Report calls for further study of Ohio tax breaks
Lawmakers appear stalled in dealing with tax structure.
Perhaps it COLUMBUS — sounds impressive that the legislature’s 2020 Tax Policy Study Commission issued a 320-page report after multiple hearings and more than three dozen witnesses.
However, 317 pages of the report are nothing more than copies of testimony submitted to the committee, plus an overview of Ohio’s incometax system. This from a group “tasked with studying Ohio’s tax structure and policies and the potential of a transition to a flat income-tax rate.”
One has to scroll to page 319 before reaching “recommendations.” The two pages that follow can be summed up this way: Moving to a flat tax would be hard, and another committee needs to further study Ohio’s tax breaks.
That other committee is the Tax Expenditure Review Committee, a legislative panel created by a bill passed in December; it was required to hold its first meeting by June 19.
It has yet to meet. Some on both the left and right question whether lawmakers have the political will to decide that not all of Ohio’s $9 billion in annual tax credits, exemptions and deductions are serving a useful purpose.
“You would think that, over a two-year period, that they could have accomplished something in looking at tax credits,” said Zach Schiller, research director of the liberal group Policy Matters Ohio. “On some level, that’s disappointing. That said, I’m not very surprised.”
Greg Lawson, policy analyst for the conservative Buckeye Institute for Public Policy Solutions, said he didn’t disagree with the report, but “obviously there’s not a pathway forward.”
“We had hoped for something a little more. It would have been helpful if there was a little more of a recommendation in there, so we had a guidepost of some kind of where to go for good tax policy.”
Lawson and Schiller differ on what to do with money that would be generated by reducing Ohio’s tax expenditures — the ever-expanding list of credits, exemptions and deductions. Lawson wants broad-based income tax cuts, while Schiller wants more government investments.
But both say it’s time to limit or eliminate some tax expenditures, a category is expected to reach $9.4 billion in 2019, up 32 percent since 2009.
Keeping those tax breaks, Lawson said, creates a system of winners and losers while impeding efforts to move toward either a flat incometax rate, or no income tax.
“If we want to reduce (income tax) rates, we may need to close some of those things down where we’re somewhat more generous — even in areas that are politically sensitive,” Lawson said.
Schiller has suggested eliminating or limiting a handful of tax breaks, such as the more-recent $1.1 billion income-tax exemption for pass-through business owners, which he calls an unproductive giveaway with no evidence of producing jobs.
Asked why the committee didn’t go further, Sen. Bob Peterson, R-Sabina, co-chairman of the 2020 Tax Committee, said: “That’s the report of the committee. Individual members certainly have different, stronger opinions on one side or the other.”
Peterson said lawmakers have made a number of tax changes over the past eight years, including billions in tax cuts.
“I would suggest that we have made substantial changes,” he said. “Is there more to do? Absolutely.”
Republican legislators have been proficient at cutting taxes, such as reducing the income-tax rate by 30 percent over a dozen years.
The question is whether lawmakers will go beyond tax cuts to pursue politically sensitive changes designed to make the tax system fairer and simpler.
Several experts say a key is paring some of Ohio’s 129 tax breaks. Instead, lawmakers have been adding to them. Last month, for example, the House passed a bill exempting eyeglasses and contact lenses from the sales tax.
“All these credits and exemptions, there’s a constituency for every one of them,” Peterson said. “In some cases, they do need to exist.”
Most groups, including many that write big campaign checks, fight hard to keep their tax breaks. Consider some who testified before the 2020 Commission:
■ The Ohio Farm Bureau defended the agricultural sales-tax exemption as a “critical component.”
■ The Ohio Aviation Association defended four exemptions, including the sales-tax exemption for part-ownership of private planes.
■ The Ohio Lobbying Association defended the salestax exemption on lobbying, calling it “constitutionally protected free speech.”
■ Online-travel and cable-TV associations opposed suggestions that the sales tax apply to them.
■ The Ohio Chamber of Commerce opposed expanding the sales tax and generally defended business tax credits.
“To the extent that you can get rid of some of the exemptions and allow that to lead to an overall significant cut in the rate, that would be a step in the right direction,” said Senate President Larry Obhof, R-Medina. “When you dig into the individual ones, that becomes more challenging.”
Reluctance to examining tax breaks is not new.
Starting in 2003, then-Rep. Steve Driehaus, D-Cincinnati, tried for years to pass a bill forcing a review of all tax expenditures. The concept went nowhere.
In 2011, after a proposed review was stripped out of the budget bill, then-Senate President Tom Niehaus tasked his Ways and Means Committee with studying tax expenditures and make recommendations. The process fizzled out with no report.
That same year, thenSpeaker William G. Batchelder created a tax study committee. Its boldest recommendation was that the sales tax should be applied to all economic activities.
Since then, the legislature has repeatedly rejected Gov. John Kasich’s proposals to expand the sales tax.
Obhof anticipates that the new tax expenditure committee will meet soon and have a “more robust discussion.”
Both Lawson and Schiller hope so.
“It is an opportunity, and hopefully they’ll take advantage of it, even if past experience doesn’t suggest we have reason to be wildly optimistic,” Schiller said.