Legislature decided to freeze Ohio's 2009 graduated income-tax rates at 2008 levels, it could order a change in immediate withholding or allow the change to shake itself out when taxpayers file their returns in 2010.

More taxpayers would be likely to owe money when they file returns, and those who receive refunds would get smaller ones.

The call for tax increases - permanent or temporary - is largely coming from outside state government, such as advocates for food banks, health care, child care, drug and alcohol treatment, and other human service programs. They've suggested a variety of sales, income, and other tax increases and loophole closings to stop the budget bleeding.

But little appetite is seen among lawmakers to follow that course, especially just before a gubernatorial election year.

Could lawmakers make the case that stopping a tax cut is not a tax increase?

"I don't think the anti-tax people would let you do that,'' said Gayle Channing Tenenbaum, an advocate for children's services. "But I cannot believe as we continue toward cutting $3 billion out of this budget that people won't realize what that means to health, safety, and basic needs for the people of this state.

"We cannot walk away from abused and neglected children, people with mental illness, the vulnerable elderly, [and] schools,'' she said.

The Republican tax reform plan that attracted only one Democratic vote in 2005 also included changes in the business tax structure that have largely run their course and would be harder to cancel or postpone at this late point.

"Ohio has been one of the most aggressive states in terms of cutting taxes in the fiscal year just ending [on June 30]," Mr. Kohlstrand said. "The National Association of State Budget Officials did a report of tax changes, and Ohio was at the top of the list in terms of raw numbers.''

Contact Jim Provance at:

jprovance@theblade.com

or 614-221-0496.