On Tuesday, John Kasich returned to a familiar theme. The governor told reporters: “I just don’t want to go back to the old days of spending, taxing and spending. I want to reduce taxes.” Actually, his predecessor, Ted Strickland, spent much of his tenure reducing spending, and state lawmakers in 2005 cut income tax rates by 21 percent and then added the elimination of the state estate tax. So “tax and spend” hasn’t been the narrative for Ohio the past decade.
And now Republicans in charge of the Statehouse want to build on the platform of tax cuts. On Thursday, they proposed for the next two-year state budget, due July 1, a further reduction in income tax rates, by 10 percent over three years. They have called for including the governor’s idea of targeting additional tax relief to small businesses, a 50 percent reduction on the first $250,000 in income. They argue, contrary to much evidence, that the tax cuts are essential to spurring economic growth and creating jobs across the state.
All told, the tax cuts in the budget proposal would reduce revenues $4.9 billion by 2016. That’s far more than the state can afford. So the plan puts forward a set of tax increases, one element taking the state sales tax from the current 5.5 percent to 5.75 percent. Republican leaders have framed the tax increases as “tax reform,” tapping consumption more as opposed to income.
There is value in such a shift. It also makes sense to apply a means test to the homestead property tax exemption, as the plan proposes. A state earned income tax credit, another component, would complement the federal version in aiding the working poor. The plan takes aim at a few of the many tax credits, deductions, exclusions and other tax breaks in the state budget.
All of this does not amount to something “revolutionary,” as Keith Faber, the Senate president, claimed. The result is more of an old-fashioned tax cut, a net loss in revenue of $2.6 billion by 2016.
The winners would be those at the highest income rungs, or those who have done well since the recession and long before, new earnings flowing almost exclusively into their pockets. In contrast, school districts, already struggling with the finances, will likely feel a greater strain.
To be sure, Faber and others point to the proposed $1 billion increase in public school spending. Yet districts will remain way behind where they would have been if spending the past decade merely had kept pace with inflation. In addition, this new tax plan proposes an end to the property tax rollback for new school levies, making property tax increases more difficult to win.
In the third year, the tax cuts would translate into $685 million in lost revenue. That sum isn’t covered in the coming biennium. If it isn’t made up with additional revenue, you can bet that schools districts will be even more vulnerable.