01/31/03
Julie Carr Smyth and Stephen Ohlemacher
Plain Dealer Bureau
Columbus - Six American corporate giants doing business in Ohio paid the bare minimum $50 in state taxes two years ago. That's less than the $75 income tax charged to an Ohio worker making a mere $10,000 a year.
Such inequities in Ohio's tax code were highlighted by State Tax Commissioner Tom Zaino yesterday, as he and Gov. Bob Taft sought to build support for an additional $2.3 billion in new taxes the governor has included in a sweeping tax reform package. The tax changes are to be included in the two-year budget Taft releases Monday.
"We have an historic opportunity not just to raise the dollars that we need to balance our budget, but also to make our tax code more fair, more simple, and more in line with our economy," Taft said during a news conference.
State spending demands are expected to outpace revenues by as much as $4 billion in the next budget cycle.
For the current budget cycle, Taft already has proposed raising cigarette taxes by 45 cents a pack, to $1, and doubling taxes on alcohol, beer and wine to help plug a $720 million budget hole by June 30.
Taft is now faced with the difficult task of selling the tax plan to a conservative, Republican-controlled General Assembly.
It's a legislature elected, in large part, with the very support of corporations that would bear a third of the tax burden under his plan.
So far, no lawmaker has endorsed the plan. Some have completely ruled it out.
And there is growing talk about scrapping the reforms and raising the state sales tax instead - something Taft opposes.
"There is no question that this is a very thoughtful proposal, although I don't know that all of us appreciate the thoughts," said State Rep. Jim Trakas, Republican of Independence. "You can't have all the pain and not much gain. The sweetener in this plan, the lower tax rates, aren't for two or three years out."
The proposal calls for lowering income tax rates for all Ohioans - but not until 2005 - lowering corporate franchise tax rates, and easing many compliance requirements.
Zaino, a former private-industry tax consultant, said many of the proposed changes bring Ohio in line with surrounding states, national trends and economic changes.
What concerns, even angers, many legislators is that the plan also manages to impose more than $777 million in new taxes on businesses over two years by closing many loopholes, increasing minimum payments and caps, and making more businesses subject to taxation.
Income tax reductions for most Ohioans, meanwhile, are coupled with pricey sales tax reforms that will tack the 5 percent state sales tax (and up to 2 percent more locally) onto many non-necessities: dry cleaning, cable TV, beauty treatments, real-estate services, newspapers, and admissions to sports events, concerts and movies.
Zaino said the state's tax system is rife with inequities, including the fact that many corporate giants doing business here use out-of-state subsidiaries to all but avoid paying corporate franchise taxes.
"Some of the biggest corporations are paying less tax than companies one-tenth their size," Zaino said. "Something is certainly wrong." Privacy laws prevent him from identifying the corporations.
Daniel Navin, lobbyist for the Ohio Chamber of Commerce, replied: "Did they also say how many jobs those corporations created in the state of Ohio? How much business investment they made in Ohio, which helps school districts? How much sales taxes they pay? There's a heck of a lot more to it than just the corporate franchise tax."
Taft said he is coupling his call for more taxes with some tough budget cuts. He said yesterday that the budget he proposes "will hold state agencies to zero or very low budget increases," and he warned child advocates in a private briefing to expect cuts in child-welfare programs.
He asked the group to help promote the tax plan and said that even if the increases are approved, his budget will recommend funding for 15,000 fewer child-care spots and eliminate Medicaid coverage for 30,000 adults. Although the budget will propose all-day Head Start for 10,000 children, it would fund 4,000 fewer part-time slots than in the current budget, Taft told the group.
"The very same families that, five years ago, were told to get a job, have gotten a job," said Gayle Channing, who heads the Public Children's Services Association of Ohio. "But the only way they can keep jobs like that is if they have safe, affordable child care and if they have health care."
Conservatives want even deeper cuts.
Scott Pullins, chairman of the Ohio Taxpayers Association, opposes Taft's tax plan and is already planting the seeds for a temporary, 1-cent across-the-board sales tax increase - if cuts don't suffice.
"If a tax increase is needed, it would probably make more sense to cut income taxes across the board and do some sales tax increases in exchange," Pullins said.
The administration thought about a sales tax increase, Zaino said, but felt it would not do as much for local governments, many of which "piggyback" their own sales taxes onto the state tax, as the plan to tax a wider array of services.
Plain Dealer Bureau Chief Sandy Theis contributed to this story.
To reach this Plain Dealer reporter:
jsmyth@plaind.com, 1-800-228-8272