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Do IT this week: Layering
It takes Republicans to raise taxes
Published on Sunday, Feb 03, 2008
Has Ohio turned around?
The answer is no, if you're thinking along the lines of Ted Strickland as he campaigned for governor in 2006. What has been turned on its head is that old saying of Jim Rhodes: ''You gotta keep the Democrats around to raise taxes.''
The legendary governor was no stranger to bluster. He liked to declare his absolute aversion to higher taxes, and then preside over additional levies. He joined in a 50 percent surcharge on income taxes in the early 1980s as a way to help the state avoid a fiscal calamity. What happened next proved instructive to Democrats.
Dick Celeste succeeded Rhodes as governor in 1983. He worked with his fellow Democrats in charge of the legislature to clean up the budget mess. They made the surcharge permanent and added 40 percent. Then Republicans quickly applied the hold, the Reagan era in full glory. They relentlessly portrayed Democrats as the creatures of higher taxes. Republicans did so on the way to recapturing the Ohio Senate, virtually all statewide elected offices and finally the Ohio House.
What did Democrats learn?
Look at the budget repair work of Ted Strickland, unveiled last week in the wake of projections outlining a potential deficit of $733 million to $1.9 billion. The governor did not propose tax increases or higher fees of any kind. He will collect an additional $73 million from permitting Keno games in bars. The bulk of the savings comes from various steps to curb spending, including the elimination of 1,500 jobs to 2,700 jobs in state government.
If the budget troubles deepen? Strickland will draw from the $1 billion rainy day fund. You safely can bet that he won't raise taxes as he gets closer to seeking re-election in 2010. He won't leave Republicans the opening.
Thus, the wisdom of Jim Rhodes has been reversed, hasn't it? Now, in so many words, you gotta keep the Republicans around to raise taxes.
George Voinovich responded to the Strickland budget repairs with a bolt from the U.S. Senate. He cudgeled the keno games as an invitation to ''full-blown gambling.'' He urged ''the legislature to reject this idea and do what I did when I was governor in this situation, which was to work harder and smarter and do more with less.''
Voinovich did slash spending in the early 1990s, his tears famously conveying the difficulty of the task. He also raised an array of taxes, crafting an appropriately balanced package.
A decade later, Bob Taft encountered his own budget challenges. Taft cut spending, declaring at one point that the state had reached the bone before proceeding to cut deeper. Eventually, he increased taxes (again responsibly). Most notably, he added one percentage point to the sales tax, of which one-half remains.
Worth emphasis is that the Taft episode starred Republicans raising taxes as they commanded the governor's office and the legislature.
Peter Orzag, the current director of the Congressional Budget Office, and Joseph Stiglitz, a Nobel Prize winner in economics, applaud such an approach. In 2001, they examined the question: Spending cuts or tax increases? Which path promises less economic harm for a state coping with a budget deficit during a recession? They concluded the answer is higher taxes.
A sour economy brings diminished revenues and increased spending (via Medicaid, for instance). Orzag and Stiglitz argue that closing the budget gap with spending cuts reduces overall consumption to a greater degree, and thus denies immediate fuel to the economy. Tax increases have the same impact but to a lesser extent. That's because wealthier households tend to save a larger share of their income.
Tax wealthier households, and you'll reduce savings. Cut spending, and you'll curb consumption.
Jon Husted has been more emphatic than the governor in rejecting tax increases. The House speaker is playing the political angles in his own (and familiar) way. He glides past certain details of the Taft years. Both Strickland and Husted contend that the economy wouldn't suffer well a tax increase.
What if they followed the thinking of Orzag and Stiglitz? Where might Ohio find the necessary revenue?
In 2005, the Statehouse set in motion a 21 percent reduction in the state's income tax. The tax cut will be fully implemented in 2010. In the current biennium, the tax reduction will cost the state an estimated $2.9 billion. No surprise the measure benefits wealthier Ohioans, the top 1 percent of taxpayers ultimately enjoying a $7,076 reduction on average, according to an analysis by Policy Matters Ohio and the Center for Community Solutions.
Those at the lowest income rungs will actually see a slight tax increase.
Might the state economy be better served by asking wealthier Ohioans to step forward in a time of need? Request that they give up a portion of the income tax cut (slated to cost $2.2 billion in 2010)? Ohio already has moved forward in easing the tax burden on business, substituting the commercial activity tax for the loophole-ridden corporate franchise tax and the antiquated personal property tax, the total reduction roughly $1 billion year.
Then, there is the expanded homestead exemption, a centerpiece of the Strickland budget, a reduction in property taxes for even the wealthiest seniors. Target the tax cut to those seniors with low and moderate incomes, and the state would save in the vicinity of $120 million a year.
Jon Husted floated such an idea during the budget deliberations. That's right, you gotta have Republicans around to raise taxes.
Douglas is the Beacon Journal editorial page editor. He can be reached at 330-996-3514, or emailed at mdouglas@thebeaconjournal.com.
Has Ohio turned around?
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