State budget limits local authority, revenue options with sales tax changes
72 services taxed under Kasich budget – how they stack up
- Haircuts are taxable in only seven states.
- Just seven states charge a tax on debt counseling.
- Advertising sales (radio, print and television) is taxable in only four states.
- Bail bonds are subject to sales taxes in just four states.
- Just three states subject service charges of banking institutions to sales taxes.
- Only five states tax accounting, architectural, engineering and legal services.
- Six states tax investment counseling and tax preparation services.
Omen for Ohio? Michigan’s sales tax on service repealed 17 hours after taking effect.
Florida’s failed experiment with sales tax expansion
Flashback: Governor Taft tried expanding the sales tax in 2003
- Many businesses attacked the sales tax expansion. Cable TV systems, tattoo parlors and dry cleaners argued that extending the sales tax would harm low-income families and impact sales. Representatives of Kings Island complained about that its admissions tickets were taxed too. The Nation Federation of Independent Business called the sales tax expansion an attack on small business. Businesses were generally concerned that the new tax burden might cause commercial interests to leave Ohio for other states.
- Citizens rejected Gov. Taft’s new tax. The University of Cincinnati’s Ohio Poll found Ohioans rejected the plan to tax services by a wide majority (70-28). A poll commissioned by a Cable TV industry group found that more than three-quarters of cable subscribers in Ohio said they might reduce or even drop their service if lawmakers applied the sales tax to cable as Gov. Taft proposed. A majority of those respondents said they preferred to pay slightly higher sales taxes on goods and services that are already taxed, rather than imposing a tax on more services.
IO Budget Analysis: Kasich Sales Tax Plan
Organizations offer conditional support for sales tax proposal
Witnessed testified this morning before the House Ways and Means Subcommittee on Gov. Kasich’s sales tax plan, offering the first public testimony in support of the proposal since its February 4 introduction. Witnesses argued that the proposed sales tax expansion was needed, but cautioned that other provisions caused them to question the effectiveness of the overall reform plan. Gavin DeVore Leonard with One Ohio Now said that his organization saw the merit in expanding the sales tax base, but suggested that any new revenue should be used to pay for needed public services. In the proposed budget, new revenue from the sales tax expansion is used to pay for an income tax cut that overwhelmingly favors the wealthiest Ohioans while making the tax code much more regressive John Honeck, Director of Public Policy for the Center for Community Solutions, also testified that his organization supports the expansion of the sales tax, but has reservations about other tax provisions in the budget. Honeck suggested closing the tax exemption for magazine subscriptions and asked lawmakers to consider closing some of the bill’s other 183 exemptions. Ashland County Commissioner Kim Edwards spoke on behalf of the Ohio County Commissioners Associations, and was the most outspoken opponent of the sales tax proposal. Edwards testified that the three year freeze on sales tax rates would tie the hands’ of county governments to pay for needed services and would override the will of voters. All three witnesses expressed concerns about the sales tax proposal and offered suggestions on how to improve it. Mr. Honeck suggested lowering the sales tax rate even further would help mitigate some of the concerns associated with lower income individuals having to pay more in sales tax. Both Mr. Honeck and Mr. DeVore Leonard suggested that the state should provide tax credits to offset a portion of the increased tax burden on individuals. Specifically, DeVore Leonard suggested that a state-based earned income tax credit would lessen the impact on low-income Ohioans. Tomorrow, committee members will hear from witnesses opposed to the sales tax reform.
Study suggests income tax cuts are a poor tool to spur job growth
- Cutting income taxes to spur economic growth is a zero-sum game. Its authors note that “if a tax cut for households is matched with a commensurate cut in state spending to keep budgets in balance, then state employees or employees of state contractors may lose their jobs or will have less money to spend in local stores.” In other word, a dollar may enter the economy via businesses through lower taxes, or through employment of public workers engaged in serving the public. But it’s not a new dollar.
- Business do not choose among states based on tax rates. Tax cut supporters frequently claim that a lower income tax rate will attract “job creators.” According to the analysis, however, there is absolutely no link between income taxes levels and the decisions of people in a state to start a business or to relocate to another state.
- Motivating businesses is not best achieved through income tax rates. That is in part because, as the report notes, “only about one-seventh of all individual taxpayers are owners of active, small businesses.” Fewer than three percent of all taxpayers report business income and employees.
- Demand for a business’ product is the primary driver of hiring, not taxes. While innovative start-up firms account for most small business creation, personal income tax cuts are unlikely to benefit many of them because “these firms spend so heavily on new equipment, product development, and marketing that they have relatively little taxable profit in their early years.”
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