Taxes taken in for service
Taft's proposed overhaul includes expanding reach of state sales tax
By Dennis J. Willard and Doug Oplinger
Beacon Journal staff writers
COLUMBUS - Going to the movies? Getting a manicure or picking up some dry cleaning? Buying tickets for the Indians?
Be prepared to bring along your nickels. Plenty of nickels.
Gov. Bob Taft wants to apply the 5-cent state sales tax -- plus any local piggyback sales taxes -- on a host of services that historically have gone unassessed.
Taxing Ohioans when they do things like go to rock concerts, take a taxi, pay monthly cable bills or order pay-per-view movies will bring the state 26 billion nickels -- $1.3 billion -- for the 2003-05 two-year budget.
The sales tax increase is the largest single source of new income Taft unveiled Thursday in a $2.3 billion proposal that also includes a call to raise more money from taxes on corporations, personal incomes and real estate.
Taft, whose re-election campaign last fall branded his opponent a tax hiker, blamed the need to raise taxes on the state's lingering budget problems.
The governor said Ohio's economy has not rebounded, Medicaid spending is out of control and the state is paying this year's bills with almost $900 million in one-time money.
``Those are dollars that won't be there next year,'' Taft said.
Already this month, Taft has asked lawmakers to raise the cigarette tax by 45 cents a pack, and to double the tax on beer, wine and liquor to help balance this year's budget by June 30.
He also is asking lawmakers to increase the gas tax by 6 cents a gallon by July 1, 2005, and to raise fees on driver's licenses and vehicle registrations.
Thomas Zaino, Taft's Taxation Department director, said the reforms will broaden the tax base and reduce taxes for some in the long run. He admits the biggest tax break carrots in the package won't come until later this decade.
``It recognizes the budget restrictions we face,'' Zaino said.
He said the plan will make Ohio's taxes simpler, more equitable and stable, and will position the state to be more competitive economically with its neighbors.
The proposal is sprinkled with tradeoffs.
Corporations would see their franchise tax rates gradually reduced from 8.5 percent to 7 percent over three years, but they would pay more ($150,000 to $500,000) in net worth taxes.
The poor and elderly would be allowed to earn more without paying any taxes, while all but the highest earners would see a reduction in their personal income taxes.
Taft acknowledged it will be difficult to find a majority of votes in the legislature. Many there are anti-tax conservatives or angry Democrats who watched their colleagues lose elections last November after being painted as tax-and-spend liberals.
The broad package of ideas received mixed reviews in the capital Thursday. Taft is scheduled to unveil his two-year budget Monday, and the debate on the taxes and spending by state government is expected to dominate the Statehouse for the next several months.
Zaino briefed Republican legislative leaders and business representatives on the plan Wednesday. He will meet with all state lawmakers next week.
House Speaker Larry Householder, R-Glenford, and Senate President Doug White, R-Manchester, were represented at the Zaino briefing by some of their floor leaders. Neither chamber appears to be prepared to endorse anything the governor is proposing.
Dwight Crum, Householder's spokesman, said, `Basically, we're still in the process of reviewing the details.''
Householder formed a select committee to examine Ohio taxes last year.
``The committee recognized there are aspects of the tax code that puts Ohio at a competitive disadvantage,'' Crum said.
Senate Minority Leader Greg DiDonato, D-New Philadelphia, said some of the governor's proposals make sense.
DiDonato said he favors making changes to the corporate franchise and personal income taxes to make them more comparable with other states and relieve some people of taxes at the lower income levels.
He warned, however, of an anti-tax backlash.
``People have gotten up every morning for seven straight days and heard about a new tax proposal. I'm hearing a lot of resistance. They're asking, `What is he not going to tax?' '' DiDonato said.
DiDonato said he was concerned about the sales tax because it hits the poorest in the state the hardest.
Zaino said the administration opted to broaden the sales tax to discretionary spending, and avoided services like haircuts.
Scott Pullins, Ohio Taxpayers Association president, said Taft's proposal is a good starting point, but the bottom line is the state is trying to raise $2.3 billion more in the next two years.
``Gov. Taft wants to give some money back in income tax on one hand, but he's using the other hand to pick your pocket on things like cable TV, car trade-ins and manicures,'' Pullins said.
He said his organization, a growing number of business groups and many Republican lawmakers want to see the governor cut state spending.
``We think tax increases should be the last priority and not the first one on the plate,'' Pullins said.
He said there is a growing number of organizations that would prefer a 1-cent sales tax increase that possibly would apply to broadened services, but only after Taft made the case that spending cuts were exhausted.
Doug Oplinger can be reached at 330-996-3750 or doplinger@thebeaconjournal.com
Dennis J. Willard can be reached at 614-224-1613 or dwillard@qn.net