BY SANDY THEIS
Enquirer Columbus Bureau
COLUMBUS -- While most experts tout the merits of a simple tax code, both candidates for Ohio governor are proposing different ways to make it more complex.
Democrat Lee Fisher offers six tax changes, the boldest being a plan to trim residential property taxes by up to $275 each year. Mr. Fisher argues that his tax cuts are affordable and are designed to share the state's wealth with middle-class families. The property-tax cut alone would cost about $530 million annually.
Republican Bob Taft contends the state cannot afford Mr. Fisher's plan. He has countered with eight smaller tax cuts aimed at producing specific results. He estimates his proposals would cost $93 million the first year of implementation.
Mr. Taft wants to trim taxes for the uninsured who buy health insurance ($8 million), senior citizens struggling to pay property taxes ($9 million), those wanting to upgrade their job skills ($26 million), people with huge medical bills ($35 million) and businesses that invest in high technology ($10 million).
Greg Browning, a former state budget director and senior adviser to the Taft campaign, explains the philosophy behind the proposals:
"He (Mr. Taft) is trying to get at what's going on in Ohio and America that is significant, that matters, and that is not reflected in the tax code. He's come up with a short list of meaningful changes he believes are affordable in the context of an $18 billion (annual) state budget."
Take the case of Mr. Taft's tax deduction for the uninsured.
For those who receive health coverage through an employer-sponsored plan, it's a tax-free benefit. If the self-employed buy their own coverage, it's tax deductible.
Yet if employees of a small business buy their own coverage, they must pay for it in after-tax dollars. Mr. Taft's plan would change that, and allow them to deduct the full cost of health insurance under their state income taxes.
"It's a fairness issue," Dr. Browning said.
Mr. Taft also is proposing a state income tax deduction for those with medical expenses exceeding 7.5 percent of their income.
Modeled after a federal deduction, Dr. Browning conceded that the standard is high and the proposal probably would benefit the wealthy more than the middle-class or the poor.
"Sure, it's a high standard," he said. "But it's based on the merits of saying, "It's reasonable, when someone is in a health crisis and the high cost of care is eating up 7.5 percent of their income, to say that once you hit that threshold it ought to be deductible.' "
To help encourage businesses to invest in technology, Mr. Taft is proposing tax credits.
"This connects to a broader economic development agenda," Dr. Browning explained. "How do we insure that our most significant economic development components grow and remain competitive? Part of the answer is infusing our manufacturing sector with high technology . . and part of it is building on the high-technology investments we've already made."
Tuition, job training
Another Taft proposal would allow a state income tax deduction for college tuition and job training. Anyone with a federal adjusted gross income of $50,000 or less would be eligible. Deductions would be capped at $2,500 per year for two years.
Mr. Taft has touted the proposal as a means of encouraging more people to upgrade their job skills.
Mr. Fisher, however, noted that the plan is a tax deduction, not a tax credit, so it would put no more than $125 annually in a taxpayer's pocket. He questioned whether such a small benefit would encourage people to return to school.
"We ought to be talking about real change as opposed to loose change," Mr. Fisher said when the proposal was announced.
His definition of "real change" is his property tax cut.
Lee Walker, a former state budget director and senior policy adviser for the Fisher campaign, said the property tax cut is affordable. She said it is based on revenue forecasts by the Republican administration.
Touring grocery stores
Mr. Fisher is touring the state, stopping at grocery stores to show what his property-tax cut would buy.
At Columbus' North Market, firefighter Bo and Missy Ewing stood behind $275 worth of groceries. Meat, cheese, dry goods, baby formula and even pumpkins filled the tables.
"This is a huge amount of money for people like us," Mrs. Ewing said. She estimated that it would buy 2 to 3 weeks' worth of groceries for the family of five.
Rebate could be scuttled
Mr. Fisher's plan has a hitch: It likely would virtually eliminate an income-tax rebate that occurs only when the state ends the budget season with a surplus. Instead of putting the surplus into the income tax reduction fund, the Fisher plan would use it to help fund the property tax cuts.
Right now, the state pays 12.5 percent of a homeowner's property taxes. Under the Fisher plan, the so-called property tax rollback would go to 27.5 percent, but would be capped at $275 per household annually.
Even if the plan simply replaces one tax cut with another, Republican Party leaders insist that Mr. Fisher cannot keep his promise to properly fund public schools and give a tax cut.
Mr. Fisher maintains he can do both.
His plan is based on revenue projections from the Office of Budget and Management, a state agency under the control of the Republican governor.
4 percent growth
Earlier this year, OBM instructed the state agencies that when planning for the next two-year budget to anticipate growth between 4 and 4.5 percent. Mr. Fisher's plan is based on 4 percent growth.
He opted to use the most conservative number, he said, even though Gov. George Voinovich's Republican administration historically has underestimated both the amount of money state taxes would generate as well as the level of state spending.
As a result of OBM's conservative estimates, Ohio ended last year with a $1 billion rainy-day fund, returned $700 million to taxpayers in the form of an income tax rebate and spent an additional $200 million more on school-building repairs.
"This is about the best time for a tax cut," said James Damask, director of research for the Dayton-based Buckeye Institute. The non-partisan but conservative-leaning think tank analyzed Mr. Fisher plan and concluded not only that it is doable but said it would boost retail sales in Ohio $1.4 billion over a five-year period.
The institute's analysis showed that over the past seven years, manufacturing wages rose 16 percent, food prices went up 17 percent and inflation increased 19 percent. Yet Ohio's tax revenues jumped 49 percent.
Ohio on a roll lately
Budget experts agree that Ohio has been on a roll lately.
The non-partisan Legislative Budget Office called "eye-popping" the 15.4 percent increase in personal income tax revenues last year. OBM officials recently revised their revenue projections for the current fiscal year, saying they now expect the state to have an additional $342 million.
"The big question is, how long will the ride last," asks Donald Berno, president of the Ohio Public Expenditure Council. The non-partisan group studies government taxes and spending.
In a report released this past week, Mr. Berno declined to comment on either candidate's tax plans but he did urge future state budget writers to proceed with caution.
The next governor will be charged with initiating the budget for fiscal years 2000-2001. Sometime during that budget, the next governor likely will learn whether the Ohio Supreme Court believes that budget increases and other changes now constitute the "thorough and efficient system" of schools mandated by the Ohio Constitution. If the court says the state must do more, the price tag for public schools could rise.
Another uncertainty is the economy.
Many state and national experts are predicting a slowdown sometime in the next budget cycle, even a possible recession, as the Asian monetary crisis starts impacting America and Europe.
Debate on price tag
Fanning the fears are some in the Taft campaign, who initially tried to make the case that Mr. Fisher's tax cuts and spending proposals carry a $2.68 billion price tag. One day later, after howls of protest, they lowered the price to about $487 million.
The Fisher campaign said the price tag is still too high, noting that Mr. Taft included a $250 million scholarship program that Mr. Fisher did not propose.
"Do they (Taft supporters) not know what they're doing or are they intentionally trying to mislead you," Fisher campaign chairman Alan Melamed asked rhetorically. "Either way, they just kind of bungle around."
In addition to the property-tax cuts, Mr. Fisher is advocating a handful of smaller tax changes that he said are targeted mainly to working families.
Agreed on insurance
Both he and Mr. Taft hope to encourage Ohio's aging population to buy long-term care insurance by adding the cost of such premiums to the list of state income-tax deductions.
Mr. Fisher wants to support family-owned businesses by raising the threshold for the state's estate taxes. The proposal is aimed at two main groups, Ms. Walker explained: Family farmers and family-owned small businesses.
"Farmers tend to be land-rich," she explained. When parents who own the farm die, the estate is probated and children often find themselves with a huge estate tax and not a lot of ready cash.
"If that land is going to kept as farm land, what Lee (Fisher) has said is there should be a reduction in the amount of estate taxes owed," she said.
Similar tax relief would be offered to children of small business owners who opt to continue the family business.
Relief for renters
And for lower-income renters who argue that the Mr. Fisher's property tax would do them no good, the campaign is offering an earned income-tax credit.
Ohio would join nine other states that trim taxes of the working poor, following the example of a federal program.
Estimates provided by the Fisher campaign show that tax relief would be granted to up to 613,000 families. The average would see a tax cut of about $132 a year, with the top benefit capped at $365.
The level of benefit would be based on the family's income, as well as the number of children.
