Gov. John Kasich has long said Ohio needs to be competitive when it comes to taxes – it’s his argument for lowering and eventually eliminating the state income tax. With both tax cuts and tax increases in it, along with the expansion of Medicaid, Kasich’s second budget has generated both praise and controversy.
Neil Clark was the chief financial officer for the Ohio Senate Republican Caucus in the 80s, and is an expert on budgets and taxes. He doesn’t have much love for the plan to levy sales taxes on services where there were no sales taxes before.
“Now what we have now are too many taxes coming on that are being passed on to individuals and it’s starting to get to the point there are, in my opinion, too many," says Clark. "We could have easily accomplished the same thing with the sales tax on services by doubling the commercial activities tax.”
Clark says only three states apply sales taxes to services, and three others that tried that repealed it – in part because of the difficulty in collecting it. Bill Shkurti, budget director for Democratic Gov. Richard Celeste, agrees with Clark that state officials need to look at the total tax burden for all individuals – and that’s why he says all areas of the economy need to be considered.
“So actually, although I don’t agree with everything that’s in his budget, I think this particular part of it – the broadening of the sales tax base and also picking up the oil and gas revenues – is a good part of it. My concern is more on the reduction on the income tax side,” says Shkurti.
Shkurti points out that income tax cuts were tried – in 2005, when a 21% across the board income tax cut was phased in over five years. In that period, the state suffered through a recession that brought massive job losses and developed a multi-billion dollar budget deficit.
“Now I’m sure what the governor would say is, ‘look, in the last month we were the greatest job producers in the country’ and all that. And that’s true," says Shkurti. "But that’s a short-run thing. Over the long run, the question is how are you going to revitalize Ohio’s economy? I would argue the cut, cut, cut taxes thing has been tried and hasn’t worked.”
Clark says lowering the income tax would make Ohio more competitive, especially in the Midwest, and he says he’d like to see the 3.5% rate for the upper tax bracket that was in place in Ohio in the 80s. And while he says the governor is obviously working toward that, this budget doesn’t get as close as he’d hope for.
“I like to evaluate things as it is today," says Clark. "Today, for the first year, it will be 7.5% with a 5% increase in sales tax on services with a reduction from state sales tax from 5.5% to 5%. That’s the reality.”
Clark says the decision to expand Medicaid to those making 138% of the federal poverty level has bothered a lot of conservatives, and he suggests breaking it and the severance tax plan out of the budget so those proposals can be voted on separately. But Shkurti says not expanding Medicaid would leave federal money on the table, so it was a good financial decision for the state.