Promises of no new taxes can lead to problems
One thing every majorparty candidate for governor of Ohio says is that he won’t raise taxes. So, whether Ohioans elect Democrat Richard Cordray or Republican Mike DeWine the state’s next governor Tuesday, that’s that, yes?
It’s considered political suicide for a new Ohio governor to seek new taxes, or boost existing taxes, unless Ohio’s economy is cratering, as it was in 1983, when Gov. Richard F. Celeste, a Lakewood Democrat, took office and Ronald Reagan’s voodoo economics devastated Ohio. Say what you will about Dick Celeste, but he had guts.
For the year that’ll end June 30 — six months into the new governor’s term — the General Assembly has authorized $33.34 billion in state General Revenue Fund (GRF) spending.
Historically, according to the Legislative Service Commission, the General Assembly’s research agency, “Total state and federal GRF spending (has) increased by 76.2 percent over the 20 years from FY 1999 to FY 2018, with an average growth rate of 3.2 per year.”
So figure 3.2 percent growth in the next state budget. Agreed, that’s an average. When the economy’s good, tax collections rise and the demand for services — costs — falls. That cushions Ohio’s budget. When the economy’s bad, tax collections fall and service demands — costs — rise.
So, without new taxes, Ohioans have to assume a steady-state, sameold, same-old budget: No more than an inflationary rise — (the Consumer Price Index is now 2.3 percent) — in state spending on basics (such as K-12 schooling), although — footnote — a big new state “infrastructure” bond issue plan may soon surface.
Sure, Ohio’s rainy day (Budget Stabilization) fund totals $2.69 billion, and the usual suspects are circling — people who want to get their hands on more state money. But the state Budget Office notes that Ohio’s rainyday fund is equivalent to a family with $50,000 income that has $4,150 in savings at year’s end — reassuring, but no jackpot.
A steady-state budget assumes the Trump administration’s antics don’t throw cold water on the stock market. If the bulls stay ahead of the bears, tax collections should grow some. But what goes up must come down — eventually. And when people fret about their wallets, they spend less.
That matters in Ohio. “Ohio’s state and local taxes raise more revenue from taxation of sales than property or income,” the LSC reports. If consumers spend less, tax collections slow.
The next governor takes office Jan. 14. He’s required to propose a 2019-21 budget to the legislature by March 15. So, with tax increases off the table, where does a newbie on the Riffe Center’s 30th floor find pin money?
One possibility — though it’d produce a lot less than boosters think — would be legalized sports betting. While Nevada’s 2017 sports betting revenue was roughly $250 million, it produced just $17 million in tax revenue, Bloomberg reported on Aug. 1.
Another possibility, though fuddy-duddies would grope for the smelling salts, would be to legalize recreational marijuana in Ohio and heavily tax it — a high tax, in both sense of the word.
But the juiciest (and at least theoretically palatable) revenue grab would be to narrow or end Ohio’s Business Income Tax Deduction, which lets taxpayer deduct up to $250,000 of business income from his or her adjusted gross income. Policy Matters Ohio has reported that the business income deduction costs the state $1 billion a year in foregone revenue. It’s a mystery why an Ohio wage-earner should have to pay full freight while someone with an LLC doesn’t. If government is about fairness, that tax break doesn’t meet the test. And if Ohio needs revenue, that’s one place to look.
So figure 3.2 percent growth in the next state budget. Agreed, that’s an average. When the economy’s good, tax collections rise and the demand for services — costs — falls. That cushions Ohio’s budget. When the economy’s bad, tax collections fall and service demands — costs — rise.