Gov. Strickland Should Seek Revision In Ohio’s 2005 Tax Reduction Law — Before He Asks The Feds For Cash Handout

Ohio is missing a lot of money.   A recent press release from the governor said, “Governor Ted Strickland and Budget Director J. Pari Sabety today announced that the state is facing not only a budget deficit in our current fiscal year, but is projected to face an exceptionally large, more than $7 billion deficit, in the upcoming 2010 – 2011 operating budget.”

Wow. $7 billion.  The official line is that Ohio’s budget deficit is all because the recession has caused a crash in tax revenues. But I’m wondering what impact the 2005 Tax Reduction Act is exerting. This 2005 Act was a five year plan to reduce income taxes by 21% and radically modify and reduce business taxes as well. (I’ve read that the total business reduction, when the new system is implemented, will be 50%, but I can’t find the reference.)

This Tax Reduction Act was Republican designed and Republican lead and occurred at a time when the state of Ohio was under complete Republican control. This Tax Reduction Act reflects the sincere Republican philosophy that the smaller the government the better.

I’m surprised that at this time of economic crisis, our Democratic governor, Ted Strickland, isn’t taking a look at this 2005 Act for possible revision. Instead, Strickland speaks of the need for “shared sacrifice,” and seems set on making deep cuts in government services, in a sense, helping to fulfill Republican’s small government dreams.

It doesn’t seem fair or accurate to blame the lack of state revenues exclusively on the recession. For credibility’s sake, the 2005 Tax Reduction Act should be reexamined as well. It seems to me that our growing budget deficit should spark a debate of whether, in fact, Ohio can afford to give itself such tax relief, and whether the 2005 Tax Act should be revised.

There seems a race to the bottom to creating ever lower tax rates in states. The theory is that low tax states attract new businesses and these new businesses create jobs that create additional tax revenue. The idea is that lower taxes eventually leads to better opportunities and increased tax revenue as well. It’s a nice theory. But the race to the bottom also assures that the proper function of government — to help the less advantaged, to build infrastructure, to provide quality education — becomes degraded.

Governor Strickland is putting his hopes on Ohio getting a federal handout. But does a low tax state deserve federal help? If there is a budget deficit gap, what is the fair amount that state’s taxpayers should be expected to contribute before it makes sense to argue that federal help is needed to fill the gap?

Ohio is in the lower tier of states in terms of per capita taxation. Here is an interesting chart that shows all 50 states.

Ohio and some of its neighboring states:
Total Taxes     24,811            14,098        23,849             30,838
($ million)
Per Capita          2,164              2,222          2,368               2,480
Rank                       38                   35               29                    24
% of
Pers. Income          6.5                  6.9                7.0                  6.8
Rank                       35                  30                27                   32

Compared to all 50 states, Ohio is now 38th in per capita tax amount. Ohio is 35th in terms of percent of personal income. In other words, taxpayers in 34 states pay a larger percentage of their income to state taxes than what Ohio tax payers pay.

When the 2005 Tax Reduction Act is fully implemented at the end of next year, Ohio’s rank will probably be even lower. Ideologues might cheer the fact that Ohio’s taxes are decreasing, but does becoming a low tax state really make Ohio a better state? That is the question a Democratic governor should make a matter of public debate.

Next year is the last installment of the Tax Reduction Act and, I’m calculating, this installment will add an additional $440 million to income tax reductions in Ohio, completing the five year process, resulting in a total of $2.2 billion income tax reduction each year.

It is an interesting fact, that, at the same time Ohio’s tax payers are getting $440 million in additional tax relief, Ohio is asking the federal government for a handout. I’ve not seen this fact mentioned anywhere.

This unusual situation should provide our Democratic governor, Ted Strickland, a great opportunity to show leadership concerning Ohio’s tax policy. Governor Strickland has the opportunity to provide the leadership and moral vision needed to make tax fairness a matter of public debate. But, disappointingly, by all signs, Strickland is planning on doing his best to completely ignore the impact of the 2005 Tax Reduction Act on the budget deficit.

Strickland, evidently, is prepared to make the cruelest of budget cuts without a peep of discussion. How would Bob Taft, if he were still governor, act any differently?

To look at Strickland’s web-site, there seems an implied official policy to not discuss the 2005 Tax Reduction Act. What’s spooky is that this policy of ignoring the 2005 Tax Reduction Act seems to be the local newspaper’s editorial policy as well.

I finally telephoned Dayton Daily News reporter, Laura Bischoff, about her recent DDN article “State’s budget deficit growing.” Bischoff’s article on this important topic, to me, misinforms. The summation of the article is given in its sub-headline: “For the first time, most Ohioans may make less money in 2009 than they did in past years.” Bischoff’s article emphasizes the impact of the recession, but completely ignores the impact of the 2005 Tax Reduction Act on the budget deficit.

What really baffles me, in Bischoff’s DDN article, is this sentence: “Since Ohio started its income tax in 1972, there has never been a two-year decline in income tax revenues but now it looks like Ohio is at the start of a three-year, $1.4 billion decline.”

We already know that, as a result of the 2005 Tax Reduction Act, the state budget is missing $2.2 billion from personal income taxes each year. Is the $1.4 billion, then, in addition to the $2.2 billion?

I’m often quick to criticize the DDN, but, I’ve got to say, I am positively impressed by the fact that the paper encourages contact with their reporters by providing telephone numbers and e-mail addresses.  This is the first time I’ve actually telephoned a reporter.

We had a nice conversation. Laura sounded awful, like she is fighting a major cold. She said her notes from the article were elsewhere, and so she couldn’t specifically answer my question. I had a chance to explain my concerns about her article and she seemed appreciative to hear some feedback. She said that she has submitted additional questions to the governor’s office that have not yet been answered, and that she hoped to write future articles about the topic.

I eventually also telephoned the governor’s office, since that was Bischoff’s source, and was directed to the office of the press secretary, Keith Daily. Mr. Daily’s office promised me that Mr. Daily would return my call at a later time. Nothing yet.

Strickland is seeking direct federal aid for Ohio. It seems to me, Strickland’s quest for federal aid would have more credibility if he would also ask Ohio’s legislature to cancel the scheduled tax reductions for this next year, provided for in the 2005 Tax Reduction Act.  Canceling this year’s scheduled reduction would mean that $440 million in annual revenue would be added to the state. It would seem that such an act by the legislature would strengthen Ohio’s case to the federal government for a handout.

And here is something else: Just like George Bush’s federal income tax cuts, Ohio’s state income tax cuts disproportionately favor the wealthy. According to Policy Ohio, 26% of Ohio’s Income Tax Reduction goes to incomes in excess of $340,000. Of the $2.2 billion in total annual income tax reduction, the result of the 2005 Tax Law, 26%, or $572 million, goes to incomes in excess of $340,000.

Strickland could rescind the tax cuts just for the most wealthy — those incomes in excess of $340,000 — this action alone would add $572 million to the state’s yearly revenue.

Seeking revision to the 2005 Tax Reduction Act, I’m sure, would cause a political storm, and it well could be that a Republican dominated State Senate would never consider revision. But, if Strickland has any hopes of “turning Ohio around,” as he promised in his 2006 campaign, he needs to show leadership that educates and inspires.

Ohio needs to be turned around in its thinking about taxes, its thinking about the role of government. And this is Strickland’s opportunity. This time of crisis is an opportunity for leadership to be heard and to influence. I’m disappointed that Governor Strickland seems disinterested.

I’ve written about the state budget here:

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