December 18, 2012

Presenters: Nicholas Bates, One Ohio Now

Zach Schiller, Policy Matters Ohio

Who is One Ohio Now?

• A coalition of over 80 non-profits, labor organizations, associations and others who have come together to advocate for great public services by making sure we have the revenue to support them.

What do we Stand For:

1. Reviewing Corporate Tax Loopholes2. A Strong Income Tax3. Appropriate Revenue’s from our Natural

Resources4. Reinstate Tax on Corporate Profits

Why does the state budget matter to me? • The state pays an average of about half of the

cost of K-12 in school districts across Ohio• It helps keep police and firefighters at work• It helps pay your local property taxes• It helps provide medical care to 2.46 million

Ohioans • It licenses practitioners from barbers to nurses• It supports human services from adoption

assistance to food banks to programs that allow seniors to stay in their homes

Features of Ohio’s biennial operating budget

• The main budget is the General Revenue Fund (GRF) budget, which covers two years, or a biennium

• Fiscal years or FY 2014-2015• Key dates–Gov. Kasich will submit his budget proposal to the

legislature in early February. – The budget must be passed by June 30.

• Ohio’s budget must be balanced

Budget timetable• The Governor’s budget proposal is submitted to the Ohio

House of Representatives.• The House considers the budget proposal and makes changes

and adjustments. They vote on it, probably in April.• The budget bill then is passed to the Senate for consideration.• Senators consider the budget proposal from the House, and

make changes and adjustments. They vote on it, probably in early June.

• A “Conference Committee” irons out the differences.• The governor may veto items in the budget, which the General

Assembly can override, before signing it by July 1.

Ohio’s GRF Tax Revenues FY2012

Sales and Use 43%

Personal Income44%

Corporate Franchise1%

Commercial Activity 2%

Public Utility Excise1%

Kilowatt Hour Excise 2% Cigarette

4%Other

4%

Where the money goes(includes federal support for Medicaid)

Primary and Secondary Education

29%

Higher Education8%

Medicaid (State and Federal)

44%

Human Services6%

Corrections6% Other

6%

Total GRF Expenditures FY 2012

Today’s financial picture

• Rainy day fund has $480 million• Based on state projections, another $400

million is expected to be available by the end of this fiscal year

• Total FY2013 GRF budget: $28.4 billion, including $8.2 billion in federal funds

• Next budget will have to make up for new tax breaks, tax cuts and one-time revenues

What happened last time?• Tax cuts continued, expanded• Big cuts in K-12 support, local governments • Some human services reduced, but many

attacks fended off • Inadequate services continue (e.g. state

support for handling abuse and neglect of the elderly is practically nonexistent)

The state shifted its budget problems on to schools and local governments

• Schools have cut teachers and courses because of $1.8 billion in cuts during this two-year budget

• Services from recreation to road repair have been curtailed as aid to local governments has been sliced. For specifics on your county, see http://www.policymattersohio.org/county-budgets-nov2012

• Across Ohio, local levies for senior and children’s services, health, mental health and developmental disabilities will bring $210 million less in FY12-13 than in FY10-11

Tax cuts

• Tax cuts from 2005 are costing the state $2.5 billion a year—that’s nearly a dime out of every budget dollar

• These cuts went mostly to businesses, which no longer pay a tax on corporate profits, and affluent individuals, who got most of a 21% income-tax cut

• Last budget: Estate tax eliminated, new tax breaks approved for investors, others

2005 Tax Overhaul• 21% cut in Income Tax over five years (completed 2011)• Phase-out of Corporate Franchise Tax, Ohio’s corporate

income tax• Phase-out of Tangible Personal Property Tax, a local tax

on machinery, equipment, inventory, furniture and fixtures

• Creation of Commercial Activity Tax on Ohio gross receipts

• Effect of these changes: $2.5 billion in annual tax cuts

2005 Income-tax Cut: Who benefited?

Top 1% (>$308,000)

Next 4%($135,000 to $308,000)

Next 15% ($75,000 to $135,000)

Fourth 20% ($49,000 to $75,000)

Middle 20% ($32,000 to $49,000)

Second 20% ($18,000 to $32,000)

Lowest 20% (<$18,000)

$9,556

$1,688

$692

$325

$181

$72

$19

Has Tax “Reform” Worked?

• Ohio has lost 223,000 jobs since June 2005, or 4.1% of its total. The nation has eked out a tiny gain of nearly 100,000 jobs over that time.

• Ohio has lost a greater share of its manufacturing jobs than the U.S.

• Though Ohio employment has grown at a better rate recently, this hasn’t made up for the big shortfall.

Taxes and the state economy

• There is no direct relationship between tax rates and economic performance.

• Public services that maintain the quality of life and support critical economic development goals also impact the business climate.

State and Local Taxes as a Share of Income, Non-elderly Taxpayers, 2007

Lowest 20% Second 20% Middle 20% Fourth 20% Next 15% Next 4% Top 1%0

2

4

6

8

10

12

14

Other State and Local TaxesPersonal Income Tax

Why We Need a Strong Income Tax, 2

• Vital to Ohio economy and quality of life• Accounts for 44% of state taxes and 31% of

the operating budget – more than the state spends on K-12 education

• Crucial to capital investment and debt repayment – 5% cap

Tax exemptions, credits and deductions (aka “tax expenditures)

• More than $7 billion a year • Some, such as the sales-tax exemption on prescription

drugs, go to individuals; most go to businesses• No review mechanism exists; many loopholes have gone

unexamined for decades. • In 2012, the legislature has created or expanded tax credits

or exemptions for companies that employ people at home, convention centers, financial institutions, motion-picture producers, and firms that do work for direct marketers, among others

Tax Expenditures: Some examples

• Wealthy individuals who buy shares in jet aircraft pay little sales tax on their purchases

• Big companies (but not small ones) that lost money years ago can write it off against the Commercial Activity Tax

• Utilities buying mandated pollution-control equipment receive a sales-tax exemption, worth $17 million this year

• Govs. Voinovich and Taft unsuccessfully sought to limit property-tax rollbacks to affluent owners

Top Issues Coming in Next Budget

• TAX SWAP– Income tax and Severance Tax

• School Funding Formula• Medicaid Expansion

Other issues to be aware of:

• Elimination of the Estate Tax• Local Government (LGF, PLF) • Program Shifts, agency merger’s, funding

formula’s….

WHAT ELSE ARE YOU PAYING ATTENTION TO?

Approach:

• Non-Profits: We don’t take partisan stances, Instead: Great Public Services Lead to Stronger Communities

• Connect advocacy efforts on individual issues to the issue of sustainable revenue.

• Change public discourse using social & traditional media.

• Community conversations• Talk to legislators

Messaging

1. It’s Time to Get Ohio Back on Tracka. Reference the Pastb. Define Income Tax Cutsc. Provide an Alternative

2. More tax cuts are fiscally irresponsible—we need a balanced approach

3. Don’t accept bad trades/options4. Income tax cuts shift responsibility from wealthy to

everyone else.5. Jobs, not cuts6. The Budget is a Moral Document

Any Questions?

Contact: Nicholas Bates

Outreach Director614-216-6306

nick@oneOhioNow.org

www.oneohionow.org

THANK YOU!