Tuesday, March 28, 2000
Tax relief unlikely in Ohio
Surplus might be needed for school funding
BY SPENCER HUNT
Enquirer Columbus Bureau
COLUMBUS — The Ohio Treasury may be brimming with extra money, but taxpayers shouldn't expect to see much of it handed back to them.
Lawmakers have no less than 60 bills on file in the General Assembly that would refund, credit or cut different state and local taxes. Aside from a measure to reduce Ohio's unpopular inheritance tax, none of these proposals appears likely to pass this year.
That may seem odd for a Republican-run state government that recently reported collecting $249 million more in taxes than it expects to spend.
But moderate GOP leaders in the House and Senate have kept a firm lid on tax relief talk while they nervously await an education funding verdict expected this spring from the Ohio Supreme Court. If the high court doesn't like the way the state supports public schools, legislative leaders caution they may have to spend some of the money conservative lawmakers want to give back to taxpayers.
One of those conservatives is Sen. Scott Nein, R-Middletown. He thinks Ohio's treasury is so flush there is enough to satisfy both agendas.
“We have a real opportunity here to return some of this money to the taxpayers,” Mr. Nein said. “If we can't do this during the best economic time in our nation's history, when can we?”
The nation's burgeoning economy is spilling over into Columbus, where budget officials continue to report record tax receipts.
A March 10 report from the Office of Budget and Management shows the state has a $249 million surplus through the first eight months of the current fiscal year. The increase is due to stronger-than-expected income tax and sales tax collections.
The natural follow-up question, what to do with all this extra cash, has created a quiet tug of war between moderate Republicans and a faction of more conservative lawmakers.
Rep. Randall Gardner, a Bowling Green Republican running for the state Senate this year, is the highest-ranking Republican pushing tax cuts.
The top lieutenant to House Speaker Jo Ann Davidson favors two plans. One, initially pushed by conservative Republicans, would
cut income tax rates by 5 percent. The other would increase the state income tax's personal exemption to $2,000 from $1,050 during the next five years.
A family with a taxable income of $40,000 would save about $44.17 under the 5 percent cut. That same family would save about $38 next year and $143.96 in 2006 under the proposed exemption increase.
While Mr. Gardner is optimistic about his chances to pass tax relief this year, he still must defer to Ms. Davidson, R-Reynoldsburg, Senate President Richard Finan, R-Evendale, and Gov. Bob Taft. None of the three appears to support any far-reaching cuts.
“The governor looked seriously at doing some kind of tax cut in last year's budget,” said Taft spokesman Scott Milburn. “Given the priority we have to put on education, the pieces just wouldn't fit.”
The Ohio Supreme Court is reviewing the state's response to a 1997 ruling that struck down the state's school-funding formula. Since then, Mr. Taft has vowed to spend $10 billion in state funds to help repair crumbling school buildings.
If the justices decide more needs to be done, lawmakers will have to find more money, warns Mr. Finan.
“I think we have to see where we are with the Supreme Court and look at what our funding requirements for state schools will be,” he said.
Ms. Davidson is the least specific of the three leaders, saying only that she's aware that several House lawmakers want to pass tax cuts and that she's “facilitating discussions.”
The speaker also pointed to a 1996 law that uses a portion of the state's surplus funds to make minor reductions in personal income tax rates. Money in the Income Tax Reduction Fund will slash this year's rates by 3.6 percent, saving $41 in taxes for a family with $40,000 in taxable income.
“That's worked pretty well,” Ms. Davidson said.
She and Mr. Finan expressed some interest, however, in cutting Ohio's estate tax. Commonly called the death tax, it has become increasingly unpopular because it makes a recently deceased person's family pay a portion of their inheritance to the state.
Ohioans paid out $299 million in estate taxes in 1997, the most recent year available from the Department of Taxation. Of that amount, $102 million went to the state and $197 million was distributed among local governments.
Mr. Finan said he supports cutting the estate tax, because it would lessen the financial burden of families dealing with the loss of a loved one. He said survivors often are forced to sell small businesses or a portion of the family farm simply to pay the taxes.
“I think the estate tax is abominable,” Mr. Finan said.
That puts Sen. Robert Latta, R-Bowling Green, in the enviable position of having perhaps the only tax cut bill that could pass the General Assembly this year. His proposal would phase out the state's share of the estate tax over the next five years.
“People pay property tax, they pay income tax, they pay all kinds of taxes in the state of Ohio, and when they die what do we do?” asked Mr. Latta. “We tax them again.”
Even some Democrats, who are on the sidelines for much of the tax relief debates, may support Mr. Latta's plan. Sen. Eric Fingerhut, D-Cleveland, said he would vote to eliminate the state estate tax because he thinks it encourages wealthy families to move to more tax-friendly states like Florida.
Mr. Fingerhut also said he hopes to pass a plan that would grant low-income families a healthy state income tax refund. The refunds would go to families who can show on their W-2s that they work 40 hours a week for minimum wage.
Like his Republican colleagues, he does not think legislative leaders will advance any tax cut plans until after the Supreme Court issues its schools decision.
“I hope to make this a major initiative during the budget debate next year,” he said.
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