Sunday, May 21, 2000
Tax plans may not help all
Property cut could limit income break
By Spencer Hunt
Enquirer Columbus Bureau
COLUMBUS As Ohio lawmakers prepare for a heated political showdown over tax cuts this week, many taxpayers may be left out in the cold.
Conservative and moderate Republicans are engaged in a tax relief tug-of-war that could slash up to $300 million from the state treasury to cut property and estate taxes.
However, Ohioans who rent could see a modest income tax cut evaporate next year.
Every person who filed an Ohio income tax return got a 3.6 percent rate cut this year, courtesy of a 1996 law that sets aside surplus budget funds for temporary tax relief.
As lawmakers mull their property and estate tax plans, they also are considering proposals that would replace the lost revenues with the money intended for income tax relief. In essence, the legislators would raid one tax cut to pay for the others.
The General Assembly has a difficult decision, a difficult choice, said Donald C. Berno, president of the Ohio Public Expenditure Council, a non-partisan group that studies taxes and the state economy.
They could continue the income tax reduction, which benefits everyone, Mr. Berno said. Or they could pass property tax relief, which would help a smaller group of people.
Just how much a property tax cut would help requires some fancy math. And homeowners may also have to weigh any cut on their property tax bills against what they might have saved in income taxes.
Conservative House members have at least two property tax cuts on the table. They will push to pass one of them when they return to work Tuesday.
One would permanently increase the rollback on property taxes a subsidy the state pays local governments on behalf of homeowners from 12.5 percent up to 16 percent. The other proposal would offer a similar-sized property tax cut in the form of a one-time credit
on the state income tax.
Just how much a homeowner would save depends on the value of the house and the local property tax rates. Roger Silbersack, Hamilton County's chief deputy auditor, said the tax relief rises with the assessed value of the home.
The owner of a $100,000 home taxed by Cincinnati and Cincinnati Public Schools would save about $70, Mr. Silbersack said. The owner of a $300,000 home in the same taxing districts would save about $210.
As property tax bills drop, so could $180 million from the state's budget surplus that otherwise would be earmarked for income tax relief. The income tax cut would shrink if the property tax cut is linked to the surplus.
A family of four with a taxable income of $40,000 saved about $50 in income taxes under this year's 3.6 percent rate cut.
While homeowners might save some cash, renters would get nothing if the property tax cut eats into the surplus.
Further clouding the issue is the fact that officials have yet to determine the amount of surplus available for an income tax cut.
The state Office of Budget and Management estimates it will have $412.7 million left over on June 30, the end of the state budget year. That amount will shrink after money is set aside to pay late bills and to bolster the state's cash reserves.
The potential results come as sobering news to Sen. Mark Mallory, D-Cincinnati.
A good portion of my constituents would, in essence, be receiving a tax increase Mr. Mallory concluded. A lot of people in my district rent.
Cincinnati has one of the lowest home ownership rates of any urban city in the nation. Census figures show only 38 percent of city dwellers own their homes.
The average home ownership rate measured in school districts statewide is 67.5 percent. But that still means roughly a third of Ohio households would not benefit from a property tax cut.
Faced with those results, Mr. Mallory said he would urge his Republican colleagues to reconsider their tax plans. One conservative Republican, Rep. Jim Jordan, R-Urbana, said he will ask for a permanent property tax cut, which would not spend down future surpluses.
That's obviously the better way to go, he said. That way you aren't coming back every year to take away or spend the money. It's gone forever.
Rep. Jeff Jacobson, R-Phillipsburg, said he will push for a temporary property tax cut. He said opposition from Gov. Bob Taft to any permanent cut in taxes makes his idea the best option.
The governor and the General Assembly face a recent Ohio Supreme Court decision that declared the school funding system inadequate and over-reliant on property taxes. Confronted with spending billions more on educa tion, Mr. Taft has said he will oppose any permanent tax cut.
Mr. Jordan, however, said a temporary property tax cut would be no improvement. It doesn't get us anywhere, he said.
The Ohio Public Expenditure Council and the Ohio Taxpayers Association were mum on whether a temporary property tax cut would be better or worse. Neither group praised the idea.
It's essentially harmless, said Scott Pullins, director of the Taxpayers Association, a conservative, anti-tax group. It doesn't hurt anything, but it doesn't help anything either.
All sides, however, appear to support a cut in the taxes state and local governments levy against a dead person's estate. A bill the Senate passed Wednesday would eliminate the state portion of the tax on estates worth up to $675,000, a cut of about 36 percent.
The measure would remove $80 million to $100 million from the state treasury, while the tax on a $300,000 estate would drop from $11,600 to about $7,420.
The effect this plan would have on next year's income tax rate cut is uncertain. Senate Republicans tried to amend the estate tax bill so it would spend down the surplus, but it was defeated in a procedural vote on the chamber floor.
It was not clear Friday whether House Republicans would also try to link the estate tax cut to the surplus. As it stands now it would not reduce next year's income tax cut.
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