Ohio losing $7.7 billion due to tax loopholes

If state taxed sales to churches, the revenue would generate about $433 million.
MCT Regional News
Apr 22, 2013

The state of Ohio gives about 130 tax deductions, credits and exemptions each year to residents and businesses.

In fiscal year 2014, those loopholes are worth about $7.7 billion, and projections put it at about $8 billion for 2015. Some of those tax breaks have been in place for decades. And every exemption has constituents, many of whom have sway at the Statehouse.

Ohio senators could tap that pool the state forgoes each year to pay for the deep income-tax cuts Gov. John Kasich seeks in the two-year budget now being debated at the Statehouse.      

But will anyone have the political willpower? Tiny by comparison is the $3.24 billion over two years that would have been generated by Kasich’s proposed expansion of Ohio’s sales-tax base, which Kasich would have used to cover a 20 percent cut in income tax for everyone and a 50 percent cut for businesses on their first $750,000 of net income.

The Ohio House struck that plan from its version of the budget and replaced it with a 7 percent income-tax cut. Kasich’s proposed sales-tax expansion (and a proposed new tax on oil and gas drillers) never stood much chance in the House. Opponents lined up to decry the inequities of being charged a tax they weren’t used to paying.

So imagine if a governor or General Assembly sought to apply the state’s sales tax to prescription drugs (which would be worth $483 million) or cut off the income-tax exemption for married couples ($238 million). What if they taxed farm equipment ($317 million) or sales to churches ($433 million)?

“I don’t think that people are afraid of ... the naysayers” when it comes to tax reform, said Republican Senate President Keith Faber of Celina, declining to say which revenue generators his chamber might pursue in the budget to pay for bigger tax cuts. Faber basically ruled out Kasich’s sales-tax expansion.

“We want to do tax reform in the Senate, but we want to make sure whatever it is (that) we do fosters growth in the economy and jobs,” Faber said.

To gauge just how difficult it might be to close tax exemptions at the Statehouse, while taking Faber’s words into account, consider the efforts made   to create or sustain two relatively inexpensive tax breaks.

Keeping Precious Metals

   At the end of 2012, legislators granted an exemption to Ohio’s Commercial Activity Tax at the request of businessman Alan Stockmeister of Jackson, in impoverished southeastern Ohio.

   Stockmeister is a member of the exclusive Executive Order of Ohio Commodores, an organization created in 1966 by then-Gov. James A. Rhodes so that governors could honor Ohioans who contribute to economic development in the state.

   Stockmeister is board chairman of a company that owns a precious-metals refinery in Jackson with 250 employees. Around Thanksgiving last year, he approached legislators with a proposal and a plea for help.

   He wanted to open a copper-recycling business in nearby Waverly, but first he needed an exemption to the Commercial Activities Tax. Without it, he said, he might be forced to close   his Ohio Precious Metals operation in Jackson — the largest of its kind in North America — and relocate to Texas, where the parent company is located.

   Without tax relief, he said, there would be no copper recycling in Waverly, which is south of Columbus in Pike County. Unemployment there is the highest in Ohio at 13.7 percent. The unemployment rate in neighboring Jackson County is 10.2 percent.

   “Not that Alan was asking for a miracle, but he was asking for a miracle,” said state Sen. Bob Peterson, R-Sabina.

   Within a few weeks, legislators amended an existing Ohio exemption for distribution warehouses to include metal refineries in the state’s Appalachia region. The Department of Taxation calculated the cost of the exemption for Ohio Precious Metals to be $1.3 million in 2014.

   “The bottom line came down to losing OPM,” said Rep. Ryan Smith, R-Bidwell. “I wanted to make sure we could salvage the company’s presence in Jackson and salvage those jobs.” 

Exemption for jets

   Another example of the many tax loopholes in Ohio is the $6.4 million in sales-tax exemptions for corporate jets.

   Among the beneficiaries of this exemption is NetJets, a subsidiary of billionaire Warren Buffett’s Berkshire Hathaway company located in Columbus. Also benefitting are hundreds of companies that provide service or maintenance for the planes.

   When word circulated last year that Kasich wanted to reform Ohio’s tax system, the Ohio Regional Business Aviation Association told him and legislators that taking away that tax exemption could affect more than 4,000 industry-related jobs in the state.

   “We never had an indication that anyone in the governor’s office or General Assembly was zeroing in on aviation-tax provisions,” said Steve Tugend, who represents the aviation association. “We understood there was a possibility of comprehensive tax reform in this state, which does make some sense, and we wanted to make sure the merits” of the industry’s tax exemptions “were understood by the state of Ohio.”

   “If you raise costs by more than 6 percent, you could tax the lion’s share of the industry out of your state,” Tugend said.

Litany of breaks

   Each year, the single biggest tax break, around since 1935, is on the sale of manufacturing equipment. It will be worth about $1.8 billion next year.

   The grilled cheese your child had at the school cafeteria last week is another one. The state will give up $19.8 million in sales-tax dollars on school lunches.

   Also close to home, you can claim an income-tax exemption for yourself, your spouse and each dependent, costing the state $591 million. And you also get a $20 tax credit for each personal exemption you claimed, which is valued at $166.7 million.

   And if you are going to donate to a political campaign next year, there’s a break for that, too. The tax credits Ohioans get from those donations will equal $4.8 million.

Conservatives, liberals agree

   In May 2011, the conservative Buckeye Institute, the liberal Center for Community Solutions and the moderate Greater Ohio Policy Center joined to propose eliminating tax breaks totaling $300 million a year. They also called for a “sunset” provision under which all tax breaks would be repealed unless re-enacted by the legislature and governor.

   But later that year, the Ohio House killed a budget provision that would have created a committee to study tax breaks. And in 2012, the Senate’s own effort to study them went nowhere.

   When it was Kasich’s turn to visit tax reform in this budget cycle, he ultimately chose to expand the sales-tax base. The only exemption affected by Kasich’s sales-tax expansion was on the sale of magazines ($8.3 million).

“There’s a number of different ways to get to where we want to go,” said state Tax Commissioner Joe Testa, referring to Kasich’s chief goals of lowering the income tax and driving down taxes for businesses.

“We’ve considered a lot of different options, but for long-term viability, we think those two paths we chose (the sales tax and drilling tax) provide us with greater stability over time. Other people could choose other paths.” 

———

By Joe Vardon - The Columbus Dispatch, Ohio (MCT)

©2013 The Columbus Dispatch (Columbus, Ohio)

Visit The Columbus Dispatch (Columbus, Ohio) at www.dispatch.com

Distributed by MCT Information Services

Comments

propman

It is time the GOVERNMENT get expenditures under control and stop tacking money out of our pockets.
We are NOT an endless supply!

truckin

Constant.. wording..like loss, could have, should have, breaks...boo hoo poor government. Thieves anyways.
I got a new one.. It is not the governments business to get involved in EVERY aspect of people's lives. But now, since they have webbed into it.. The circle of breaks and cuts and freebies and handouts.. It must be paid for with more More MORE. grow Grow GROW. control Control CONTROL kicks in.. It's time to revamp and give a hard serious look people at how much you are controlled and regulated..is it worth a few bucks because you are too lazy to work? Whatever happened to earn as much as you want.. The harder and more you work the more you get?? No more.. Work hard to give to government so they can best give it out or back.. like the tax breaks.. Heck it's your money to begin with, so how can it be a tax break, and if you get tax breaks and didn't pay in??? Isn't that allowing government to confiscate another's wealth for your gain.. I am waiting to be told what type of toilet paper i am allowed to wipe with. and with that will come a WHOLE new division of government,
which of course will need to be funded by .....you know who. Build a dependent class. Build a labor pull of regulators and comes ABSOLUTE POWER..WE ARE right back to king and slaves... THE END

buckeye15

Feel better?

You are free, and welcome....to leave.

Contango

But not "free" to give up your citizenship or live abroad - the U.S. govt. charges ya and makes ya pay taxes on foreign income.

http://en.wikipedia.org/wiki/Exp...

FORWARD SOVIET!

arnmcrmn

nice post contango :)

Contango

@ arnmcrmn:

FYI: I read an article recently (can't find it now), where some individual high tax U.S. states are discussing charging their Diaspora on the way out.

Look at all those great benefits and services WE provided for you and this is how you repay US by MOVING??????

Surprise, surprise. :)

FYI: Gov. Perry was in IL drumming up business:

http://www.dnainfo.com/chicago/2...

Be sure to read some of the comments at the bottom.

betrump

It reads like it's only for people with $2 Million or more, to prevent the wealthy from renouncing citizenship simply because they don't want to pay taxes.

Contango

@ betrump:

Did you also read that the Nazis used emigration taxes in order to confiscate wealth from the fleeing Jews?

So an individual's personal wealth belongs to the State?

Why should the State get to decide WHY a person is emigrating or renouncing citizenship and steal a portion of their wealth accordingly?

Not-to-worry; the underground economy continues to grow and increasingly removes transactions and income from possible taxation.

redheadedprick

'

arnmcrmn

All the states and our government want is more money, not because they need it, because they want to simply give it away with more state and government programs.

Cut all these loopholes and the states and government will find a way to blow it all in a day and we will be right back to square one.

They wont be happy till they have 100% of your paycheck.

inquiringmind

When I read stories like this, I remember my dad, who worked so hard to support his family. During his last years of working, he could hardly move, but still went and did his job. He would rather have died then take charity. Today, we have so many government programs that help people who don't want to work I wonder what he would say about it. I am not talking about those that are unable to work, but I wonder how fast people would be willing to work if we stopped providing for them.

arnmcrmn

These programs are forceful crutches. Its all about votes and getting re-elected so they can pad their wallets. Do you know of any one Congressman who isn't filthy rich? I wonder why and yes it works on both sides.

The Dems have figured out that if they give give give and make nobody accountable for their actions, they get their vote for life. Why work when the avg person can get 60K a year for sitting at home (free rent, free phone, free utilities, food, gas....etc).

rogerthat

And both parties know that if they give, give, give to the rich, they will have "campaign contributions" for life.

betrump

$60K per year for sitting at home. Interesting. Sources please.

Contango

The $60K is benefits-value based.

http://www.zerohedge.com/article...

In the U.S., it's getting to resemble the old Soviet Union joke:

They pretend to pay us and we pretend to work.

FORWARD SOVIET!

propman

Maybe we need to look at it this way-
The Government should stop with the idea of when we are not taxed on something "it is a loss of revenue"
If they do not get it in the first place they never had it to lose!

Contango

Govts. tend to inflate their way out of debt, which makes the "fiat" currency in your pocket (and with which one pays taxes) decrease in value.

So over the yrs., it takes increasingly more and more dollars to maintain constant purchasing power.

Consider this:

In 1964, a Roosevelt dime could buy a loaf of bread.

In 2013, the "meltdown value" of a 1964 Roosevelt dime can still buy a loaf of bread.

A dime minted in 2013 has the purchasing power of ten cents.

http://seekingalpha.com/article/...

Cliff Cannon

@ Contango : Glad your back commenting. All of 'blogville' missed you

Contango

We are in the midst of an economic depression, which is “hidden” by being largely unreported in the mass media, and is being "papered over" with the Federal Reserve policies of QE and ZIRP.

Instead of the 1930s soup kitchens and bread lines, tens of millions of Americans are receiving food stamps, unemployment, disability and other publicly financed benefits and services.

The old "soup kitchen" is today's "check in the mail."

http://www.zerohedge.com/news/20...

Do ya really think that if the U.S. economy was OK that the U.S. Federal Reserve would be buying $85 billion monthly ($1 trillion annually) in U.S. Treasuries and mortgage-backed (Fannie and Freddie) securities?

When a pendulum swings too far one way, it eventually swings back.

arnmcrmn

Soup Kitchen = check in the mail......GREAT comparison to then and now.
The "you know what" will hit the fan again in the near future.