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SB5-supporters’ ‘myth’-busting website misleads on Ohio’s tax burden

MahurinEcon_Thumb_1779.jpg
MahurinEcon_Thumb_1779.jpg

The specter of job loss is being used by both sides in the debate over Ohio’s Senate Bill 5, the controversial law designed to limit collective bargaining rights of unionized public workers, such as firefighters, teachers and police. Yet while supporters of the legislation dispute unions’ claims the bill will cost the state more jobs, the pro-SB5 campaign’s argument struggles under scrutiny.

SB5 proponents’ website, BetterOhio.org (for the group Building a Better Ohio), calls the threat of job loss due to SB5 a “myth.” It claims that Ohio’s “state and local tax burden ranks among the top third in the nation,” which has resulted in companies leaving the state “in pursuit of better tax incentives elsewhere, taking hundreds of jobs with them.”

The source of that information isn’t cited on the campaign website, but Connie Wehrkamp, a spokesperson for the campaign, said it was derived from a study by the Tax Foundation, a non-partisan tax research group based in Washington, D.C., which estimated Ohio residents’ shared state and local tax burden from 1977 to 2009.

However, the study doesn’t include some of the state’s major tax reforms that began in 2005, nor the state’s individual income tax reduction this year -– and it doesn’t include the business tax climate at all.

The study ranked Ohio as having the 18th-highest combined state and local tax burden on residents nationwide, as of 2009. That burden, estimated by the Tax Foundation to be 8.9 percent of Ohioan’s income, not only includes local taxes, but also taxes paid to other states, such as those paid by vacationers.

However, according the state’s Department of Taxation, individual income tax rates will fall by more than 4 percent this year, marking the finish of an aggressive tax-reform package that began implementation in 2005 under then-Governor Bob Taft.

Many of those reforms focused on providing incentives for attracting and retaining businesses, such as replacing the tax on corporate profits, which ranged from 5.1- to 8.5-

percent, with a much-lower yielding commercial activities tax of 0.26-percent applied exclusively to gross receipts.

The reform package also exempted equipment and machinery entirely — making Ohio one of only 10 states to do so.

Another study by the Tax Foundation estimates Ohio’s business tax climate to be the 46th worst in the nation. While that seems to be a more reasonable stick to measure business flight, that report wasn’t used by BetterOhio.org to support its “myth”-busting — perhaps because it isn’t true.

Several other studies suggest that Ohio’s business tax system is, in fact, positioned nearly at the top of the list of states. Financial-analysis firm, Ernst and Young, LLP, conducted a

study in conjunction with the Council on State Taxes in April of 2011 that found Ohio has the third-lowest overall business effective tax rate.

According to the more recent study, “Ohio’s high business competitiveness ranking reflects the major business tax reforms adopted in 2005 that substituted the modified gross receipts tax for corporate income and franchise taxes and eliminated business tangible personal property taxes.”

Additionally, the Small Business and Entrepreneurship Council ranked Ohio at 9th in overall best business tax systems for the 50 states — as opposed to the Tax Foundation’s

ranking, which put Ohio at 46th worst.

“Ohio has moved up in recent years in what we consider the overall business tax climate,” Raymond Keating, chief economist for the Small Business and Entrepreneurship Council, acknowledging the reform package as the major driver in Ohio’s improved ranking.

“We rank it positive in terms of business tax climate overall. There’s a lot in the middle of the pack, but [Ohio] ranks well in terms of corporate income and capital gains tax.”

In an editorial to Business First, a Columbus-area newspaper, Ohio Tax Commissioner Richard Levin said the Tax Foundation’s business tax climate index “isn’t credible at all,” citing several factual errors in the study, adding the index should “absolutely not be taken seriously.”

The American Independent asked Wehrkamp whether Building a Better Ohio factored in those 2005 reforms when they assessed the state’s “higher tax burden.”

“I think the fact that Ohio’s population has been fleeing the state, and businesses have indicated that there are major problems with the tax code, and how it’s so complex [means] that there’s a problem,” said Wehrkamp, adding that, while “it’s always a good thing when we address ways to address the tax burden on Ohio’s citizens, I think you could call up any business owner you know, and no one would say that they were under-taxed.”

Voters will have the final say on SB5. The law, which mimics similarly divisive legislation in Wisconsin and New Jersey, may be repealed by referendum, Issue 2, on November 8, as a result of a successful petition drive sponsored by public employee unions last summer.

Read more of The American Independent’s coverage of SB5 here.

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