National Experts Ohio Tax Study Released By The Education Tax Policy Institute
COLUMBUS — May 13, 2011 — A new study commissioned by the Education Tax Policy Institute (ETPI) titled, Revenue Options for Ohio’s Future, reviews Ohio’s current tax structure.
Click here to read the Executive Summary of the report, Revenue Options for Ohio’s Future.
Click here to read the full report, Revenue Options for Ohio’s Future.
Two national tax policy experts, Dr. Bill Fox and Dr. Don Bruce from the University of Tennessee, conducted the study for ETPI. The two have extensive experience in analyzing state tax structures, particularly in the area of sales and business taxes. Professor Fox has experience working with Ohio taxes going back many years.
Fox and Bruce show that Ohio ranks as the 17th lowest state in taxes levied at the state level. Increases in local taxes place Ohio with a total state and local tax burden at about the national average. Ohio’s ranking among states is higher when local taxes are included in the comparison because state policies have shifted the responsibility for funding public services, including education, down to the local level.
While the study determined that the reform of Ohio’s business tax structure in 2005 improved both the fairness and the competitiveness of the state’s revenue system, the authors also determined that the combination of the recent recession and the changes in the state’s tax system in House Bill (HB) 66 lowered state revenue by $3 billion below the levels anticipated in 2005 when the state revamped its business tax structure.
Fox & Bruce conclude that the effects of the recession make a final assessment of Ohio’s recent tax reform premature. However, they estimate that the changes in HB 66 have made the revenue system less able to grow with the economy. Under these circumstances, Ohio faces difficult questions about whether to accept a decline in its public services or to find new sources of revenue to fund them. According to Fox & Bruce:
“The effects of lower revenues on public service expenditures will be strongly felt with expiration of the ARRA stimulus funds beginning in July 2011,” the study shows. “Ohio and its leaders need to decide quickly whether the resulting decline in important public services is consistent with service demands by the state’s citizens or if new revenue sources should be found.”
“This new study should help inform and shape the debate over Ohio’s budget and our ability to pay for essential community services,” said Barbara Shaner, President of ETPI. “It shows that state tax rates are not nearly the problem some policy makers are claiming, but shifting the burden — from business to individuals and from the state to local communities — is creating a very real crisis in our communities.”
The study commends Ohio’s state tax structure for maintaining a broad base for business, sales, and income taxes. The study includes options for expansions of state tax bases. The ETPI sponsored study acknowledges economic development benefits from Ohio’s tax reform bill passed in 2005 (HB 66). However, it points out that changes in business taxes left Ohio tax revenues vulnerable to shortfalls from the national recession, and some projected revenues at the time the reforms were passed have not materialized.
The study determines that in order for revenues to keep up with Ohio’s economy, state leaders should not erode the current tax structure further. Fox and Bruce praise Ohio’s general practice of avoiding gratuitous tax holidays and other exemptions that undermine the stability of the system as is the practice in some other states. In fact, the experts show there is room for expansion of the base and rates in some tax areas.
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