Ohio's Budget Mess And Tax Facts

[irishbobcat]

Keep drinkin the neo-con cool-aid.......

[Rick Rowlands]

I was just thinking the same about you. 

[irishbobcat]

Oh Ricky, you amuse me so!

[Rick Rowlands]

 Abolish State Income Taxes
Tuesday, July 20, 2010 11:15 AM

By: Richard Rahn Newsmax

Did you know there are nine states that have no state income tax?

The non-income-tax states (see accompanying chart) are geographically and economically diverse, ranging from the state of Washington in the Pacific Northwest, to Texas and Florida in the South, and up to New Hampshire in the Northeast.

Why is it that some of the states with the biggest fiscal problems have the highest individual state income tax rates, such as New York and California, while some of the states with the least fiscal problems have no state income tax at all?

High-tax advocates will argue that the high-tax states provide much more and better state services, but the empirical evidence does not support the assertion.

On average, schools, health and safety, roads, etc. are no better in states with income taxes than those without income taxes. More importantly, the evidence is very strong that people are moving from high-tax states to lower-tax-rate states — the migration from California to Texas and from New York to Florida being prime examples. (Next year, the combined federal, state, and local income tax rate for a citizen of New York City will be well over 50 percent, as contrasted with approximately 38 percent for citizens of Texas and Florida.)

If the citizens of California and New York really thought they were getting their money's worth for all of the extra state taxation, they would not be moving to low-tax states.

The obvious question then is, Where is all the extra money from these state income taxes going?

It is going primarily to service debt, and to pay for inflated salaries and employee benefits. It is interesting that the high-tax-rate states also, on average, have much higher per capita debt levels than states without income taxes. (Alaska is an outlier because it has its oil reserve to borrow against and actually gives its citizens a "dividend" each year.)

The biggest additional burden the high-tax states have is unionized government worker contracts. My Cato colleague Chris Edwards notes: "Half of all state and local spending — $1.1 trillion out of $2.2 trillion in 2008 — goes toward employee wages and benefits."

His study showed that, on average, total hourly compensation for state and local government workers was 45 percent higher than for equivalent private-sector workers.

In addition, the government workers are rarely fired even those with poor job performance. Importantly, the differential was much greater in states where more than half of the state employees were unionized, and these were all in states with state income taxes, with the exception of Washington.

High rates of unionization of public employees and high rates of debt go hand in hand. Those states whose government workers are less than 40 percent unionized have median per capita state debt of $2,238, while those states where unionization rates are over 60 percent have a median per capita state debt of $6,380.

High rates of unionization tend to lead to excess staffing, unaffordable benefits, and pensions.

There have been a number of both empirical and theoretical studies showing the negative impacts of state income taxes and particularly those with high marginal rates on economic growth within the state.

A recent study published in the Cato Journal by professors Barry W. Poulson and Jules Gordon Kaplan, which was carefully controlled for the effects of regressivity, convergence, and regional influences in isolating the effect of taxes on economic growth in the states concluded: "Jurisdictions that imposed an income tax to generate a given level of revenue experienced lower rates of economic growth relative to jurisdictions that relied on alternative taxes to generate the same revenue."

State Income Tax Rates and Debt (All Figures Percent)

States    Income Tax    State Debt as % of Income
Without Individual Income Tax
Tennessee    0    2.02
Texas    0    2.70
Nevada    0    4.07
Wyoming    0    4.90
Florida    0    5.20
Washington    0    7.93
South Dakota    0    10.95
New Hampshire    0    14.10
Alaska    0    24.01
Highest Individual Income Tax rates
Iowa    9.28    6.47
Maryland    9.23    7.26
California    10.55    7.55
Oregon    11.36    8.61
Hawaii    11.00    11.89
New Jersey    9.06    12.01
New York    10.67    12.22
Vermont    8.95    13.12
Rhode Island    9.9    20.04

The state of New York is a poster child for what not to do. At one time, it was the richest and most populous state. But at least going back to the Harriman and Rockefeller administrations decades ago, it decided it could tax and spend its way to prosperity. (Note: New York City residents face a maximum combined state and city income tax of over 12 percent, while those in many New York counties pay a little less than 9 percent, giving the state an average maximum tax rate of almost 11 percent.)

The results have been the opposite of what was promised.

New York's relative population, economic growth, and per capita income have all declined, particularly in relation to those states without a state income tax.

In the past year, per-person taxes have increased by $419 in New York, far higher than any other state. (Note: They went up only $1 in Texas. Is New York or Texas now better off?)

Income taxes, as contrasted with consumption (i.e., sales) taxes and modest property tax rates, are far more costly to administer and do far more economic damage (by discouraging work, saving and investment) and are far more intrusive on individual liberty.

The states without state income taxes overall have had far better economic performance for most of the past several decades than have the income tax states — particularly those with high marginal taxes.

The Tea Party movement indicates that it might be the right time politically for politicians in the income tax states to call for those taxes to be phased out.

Good economics might actually be good politics this year.


Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.






copyright

© Copyright 2010 The Washington Times, LLC

[irishbobcat]

The Center for Community Solutions suggests a three part strategy to solving Ohio's budget crisis:

tax increases,
reductions in tax expenditures, and
reductions in programmatic expenditures.

Excerpts For the Report:

While the term 'tax expenditures' may be unfamiliar, their existence and significance are quite familiar indeed. More generally, and pejoratively, described as 'loopholes' or 'tax breaks,' they may be defined as a loss of tax revenue attributable to an exemption, deduction, preference, or other exclusion from tax law.

In Ohio, the relative burden of state and local taxes paid by businesses has steadily declined since 1975, from 40 percent to 26 percent in 2010. This trend was reinforced by the business, personal income, and sales tax changes adopted five years ago in H.B. 66, and subsequent modifications enacted during 2009 in H.B. 318. (It is worth noting, too, that these tax changes also shifted a significant portion of taxes paid by individuals and families from the progres- sive income tax to the regressive sales tax.)

While incomes for most Americans have stagnated for three decades, those of Ohioans have generally stagnated at lower levels, reducing the capacity of the middle class in particular to bear additional tax burdens.

The wealthiest fifth of taxpayers have enjoyed soaring incomes for over 20 years. While progressive federal taxes have also made them by far the largest contributors to the overall costs of government, the regressive effects of combined state and local taxes in Ohio take a larger share of middle class incomes than the wealthy.

Business taxes, as a proportion of state tax revenue, have been in steady decline for several decades; the long-range implications in this regard of the 2005 tax overhaul are as yet unclear.

State personal income and business tax changes during the middle of the last decade (The 2005 Tax Reduction Act) have contributed significantly to the structural deficit.  (About $2 per year or $4 per per biannual budget).

Returning to the former upper bracket rate of 7.5 percent for those whose incomes have outpaced the vast majority of Ohioans, would affect just over 2 percent of taxpayers, while raising $448 million annually. (This top rate, and all rates, were reduced 17% by the 2005 Tax Reduction Act, and are still scheduled to be reduced 4.1% more.)

The imbalance between business and individual taxes also might be addressed in a revenue package. Currently, the rate on the CAT is set too low to reimburse schools and local governments for the full amount of lost tangible property tax revenue. The resulting drain on the General Revenue Fund during the next biennium is estimated to be $322 to $438 million, far short of even beginning to replace lost revenue from the former corpo- rate franchise tax. Each 1/100 of 1 percent increase in the CAT would annually raise approximately $50 million. An increase of 0.08 percent would yield about $400 million annually, enough to cover the estimated cost of GRF subsidies to schools and local governments for loss of tangible personal property tax revenue, and return ap- proximately $200 million per year to the GRF.