The House GOP introduced its list of priority legislation for the 129th general assembly today, and included among them are a number of tax proposals that will ultimately impact – and may be amended into – the upcoming state budget. The elimination of the estate tax is receiving all the attention, given its cost of $120 million over the biennium and substantial hit to local governments (who will likely raise other taxes to make up the difference).
But while reporters were focused on this shiny object, they seem to have missed the much more costly proposals that were also part of the package. Here are three examples to review:
Sales tax discount
HB 8 dramatically increases the discount vendors receive for collecting and remitting Ohio sales taxes on time. The current vendor discount is 0.75%, which the bill increases to 5%. A quick calculation based on total sales tax collections of $7.33 billion means the cost to the state of this discount increases from $54 million to $366 million annually.
Yes , there are some caps (each vendor can pocket a maximum of $10,000 in discounts), but I’m going to guess that the vast majority of vendors collect well below this threshold, making them eligible for the full impact of the increased discount.
So, if you’re keeping track at home, add another $624 million to the budget deficit.
The bill also introduces a new 5% discount for employers who withhold and remit income taxes on time on behalf of their employees. Smarter people than me need to fully analyze this proposal to assign an accurate price tag, but let’s just say that it applies to the vast majority of employers who generate $15.7 billion in GRF proceeds per biennium. You’re talking about adding another $785 million to the FY 12-13 budget hole.
Aside from the fact that this one bill could increase the budget deficit by $1.4 billion, as a policy matter, it essentially rewards businesses for following the law and paying on time, when individual taxpayers get no such compensation for doing the same. But, really, it’s just a back door way of reducing state revenue and helping businesses, while offering no benefit to ordinary Ohioans.
Hiring the Unemployed Tax Credit
First, let’s talk about the premise of HB 17. The bill offers employers a credit of $2,400 for hiring someone who is out of work. Is the situation in the job market really so bad, that employees must be INCENTIVIZED to hire someone who doesn’t already have a job? Most employers can actually pick up someone who’s unemployed at a significant discount compared to what they’d have to pay to lure someone away from another job, so there is already an economic incentive to hire the unemployed. This bill simply rewards companies for something they would have done anyway.
And the practical impact of this legislation, by the legislature’s own estimate (prepared for HB 277 in the last General Assembly, an identical proposal to HB 17), is to remove another $1.4 billion from the State’s general revenue fund. Because a new hire must be retained for two years before the credit can be claimed, the impact will not hit in the upcoming biennium, but it certainly creates another large cliff for this Governor and legislature to confront two years from now.
Occupying the Unoccupied Tax Credit
Finally, we have HB 18, promising a tax credit to businesses that move into a previously-unoccupied office building. While they were unable to estimate the cost of the proposal, the Legislative Services Commission noted in response to HB 437, an identical bill fro the last General Assembly that revenue would likely decrease, and in fact concluded:
- The tax incentive may also induce existing Ohio businesses to move out of their current buildings and relocate to new facilities within the state. For example, an expanding Ohio-based firm may decide to move into a vacant commercial space just to obtain the tax credit, which does not necessarily result in new job creation. In such cases, the tax credit would result in revenue losses. Expansions or relocations due to the tax credit would be difficult to ascertain because they cannot be distinguished from those that would have occurred without the tax credit. On balance, it is more likely that revenue losses may be greater than revenue gains from new businesses or new jobs induced by the tax credit
So, according to the legislature’s own analysts, the policy effect of this law is that businesses will move from one office to another, not creating any jobs, costing the state more money than they will make back in the process. Sounds like a winner to me.
Attention reporters: while you are focused on the estate tax, the Republicans just proposed eliminating around a billion and a half dollars from this budget, and around three billion from the next one. You might want to start paying attention.
Updated to add: Looks like Jim Siegel at the Dispatch took the bait and actually looked into what some of these bills might cost. Must give credit where credit is due. Well done, Jim.