Taft wants consumers to dig deep - again

Cleveland Plain Dealer ^ | Julie Carr Smyth and Sandy Theis

[KarlInOhio]

Taft wants consumers to dig deep - again

Businesses, wealthy would get tax breaks

Tuesday, February 08, 2005

Julie Carr Smyth and Sandy Theis

Plain Dealer Bureau

Columbus - Gov. Bob Taft is poised to unveil a tax reform package in today's State of the State address that asks consumers to bear a larger burden for getting Ohio's economy back on its feet.

The Republican governor's plan calls for easing some of the state's most unpopular business taxes, while spreading the impact of others to out-of-state firms that sell their wares inside state lines.

Taft also will propose 21 percent across-the-board cuts in personal income tax rates, a move aimed largely at helping wealthy investors and small-business owners in the top bracket do better. His plan would exempt 600,000 Ohioans making under $10,000 a year from all income taxes.

Tax revenue lost through business and individual tax relief would be recouped in Taft's plan through new charges for a stable of everyday items: cigarettes, alcohol, electricity, homes and purchases at the mall.

The administration also will propose an "environmental protection fee" of $2.75 per ton of garbage disposed of in Ohio to cover cuts in the budgets of the Ohio Environmental Protection Agency and Ohio Department of Natural Resources. That would raise total taxes per ton to $4.75.

The proposal is among several initiatives that Taft will address in his speech.

For higher education, the governor wants to cap tuition increases at public colleges to 6 percent each year and provide college scholarships to more low-income Ohioans.

John Corlett, senior policy analyst for the Cleveland-based Center for Community Solutions, said Taft's tax changes offer the least for low-income Ohioans.

"It seems to be giving the largest share of this tax break to Ohioans making $643,000 a year on average," Corlett said. "Increases on beer, wine, cigarettes and sales will wipe out whatever tax cut that lower income families get. They could see a tax increase overall."

Policy Matters Ohio, a Cleveland-based think tank, calculated that Taft's income tax proposal would return about $8,400 a year to the wealthiest taxpayers and just $12 a year to the poorest.

The backbone of Taft's plan came from the Ohio Business Roundtable, a coalition of corporate executives that enlisted Ernst & Young and Taft's former tax commissioner, Tom Zaino, to author a blueprint for reform.

The premise was that Ohio's tax code is unfriendly to business. A letter circulated recently by Roundtable Chairman John Barrett noted that Ohio has "the worst of both worlds - high [business tax] rates and low collections."

Taft worked with Republican legislative leaders to best tailor the plan to his own agenda: economic growth and job creation. His proposals scale back many of the Roundtable's business tax breaks and consumer tax hikes, and reject proposed caps on the new business tax of $1 million per entity and $10 million per corporation.

It also phases out both the corporate franchise tax and the tax on tangible personal property, such as machinery or inventory, in favor of a broad-based tax on business sales, known as gross receipts. The goal of the so-called "business activity tax" is to more accurately capture sales activity in Ohio by both in- and out-of-state firms. Businesses making less than $1 million a year would be exempt from the tax.

The Taft plan also would raise cigarette taxes to 90 cents a pack from 45 cents; double beer, wine and alcohol taxes; and hike electricity taxes by a third.

One of its more controversial pieces is a statewide sales-tax rate of 5.5 percent. That is half a cent less than the current rate, but half a cent more than what the rate was supposed to fall to when the temporary penny increase expires later this year.

Senate President Bill Harris said state lawmakers would not support retaining the full 1-percent hike, an increase they pledged would not last.

"We're not retaining that penny to balance the budget," Harris said. "If we see a proposal for a portion of that penny, in the context of meaningful tax reform, our caucus could be supportive."

[Slings and Arrows]

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