Ron Amstutz said he was confused. What the Wooster Republican and chairman of the Ohio House Finance & Appropriations Committee really was doing was needling the witness, politely enough yet with a touch of the dismissive.
The message was plain: I just don’t get it. So the witness, William Ridenour, the president of Polymer TransAction Advisors, a boutique merger and acquisitions firm in the plastics and chemical industries, used the remaining moments of questions and answers to reinforce what had been plenty obvious.
Ridenour doesn’t like the way the expansion of the state sales tax, proposed by Gov. John Kasich, would affect his and many other businesses providing professional services. He drummed the word “catastrophic,” and made his point with sufficient force and clarity that Amstutz, more than likely, just didn’t care for what he was hearing.
The governor has put forward a dramatic expansion of the sales tax. The concept is sound, applying the tax to a wider array of services, reflecting the changing economy, services playing a larger role relative to goods. The governor would broaden the base, and lower the rate from 5.5 percent to 5 percent.
The lessons from elsewhere counsel care in making such a move. Ridenour exposed how the governor and his team just did not weigh fully the consequences — if they want to remain true to their mantra of improving the climate for businesses and boosting the state economy.
Ridenour explained that his company, headquartered in Geauga County, operates in a national, and even global, marketplace, clients in many states, from Texas to Massachusetts, New York to California. More telling, his competitors are located out of state. He added that virtually every job his company has won in recent years has been the result of competitive bidding, going head to head with firms outside Ohio.
Add a 5 percent sales tax (or 7 percent with the use tax), and his company would face a distinct disadvantage, with a “potential severe and catastrophic impact on my business.”
His competitors would not have to contend with such an added cost. As a result, it would be all but impossible to pass the new expense to his clients. He would lose work, competitors more easily making lower bids.
“That will destroy the business. I can flat out tell you,” Ridenour declared to the committee.
Might he just swallow the tax, absorb the cost within the company?
Not really. His small firm employs high-quality, well-paid workers. Reduce their salaries and benefits to help cover the sales tax, and they would likely depart, competitors poaching. At the least, Ridenour argued, the firm would have more difficulty attracting the required talent.
What about the boss taking a pay cut? The answer came in the form of some revealing math.
Ridenour offered a hypothetical, a company with annual revenue of $4 million, the owner with $1 million in pretax income. Apply the sales and use tax to the revenue, and you get a sum of $280,000. Ask the boss to absorb the expense? The income number would drop to $720,000, or by 28 percent. Still, a nice amount, yet also quite a whack — before federal and other state taxes bite.
As Ridenour emphasized, this isn’t just about his company. Many professional firms, in such areas as accounting, architecture, engineering, advertising and the law, face similar circumstances, having a national presence, competing against firms elsewhere for work. How much work and talent, not to mention revenue, would Ohio eventually lose?
Amstutz wanted to know whether Ridenour had “netted” the impact of the governor’s full tax proposal, or where he would stand after factoring a 20 percent reduction in income tax rates. Ridenour described the impact of the income tax cut as “negligible.”
“So I don’t even think about it. To me, it’s not meaningful,” he added.
If the chairman needed clarity, Ridenour sharpened the point in answering the questions of state Rep. John Patrick Carney, a Columbus Democrat, calling the tax cut “not significant enough” to base decisions about hiring or investing.
“I would gladly take a higher income tax over a sales and use tax that effectively reduces my income by 28 percent,” Ridenour declared.
Those words reinforced an earlier point, Ridenour wanting no part of being a “milk cow,” a source of revenue to help pick up the tab for an income tax cut. That has been the impression, the governor eager to cut taxes yet in need of compensating funds to balance the budget, landing on the sales tax expansion without gaming all of the ramifications.
Now the governor appears at odds with his own words about championing small businesses, about how pleased companies are to see him in office, about a state newly sensitive to the speed of business.
In this case, the governor’s office doesn’t appear up to speed.
Finally, state Rep. Carney asked whether Ridenour would seriously consider leaving the state if the sales tax expansion took effect as proposed. “Yes,” was the answer.
No confusion there.
Douglas is the Beacon Journal editorial page editor. He can be reached at 330-996-3514, or emailed at email@example.com.