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
Last week, the Center on Budget and Policy Priorities issued a report entitled “Cutting State Personal Income Taxes Won’t Help Small Businesses Create Jobs and May Harm State Economies.”
As the title suggests, the report offers powerful new evidence that Governor Kasich’s proposal to further reduce Ohio’s personal income tax is a misguided approach to job creation. The author compiles years worth of research studies looking at the connection between income taxes and job creation. Included among the report’s findings:
- 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.”
Kasich’s oil and gas tax proposal leaves over $1 billion on the table
Governor Kasich’s budget raises the rate of Ohio’s severance tax, charged when drillers extract oil and natural gas from Ohio’s shale, but would preserve our tax rate as one of the lowest among all oil and gas producing states.
According to the administration, these changes will raise $200 million in new tax revenue over the next two years, but is dwarfed in comparison to the $2.9 billion in new sales taxes Ohioans are being asked to pay in the budget, resources that will support another income tax cut that will mostly benefit the wealthiest Ohioans.
It’s important for policymakers to consider whether the new tax rate is sufficient.Based on production estimates from the Ohio Department of Taxation, we attempted to compare the estimated revenue from Governor Kasich’s proposal to what Ohio could collect at varying tax rates, including those in place in other oil and gas states. [Read more…]
Republican governors pushing radical tax reforms that could be at Ohio’s doorstep soon
In Washington, President Obama and Congressional Democrats secured a historic fiscal victory in early January. By finally passing legislation that asked the wealthiest Americans to pay a little more in taxes, lawmakers moved one step closer to securing our nation’s fiscal health.
At the state level though, Republican Governors from around the country are pushing for tax reforms that would do the exact opposite. These governors want to see income taxes reduced or eliminated while raising other more regressive taxes that harm low- and middle-income taxpayers. These pieces of legislation are taken straight from the radical conservative playbook in an effort to transfer the burden of paying for public services from the wealthiest to the less well off. The Republican argument is that if a state lowers their income tax rate it will become more competitive in the eye of businesses who may want to relocate there or to help attract high-skilled workers.
For example, according to a recent New York Times article, Kansas Republican Gov. Sam Brownback introduced legislation to phase out the state’s income tax by cutting services and keeping in place what was meant to be a temporary increase in the state’s sales tax. Republican lawmakers in Kansas said that individuals were leaving the state to move to states that do not have income taxes and that this legislation would make them more competitive.
In reality, recent evidence points to the fact that there is no correlation between a state income tax rate and economic growth. What is worse is that these policies are simply another gift to the rich at the expense of low- and middle-income workers.
[Read more…]
Video: Why Simply Capping Deductions Doesn’t Solve Fiscal Cliff
Simply placing a cap on deductions doesn’t get us past the cliff. In this one minute video, IO Policy Analyst Ben Peyton explains why. If you want to learn more about our report and why Innovation Ohio is advocating for the president’s plan to raise taxes on the top two percent of income earners, check out our report page.
Failure to extend the payroll tax cut will shrink Ohio paychecks and slow economic growth
In all recent coverage of the fiscal cliff at IO, our sister organization, IO Ed Fund and elsewhere, one important detail has gotten relatively little notice. President Obama’s proposal to Congressional Republicans includes a one-year extension of the payroll tax cut enacted in 2010. Without an extension, payroll taxes will go up at year end, meaning workers will see less in paychecks starting in January.
The proposal is good news for the economy and for working Ohioans who will take home — and most likely spend — $525 more on average as a result. According to the Center on Budget and Policy Priorities, below is the impact of the tax cut on various professions:
With no extension, lawmakers will place a significant burden on an economy struggling to grow. Today, Moody’s Analytics released its outlook of the U.S. economy for 2013 and noted that one of the major headwinds that the economy could face is the expiration of the payroll tax cut. Moody’s estimates that allowing the tax cut to expire will cause the economy to shrink by .6 percent in 2013.
As the Center for Budget and Policy Priorities wrote last week, over 150 million workers — including 5.7 million in Ohio — will see some benefit if the payroll tax cut is extended. Those estimates are based on 2010 and 2011 employment numbers, so the number in 2013 is likely even larger.
Because the president’s proposal makes the tax cut temporary, an extension won’t add to budget deficits permanently. Compared to extending the Bush tax cuts for high-income taxpayers which could add $1 trillion to the debt over ten years — and not offer much in the form of economic stimulus –extending this tax cut is a relative bargain.
Extending the payroll tax cut is an important policy that will get more money into the hands of Ohioans to help stimulate the economy in 2013 and is a policy that both sides should support.
Republican fiscal cliff proposal to cap deductions protects the rich by harming middle-class Americans
On Friday, our sister organization, Innovation Ohio Education Fund, released a report that, among other things, compared and contrasted the fiscal cliff proposals of President Obama and Congressional Republicans. A portion of the report focused on the Republican proposal to cap deductions and close loopholes to generate $800 billion in new revenue over the next two years. The report concluded that the plan would not raise the estimated $800 billion and could lead to the elimination of other deductions that millions of Ohio families rely upon.
The report focused on Speaker Boehner’s proposal which included $800 billion in new revenue. While the proposal from Speaker Boehner was strikingly absent of details, some key Republicans have publicly stated capping deductions at $25,000 a year for those making over $250,000 a year would help raise $800 billion over ten years. While on paper this may work, in reality it is much less likely to do so.
[Read more…]
Research shows that the richest two percent have benefited the most from the Bush tax cuts
In July, the Center on Budget and Policy Priorities (CBPP) released a report that measured the tax benefits from the Bush tax cuts and which Americans were receiving them. Their findings reinforce what most of us have been feeling for some time – the greatest benefit from these cuts went to the wealthiest few, while the rest of Americans received significantly less benefit.
In their report the CBPP calculated the average value of the tax cuts per household since 2004 using data from the Tax Policy Center. In a report that will be released later tomorrow, Innovation Ohio used these calculations to look at what percentage of these tax cuts went to which households. As you can see in the chart below, our findings show that households that made over $200,000 a year received 73 percent of all tax benefits from the Bush tax cuts. This left the remaining 27 percent of benefits to be split between 98 percent of all households in America. This was and currently is the economic ideology of the Republican party — cut rates for the wealthiest earners at the expense of middle and low-income workers and hope that they don’t notice that they are getting the short-end of the deal. With income inequality growing significantly over the last decade, and the Bush tax cuts being a tool to transfer more wealth to the very well off, it is telling that congressional Republicans are insisting that rates cannot increase on the top two percent. Defending the Bush tax rates for the wealthiest two percent makes it clear who Republicans are looking out for. President Obama in his recent proposal to reach a deal on the deficit put forth a plan that raises the top rates for the richest two percent but keeps the Bush tax cut in place for the other 98 percent of Americans. The president and Congressional Democrats understand that to protect entitlements like Social Security, Medicare and Medicaid, we have to ask the wealthiest in America to pay a little more. Considering that they have been the main beneficiaries of economic policy over the last nine years, this only seems fair.Ohio Farm Bureau opposes Kasich income tax cut, wants fracking revenue directed to communities
On Friday, members of the Ohio Farm Bureau Federation (OFBF) voted to oppose Governor Kasich’s proposal to increase Ohio’s severance taxes on oil and gas (fracking) to pay for an income tax cut. In their release, OFBF made clear that their opposition was not to the severance tax itself, but to Kasich’s plans to use the revenue:
“Farm Bureau voted to oppose an increase in the severance tax solely for the purpose of funding a state income tax reduction. If there is an increase in the severance tax, it should address local government funding, infrastructure needs, local and state economic development and mitigation of negative impacts on local communities and the environment.”[Read more…]