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70% don’t know…

execs dontknowWe have all heard politicians claim that tax incentives, cuts, and loopholes will encourage business to grow in our communities and hire more people. The problem is, it just isn’t true.

New research out today finds that only 30% of business executives actually knew they were receiving a tax credit for “engaging in qualified job creation, machinery and equipment investment, research and development investment, and other activities in the state.”  

When we think about it fully, this makes sense.  Businesses will hire more staff only when they need additional people to meet demand, not because they have extra cash laying around. That extra cash from the incentive is profit. Businesses continue to report that access to a highly skilled workforce, infrastructure, and markets are the common needs considered in location decisions.  In the analysis, on a scale of 19 factors, business executives ranked tax incentives as 15th (those not receiving the credit) and 16th (those receiving the credit).

We need all businesses to pay their fair share, instead of creating loopholes for those with good lobbyists.

House passes Ohio budget

BREAKING NEWS-01The Ohio House of Representatives passed HB 64 on Wednesday April 22nd by a mostly party line vote 63-35. The legislation builds on a decade of  income tax cuts that primarily benefit the wealthiest Ohioans.  The cost of the 6.3% income tax cut is $1.2 billion over the biennium.  Since 2005, Ohio has cut the income tax repeatedly, and Ohioans have fewer jobs, smaller paychecks, and a higher poverty rate. We could make major investments into education, infrastructure, public health, and other great public services that strengthen our communities.

We are also disappointed that the Ohio House removed language establishing a tax expenditure review commission and an appropriate severance tax. The Ohio Senate now has the opportunity to build on the House’s work related to investments in education (including pre-K and higher ed), local government, and community services.

What is TPP?

SCHOOL CUTS-01Ohio House Republicans introduced their budget amendments earlier this week, and held three days of public testimony. Many parents, students, and school administrators showed up to testify against the elimination of TPP reimbursements.

TPP stands for Tangible Personal Property, which refers to a type of property (such as machines in a factory) that would be subject to local property taxes. As a part of the 2005 tax reform package, the state eliminated property taxes on tangible personal property. This dramatically reduced the amount of taxable property in most school districts, leading to major losses of revenue.

In 2005, policymakers recognized that this would put a huge hole in many school districts budgets and promised to reimburse local communities for those lost funds. However, those reimbursements have been reduced from the original promise, and the Governor’s budget proposed eliminating those funds. The House modified the Governor’s proposal, but 93 school districts still lose money.  When the state has a budget surplus – how can we justify cutting funds for our schools?  The state will use this money to finance an income tax cut for the wealthiest Ohioans – leaving local communities to cut services to students or increase local property taxes.

 

Ohio can do Better

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16% of Ohioans are in poverty.

Nearly 2 million Ohioans struggle to put food on the table.

Tuition is rising, and

Paychecks are stagnant.

The Ohio House introduced their version of the budget earlier this week and they continue to follow the same failed strategy – tax cuts that will primarily benefit the wealthy. The House Republicans proposed a $1.2 billion income tax that will prevent the state from addressing poverty, reducing tuition, and fixing our failing infrastructure.

Write your legislator a quick email and ask them to invest in our communities and not tax cuts that simply don’t work!

Digging in on the Budget

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Tax Commissioner Joe Testa testified on Tuesday in front of the House Ways & Means Committee on the tax changes in the Governor’s budget proposal.  This committee will dig in on the tax changes offered. He begins his written testimony with a summary of one word – Jobs. The testimony and questions centered on how to best help Ohio’s businesses with our tax code and the committee continued to echo a growing theme around tax shifting.

Commissioner Testa advocated once again for lowering the income tax in Ohio in hopes of making Ohio more ‘competitive’ and attracting jobs. However, this theory is questionable at best. Claims that people will move from one state to another, because of taxes, are highly flawed.  Most research (6 out o 8 studies published since 2000 on the subject) has found that state taxes have little to no impact on The economy of a state.

Most small businesses will start their business in the community where the owner lives. When businesses do make location decisions, the top factors considered are infrastructure, educated workforce, and access to customers and suppliers. In addition, business owners want to live in good communities that have a high quality of life. You just can’t lure entrepreneurs with tax cuts.

Instead of more tax cuts, Ohio should invest in education, infrastructure, and guaranteeing strong public services that strengthen our communities. Research shows that a smart workforce is likely to attract high paying jobs into Ohio. We continue to struggle with under-investment in our schools, growing tuition, and a 16% poverty rate. Ohio can and must do better.

Make a difference! Over the next few weeks, the Ways and Means Committee will continue to debate and discuss this legislation. They want to hear from you – CONTACT YOUR LEGISLATOR TODAY!

Governor proposes massive tax shift

style2_Taxshift3-01Governor Kasich released his budget proposal yesterday, continuing a 10 year strategy of income tax cuts that primarily benefit the wealthy. This strategy has not worked – leaving Ohio with fewer jobs, smaller paychecks, and fewer resources to invest in our neighborhoods and communities.

The budget proposal includes a 23% income tax rate cut that will benefit the wealthiest Ohioans, while increasing sales taxes on everyone. There are some modest improvements to Ohio’s tax policy, but these small changes are extremely limited in comparison to the billions of dollars proposed in this tax shift.

The budget also includes modest investments and and modest budget cuts. Ohio has serious needs including a 16% poverty rate, high levels of childhood hunger, and crumbling infrastructure.

One Ohio Now will continue to work on interpreting the state budget over the coming days, weeks, and months. Follow us on Facebook and Twitter

DRAFT SCHEDULE

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Representative Smith, Chair of the Ohio House Finance Committee released his draft timeline for the Ohio budget.

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Tax Rankings: an unhelpful measure

Don't be tricked by tax climate rankings

The Tax Foundation released their “Small Business Tax Climate Index” (SBTCI) earlier this week, and Ohio ranked 44th – down a few spots from last year. The Tax Foundation, founded in 1937 in opposition to progressive proposals, bases their rankings on 115 features of tax law that it weights in order to generate a single number to rank states.

We shouldn’t give too much weight to this measure, because the number doesn’t paint an accurate picture for policymakers or businesses. Instead, Ohio should invest in great public services that strengthen our communities.

SBTCI is flawed:

1. Rankings are not connected to taxes paid: The rankings measure an abstract of ‘business competitiveness’ not the tax load or taxes paid by business in each state. The Council on State Taxation (COST) calculates the taxes paid by businesses in each state. As a share of gross state product, Ohio businesses pay a rate of 4.1% (in state and local taxes) compared to a national average of 4.7%. READ MORE ON THE FLAWS IN TAX RANKINGS

2. Rankings exploit minor differences: Most businesses will pay a similar total tax rate regardless of which state they operate.  States, however divide up their taxes differently between business, individual, income, sales, and property taxes.  Yet, the weights applied by the Tax Foundation increase the impact of an income tax on the ranking. Ranking the income tax is misleading, because 31% of all business taxes paid in Ohio (state and local) are in the form of property taxes. Corporate and personal income taxes paid by businesses are about 12%.

3. Ideology drives rankings: The Tax Foundation assumes that low and flat taxes are the best for job growth – even though much of the research disagrees.  Every business is taxed differently by the state and local communities. Drawing a single ranking conclusion is not helpful for businesses or policymakers looking to develop effective, efficient, and fair tax systems. In the end, the rankings highlight a political and ideological goal of cutting taxes and reducing public services. They do not set a road map for a more prosperous Ohio that gives every Ohioan an opportunity to succeed.

A new approach: 

Research also shows that state tax policy has little to do with economic growth, but smart public investments are the foundation of a strong economy.

Ohio should look at the rankings that matter most to people – safe neighborhoods, quality of our schools, a healthy environment, and other factors that impact our lives.  Ohio will succeed in growing our economy by improving our schools, making neighborhoods safe, and making sure we have great public infrastructure. Instead of tax rankings, we should race to win on measures that matter to all Ohioans.

The Economics of a Bridge

roadHow many of you took an economics class in high school or college? Economics traditionally focuses on reducing costs and increasings sales, in order to increase profits. But how does the calculation change when profit is no longer the driving force?

In the “Economic Case for Free Bridges and Roads” Alex Marshall presents the public economics piece that is often forgotten in our public finance discourse. Private companies seek to maximize profit, but public investments should maximize usage – that way the public get the most return on their investment.

Usage is our Return on Investment. We need to focus our economic return on the usage and not the profitability of a bridge, a school, or other public investment. The value of a bridge comes from its benefit to the community. The cost of a bridge will be the same whether 50 people or 50,000 people use it each day. The return on investment is greater if 50,000 people use the bridge. Fees required to cross the bridge will reduce the usage – and lessen the return on investment. I would also add that not only the quantity of the usage, but the quality of the use. For example, a bridge to connect a hospital to a neighborhood (saving valuable minutes in an emergency) has a high quality, even if use is limited.

Capacity Marshall points out that capacity issues (such as on busses and subways) can warrant fees-for-service, but only to address capacity issues and not in an attempt to cover the full cost of these services. The fees will drive down usage, reducing the public good done by that service.

The common complaint from taxpayers is ‘I don’t ride the bus, why should I pay for it?’ There are a few good reasons. First, public transportation reduces traffic congestion, pollution, and parking hassles for others – so everyone does benefit. If we believe public transit serves the public good, everyone should pay their fair share to cover the costs. Second, about 50% of highway spending in America comes from general revenue sources – and not the gas tax or user fees (tolls). People that don’t drive pay for roads that others use. Public investments improve the community – not just a select few.

Ohioans Love Libraries. Many Ohioans never set foot in a library, but still appreciate the asset to the community. If there were check-out fees, the usage of our public libraries would dramatically drop. We don’t want this to happen, because libraries serve a public interest. We invest in the public libraries and keep the service free to benefit everyone. (late fees address are used to deter people pushing the capacity of the library by not returning materials on time. Nobody would want late fees to be a primary funding source for our libraries!) We want more people using them, to maximize our return on the investment. Our roads, schools, public transportation, and social services are needed just like our libraries and we should finance them as such.

 

Elimination…

decisionThe Cleveland Plain Dealer ran opposing Opinion-editorial pieces questioning if Ohio should eliminate the income tax. Charlie Earl of the Ohio Libertarian Party wrote a piece calling for Ohio to dump the income tax and Zach Schiller of Policy Matters Ohio wrote a piece identifying how dumping the income tax would hurt Ohio. (Policy Matters Ohio is a coalition member of One Ohio Now.)

Mr. Earl correctly identifies the impact of cutting the income tax in Ohio – cutting services. Mr. Earl says, “As a rule, states that get by without a personal income tax just spend less per resident than states that don’t.” This means less for education, higher college tuition, more potholes in the streets, and fewer community services that strengthen our communities. Most elected officials who oppose the income tax refuse to acknowledge that income tax cuts will lead to service cuts. They continue to believe in a misguided theory that lower taxes produce more revenue for the state. Eliminate the income tax, eliminate many great public services that strengthen our communities. 

Mr. Earl also spouts a favorite talking point of anti-tax organizations. He believes that tax cuts attract business and people into Ohio. This just isn’t true. Research continues to show that people move for weather, jobs, and family. When you look at the mobility between all 50 states, people are moving to the energy boom or warmer climates – disregarding the income tax rates of those communities.

It is time for Ohioans to get real on tax cuts. They simply don’t work. As Mr. Schiller points out, Ohio has lost jobs over the past decade of income tax cuts. Eliminating the income tax will shift the tax load onto property and sales taxes – raising taxes on low and middle income Ohioans. Struggling businesses with low profits will have a higher tax load while highly profitable business owners will see their taxes cut… again.