The two-year budget plan put forward by John Kasich contained a set of interrelated parts involving taxes. Remove one component, and the whole would fall apart — as evident on Tuesday when fellow Republicans in the Ohio House unveiled their revisions to the governor’s proposal.
Many in the caucus do not like the idea of a higher severance tax on oil and gas drilling. At a press conference, William Batchelder, the House speaker, and Ron Amstutz, the chairman of the Finance & Appropriations Committee, made plain their unease with expanding the base of the state sales tax to cover a slew of services (while lowering the rate). The governor sees the additional revenue from both the severance tax and sales tax as part of covering the cost of a 20 percent reduction in income tax rates the next three years, plus an even deeper cut for small business.
Without the added money, House Republicans bowed to scaling back the size of the proposed income tax cut, landing on a permanent 7 percent rate reduction. The expense would be paid largely through projected revenue growth, including $500 million in onetime money from JobsOhio.
One problem with the House plan is that it pushes aside two of the governor’s more promising ideas. The proposed severance tax increase reflects a long tradition, across many states, of sharing part the bounty from mining natural resources. The governor has called for a modest increase, still leaving Ohio with a rate near the bottom of the pack. Too bad Batchelder, Amstutz and company appear more in tune with alarmist industry lobbyists than the broad interests of the state.
No question, the governor and his team botched the sales tax expansion, failing to address the harmful consequences for many businesses. That said, the concept remains sound. Surely, there is a way to widen the base of the sales tax, carefully and steadily, reflecting the changing economy, services playing a greater role relative to goods.
Even better, combine such an effort with a true evaluation of the $8 billion or so a year in tax expenditures, the long unexamined collection of exclusions, credits, deductions and exemptions.
In holding to a reduction in income tax rates, House Republicans join the governor in hugging tightly the myth that such a step is key to a surging state economy. Evidence and experience do not support the argument, for instance, several states with higher income tax rates out performing Ohio. What the evidence does show is that investing in people and other foundation pieces of a state economy sustains growth and prosperity.
Thus, with school budgets strained, college still too costly and public works in need of repair, is it wise to cut income tax rates on top of the 21 percent reduction just completed two years ago?