John Kasich has promised a program of “comprehensive tax reform” when he unveils his two-year state budget plan in February. Already some elements are plain, the governor previewing them in year-end interviews and appearances. He continues to press for an increased severance tax on oil and gas drilling in exchange for reducing state income tax rates.
What else might the governor pursue in reshaping the state tax system? At times during his first two years in office, Kasich has signaled a welcome willingness to examine closely the $7.5 billion a year in tax exemptions, credits, deductions and assorted other breaks. This tax relief operates much like spending programs, public money routed to a specific purpose. Unfortunately, the items rarely, if ever, are evaluated to determine whether they are useful or still serving a valid purpose.
Many involve relief from the state sales tax. Might adjustments be made to reflect the altered landscape of the economy, moving from manufacturing to a greater role for services?
The thinking isn’t that somehow all of the billions will be recouped. Some tax breaks have value to the state as a whole. Worth attention is whether some fraction can be closed. More, the objective must involve more than directing money toward other priorities, whether tax cuts or education or health care. Comprehensive reform must include regularly reviewing tax breaks.
A broad coalition of the Buckeye Institute for Public Policy Solutions, the Center for Community Solutions and the Greater Ohio Policy Center has been pushing for action in recent years. The trio even has identified the elimination of tax breaks that would yield $300 million a year. They have called for subjecting the tax breaks, or tax expenditures, to “sunset” provisions and for a review committee to make assessments and recommendations to lawmakers and the governor.
They also propose, and rightly so, that a comprehensive approach to tax reform include a nonpartisan commission to study the imbalance between state and local taxes, the state relying too heavily on the latter. Consider that Ohio features more than 3,500 local jurisdictions with the authority to level taxes. The complexity almost surely diminishes the competitiveness of the state.
Eager as the governor clearly is to reduce income tax rates, that alone hardly amounts to tax reform. The opportunity exists to advance the state toward a simpler, more responsive, balanced and productive tax system. Finally, any successful effort at tax reform must deliver sufficient revenues — for eduction, health care, public works and other elements that benefit all of us.