Ohio’s 2005 Tax Reduction Act Was Predicted, By 2010, To Result In Yearly State Budget Shortfall of Billions

Recent Dayton Daily News articles seem to put blame for Ohio’s huge budget deficits on the recession and completely ignore the big impact Ohio’s 2005 Tax Reduction Act has on state revenue.  In 2005, when this Reduction Act was being debated, there were warnings that the state could never recover from the huge revenue deficits caused by the Tax Reduction, and that, because of the Tax Reduction Act, huge deficits would occur in Ohio’s budget by 2010.  Those warnings are coming true today.

An article published in 2005, for example, for Ohio Policy Matters said, “Closer scrutiny reveals that the study does not take into account massive cuts in state spending, or alternative tax increases, that will be required to make up for the revenue shortfall of about $2.8 billion in 2010, the fifth and final year of the tax reform plan’s phase out period.”

It appears that it was part of the Republican plan all along that deficits would occur and that these deficits would cause a constriction of state spending and state services. The recession has made these deficits more severe, but, the impact of the Tax Reduction Act by itself would have been huge, regardless if there had been no recession.

After Laura Bischoff’s Dayton Daily News December 1 article, “State’s budget deficit growing,” in which Bischoff blamed the state budget crises on the recession, I telephoned Bishoff and asked why she had not mentioned in her article the impact of the 2005 Tax Reduction Act. I wrote this article for DaytonOS explaining my concern.

Yesterday, in Sunday’s DDN, Bishoff again wrote about the state budget crises and gave her article an amazingly weak and misleading headline: “Some blame tax cuts for much of Ohio’s budget woes.”

Some blame”?

Bishoff’s headline implies that only nitpickers would think to link Ohio’s massive 2005 Tax Reduction Act — that reduced income taxes by 21% and corporate and business taxes by about 50% — to the fact that in 2009, as the tax reductions are fully implemented, Ohio is running out of money. But regardless of the weak headline, Bishoff’s article does report that in the proposed two year budget, $5.6 billion of the projected $7 billion deficit comes from the decrease in state taxes caused by the Tax Reduction Act.

Bishoff’s article ascribes the $5.6 billion revenue loss to a decrease in personal income tax, but I think this $5.6 billion is the total decrease and includes corporate and business tax reductions as well as personal income tax reductions.  The amount of revenue loss for the state from reducing personal income taxes is about $2.2 billion each year or $4.4 billion for a two year budget.  Bishoff’s article ignores the fact that Ohio’s corporate and business taxes were also significantly reduced — by about 50%. This corporate and business tax reduction amounts to another $1.5 billion each year in lost revenue to the state.

Bishoff fails to report an important aspect of the Income Tax Reduction Act.  Like the Bush income tax cuts at the federal level, the 2005 Ohio Tax Reduction Act gives a disproportionate amount of the tax cut to the wealthy —  26% of the entire income tax reduction goes to incomes in excess of $340,000 (averaging $650,000).  Every year, because of this 2005 Tax Reduction Act, of the $2.2 billion income tax reduction, these wealthiest citizens of Ohio receive $572 million.

Bischoff’s article also neglects to tell that the fifth year of the five year Tax Reduction Act begins in January, 2009. In this fifth year, over $400 million in new income tax reductions will take effect, and, again, the top incomes — those in excess of $340,000 — will get the lion’s share, over $100 million.

At the same time that Ohio is giving a generous handout to its wealthiest citizens, Ohio, with Strickland taking the lead, plans on asking the federal government for a huge handout for its general budget. It doesn’t pass the standard of good sense that Ohio should reduce its tax burden to the point that it is not capable of its own self sufficiency, and, then, at the same time, should have the boldness to ask the feds for a huge handout.  I wrote about this situation here: “Gov. Strickland Should Seek Revision In Ohio’s 2005 Tax Reduction Law — Before He Asks The Feds For Cash Handout.”

Republicans completely dominated the state in 2005 when the Tax Reduction Act was passed. The Tax Reduction Act fits the Republican philosophy of low taxes, small government, small government services.

According to this report, when comparing Ohio’s state tax revenues to the state tax revenues of other states, After years of Republican control, Ohio is a low tax state.  For state revenue, Ohio ranks 38th in per capita taxation ($2164 per capita), and 35th in the percentage of personal income going to state taxes.  The fact that Ohio is going bankrupt is the result not just of the recession, but because of a very flawed Republican philosophy — that called for a dramatic reduction in taxes — imposed upon this state.  Ohio’s financial problems are a result of Republican flawed thinking and Republican incompetence.   When Ohio passed its Tax Reduction Act in 2005, people paying attention were predicting that by 2010 Ohio would be in deep financial trouble.  Such predictions should have been listened to.  How is it reasonable that a state could drastically reduce its income and not expect to be forced to make hard budget cuts?

I think it is safe to say that only a tiny percentage of Ohio’s citizens even remember the 2005 Tax Reduction Act, or have given much thought to reasons for the plight of Ohio’s budget.  To suggest that “Some blame” Ohio’s financial crisis on the 2005 Tax Reduction Act is to imply that the question of the impact of the 2005 Law is open to debate.  Our democracy doesn’t stand a chance so long as the public is kept ignorant.

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