Politicians and economists often talk favorably about simplifying the tax code, but a June 17 report from Policy Matters Ohio found Ohio’s tax code will remain complicated under the budget plan being discussed in the Ohio House and Senate.
Meanwhile, a spokesperson for House Republicans says reform will come through separate bills later this year.
The Policy Matters report, titled “Breaking Bad: Ohio tax breaks escape scrutiny,” found the state’s tax code will include 129 tax exemptions, deductions and credits if the Senate’s 2014-2015 budget is approved — one more tax break than the previous biennium. Altogether, the Ohio Department of Taxation estimates the tax breaks will cost Ohio nearly $8 billion in fiscal year 2015.
The Senate budget repealed two tax breaks, but it simultaneously added or expanded a dozen, according to the report. Among the additions was a 50-percent income tax deduction for business owners worth up to $375,000 of annual income, which Policy Matters says will largely benefit passive investors, one-man firms and partnerships that will not add jobs.
Policy Matters found 44 tax breaks have been eliminated since 2003 because of the elimination of corporate franchise and estate taxes.
The report claims many of the tax breaks are wasteful. One example: An almost $20 million a year exemption for pollution-control equipment purchased by utility companies. The report says most of the purchases are already mandated by the state government, which means the state is effectively paying companies to follow the law and regulations.
The report ultimately calls for thorough, regular reviews of the state’s tax breaks.
“It is time for the General Assembly to scrutinize spending through the tax code as it does other state expenditures,” said Zach Schiller, report author and research director at Policy Matters Ohio, in a statement.
At the beginning of the 2014-2015 budget process, House Speaker William Batchelder (R-Medina) and Senate President Keith Faber (R-Celina) said one of their goals was to simplify the tax code. Mike Dittoe, spokesperson for Batchelder and Ohio House Republicans, says such reform will now be pursued in separate bills, probably later in the summer or fall.
“The budget is obviously a very labor-intensive process and there’s lots of moving parts,” he says. “A lot of members of the House and Senate just want to make sure that things get done right.”
Instead of simplifying the tax code in the budget, Republican legislators are focused on passing tax cuts. The House and Senate are currently working on reconciling their separate tax plans by merging and downsizing them. The joint plan is “likely to be unveiled in its entirety here over the next few days,” Dittoe says.
The House approved a 7-percent across-the-board income tax
cut in its budget plan. But the Senate cut the House’s tax proposal and
approved a tax deduction for business owners instead. Supporters say the tax cuts will spur the economy and create jobs, while opponents claim the plans are misguided and will fail to lift the lower and middle classes.