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)
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