They’re both on Interstate 70, but Topeka is 700-plus miles west of Columbus. Still, Ohio and Kansas have some historical overlaps. Two territorial governors of Kansas were Ohioans. So is a former governor of the Sunflower State, Cincinnati native Kathleen Sebelius, daughter of the late John J. Gilligan, Ohio’s governor from 1971 through 1974.
And in Ohio as in Kansas, tax collections have lagged, and for arguably similar reasons. That makes it tougher to write balanced budgets. The difference is that the Kansas Legislature, every bit as Republican as Ohio’s General Assembly, decided to do something – by undoing a policy mistake. In contrast, Republicans at Ohio’s Statehouse, like Mr. Micawber in “David Copperfield,” seemingly keep “expecting something to turn up.” It can’t – unless those GOP legislators undo an Ohio mistake.
Ohio’s budget expires on June 30. House Bill 49, the 2017-19 budget, was introduced Feb. 8. The House passed the bill May 2. Now the bill’s in the state Senate and will eventually land in a House-Senate conference committee, which will aim to fashion a finished product.
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But there’s a gloomy Capitol Square backdrop: Through April, which was the 10th month of Ohio’s fiscal year, state tax receipts year-to-date ($17.7 billion) were 4.2 percent less than expected, according to the state Budget Office. A key component of total tax receipts, state income tax collections ($6.3 billion), lagged its estimate by 8.1 percent (that is, by about $554 million).
That $554 million income tax drop-off is very close to the (conservatively estimated) $559 million annual "tax expenditure" cost to Ohio's budget of a lush tax break that the General Assembly gave business investors few years ago. The full cost of that tax break is about $1 billion a year, according to Policy Matters Ohio's Zach Schiller, who also flagged last week's news from Kansas.
The Ohio tax break, the Taxation Department reports, lets a taxpayer “deduct up to 100 percent of (his or her) business investor income, the deduction not to exceed $125,000 for each spouse if spouses file separate returns or $250,000 for all other taxpayers.”
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Examples of deductible income include “income from a … partnership, S corporation, or LLC, (or from) a sole proprietorship (or) … from farming.” If that section of Ohio tax law was supposed to spur “job creators,” maybe it hasn’t. Ohio’s April jobless rate was 5 percent; the national rate was 4.4 percent.
If the General Assembly repealed that sweet tax-break on business income, Ohio would over the next two years collect (not give away) significantly more state revenue. That’d help balance Ohio’s budget without further squeezing low-income Ohioans.
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What happened last week was that the Republican-run Kansas Legislature, overriding a veto by Republican Gov. Sam Brownback, repealed a tax-break it had passed a few years ago, a tax break that resembled Ohio’s business income deduction. That re-think, plus notched-up Kansas income-tax rates, should generate $1.22 billion in new revenue over the next two years, helping Kansas balance its budget, something that supply-side twaddle failed to do.
Overall, Ohio's finances are in decent shape, thanks to stewardship by Republican Gov. John R. Kasich and the Budget Office. Still, the business-income tax-break is a brazen giveaway. It forces middle- and lower-income Ohioans to pay more in state taxes, or get along with fewer public services, to help make already comfy Ohio GOP voters and donors even cozier.
“Ohio’s Tax Policy is About Results, Not Philosophies,” the state’s economic development outfit, JobsOhio, recently tweeted. Someone should tell the General Assembly’s Republican members. Because that would be news – to them.