In March, Ohio Gov. John Kasich will officially unveil his supplemental budget plan and omnibus bill outlining his legislative priorities for the next two years. Although previews of the plan include some positive reforms, the governor’s “mid-biennium review” also includes proposed higher taxes on Ohio businesses and consumers.
To offset revenue losses from the proposed income tax cut, Kasich plans to increase the state’s severance tax, a tax on oil and gas extraction, from 2.0 percent to 6.5 percent.
Kasich also proposes increasing excise taxes on cigarettes and raising the state’s commercial activity tax, officially described as “an annual tax imposed on the privilege of doing business in Ohio,” by 15 percent.
‘A Very Unsound Policy’
“The governor has made it clear he intends to use revenues gained from the severance tax to offset some revenue losses associated with his continued push to lower, and eventually eliminate, the personal income tax,” Buckeye Institute for Public Policy Solutions Policy Analyst Greg Lawson said. “Looking at a number of factors, this is a very unsound policy and will make Ohio a less attractive place to drill.”
Lawson said tax cuts for many people should not come at the expense of a few others.
“It is a violation of sound tax principles for the state to single out one particular industry in order to pay for tax cuts for everyone else,” he said. “Although moving toward the elimination of the state personal income tax is commendable, sound tax policy should be comprehensive and broad, not narrow and punitive.”
Spending Remains High
Lawson said Kasich’s proposal to increase the state’s excise tax on cigarettes to offset income tax cuts and discourage smoking is similarly unwise.
“This might temporarily increase revenues that can be used to reduce the income tax. However, over time it will be a declining revenue source, as it will—at some level—discourage use of the product or drive it into the black market where taxes are not paid,” he said.
Instead of hiking some taxes and cutting others, Lawson said a better way to achieve Kasich’s goal of eliminating the state income tax would be simply to cut spending.
“If we are to be serious on eliminating the personal income tax, we need to get a grip on the fact that we have spent 20-plus percent over inflation, over the past quarter of a century in state-only dollars,” he said. “Including federal dollars, it’s 40 percent over inflation. There are many reasons for this, including long-term, systemic problems like public-sector collective bargaining bidding up the cost of government across all levels, and the voracious appetite of entitlements like Medicaid.”
Kemberlee Kaye ([email protected]) writes from Houston, Texas.
“An Emerging Giant: Prospects and Economic Impacts of Developing the Marcellus Shale Natural Gas Play,” Timothy Considine, et al., http://heartland.org/policy-documents/emerging-giant-prospects-and-economic-impacts-developing-marcellus-shale-natural-ga/