Follow the Money: Taxes

1
Follow the Money Taxes

• John R. Corlett
• Senior Fellow, and
• Director of Public Policy and Advocacy
• The Center for Community Solutions
• www.CommunitySolutions.com

2
Mission

• The Center for Community Solutions provides
  strategic leadership to improve targeted health
  and social conditions in greater Cleveland
  through research, analysis, communications and
  organization of community resources for action

3
Goals

• Gain an understanding of
• What Are the Major Sources of Revenue
• How Are Those Revenue Sources Performing
• Impact of 2005 Tax Reform
• Tax Rankings/Competition
• No New Revenue Means Cuts
• Tax Issues That May Arise in 2007

4
What Are Major Sources of State Only GRF Revenue?

• Sales and Use Taxes 38.3
• Personal Income 43.8
• Corporate Franchise 4.5
• Commercial Activity Tax (CAT) 0.4
• Public Utility and Kilowatt Hour 2.3
• Cigarette 5.0
• Other 5.7

5
How Are Those Sources of Revenue Performing
Compared to FY 2006

• Non-Auto Sales and Use -0.9
• Auto Sales and Use -8.0
• Personal Income -1.2
• Corporate Franchise -24.3
• Commercial Activity Tax (CAT) N.A.
• Cigarette -8.8
• Source OBM Monthly Financial Report, 01/07

6
How Are Those Sources of Revenue Performing
Compared to Estimate for '07

• Non-Auto Sales and Use -3.7
• Auto Sales and Use -1.7
• Personal Income 1.8
• Corporate Franchise 55.7
• Commercial Activity Tax (CAT) 22.5
• Cigarette 1.1
• These are compared to revised revenue estimates
  prepared July, 2006
• Source OBM Monthly Financial Report, 01/07

7
2005 Tax Reforms

• Phased in reduction of the personal income tax
  rates, translating into billions less in state
  revenue for budget writers.
• Losses - FY081 billion FY091.6 billion
  FY102.1 billion.
• Sales tax rate set to 5.5 permanently.
• Value of 0.5 - FY08778 million FY09811
  million FY10842 million.
• Cigarette tax increased by 0.70 per pack to
  1.25.
• Increases FY08416 million FY09407 million
  FY10398.

8
2005 Tax Reforms

• Reduction in state and local resources resulting
  from business tax reforms (CAT replaces CFT
  TPPPT).
• Net State Local Losses - FY08-710 million
  FY09947.3 million FY1.2 billion.
• We wont have a good sense of how Commercial
  Activity Tax (CAT) is really performing until the
  state budget process is well underway.
• Proceeds of the CAT are used to hold schools and
  local governments harmless for losses of tangible
  personal property tax. If those proceeds lag,
  GRF funds could be tagged to make up the
  difference.
• Efforts to add CAT carve outs (exempting certain
  industries) will reduce CAT proceeds.
• Net State Tax Impact of Tax Reform Compared to
  Pre-HB 66 State Taxes and 6 State Sales Tax
• FY081.3 billion less FY091.96 billion less
  FY102.4 billion less.
• Estimate reflects economic conditions, barring
  the unknown.

9
Tax CompetitionOhio Tax Rankings

• 2002 State and Local Government Finances, US
  Census Bureau
• Ohio ranked 11th in total state and local taxes
  controlling for personal income, and 18th when
  controlling for population.
• 2003 Council on State Taxation Business Rankings
• 28th in state and local business taxes per dollar
  of capital income
• 34th in state and local business taxes per
  employee
• 28th in state and local business taxes per dollar
  of private sector economic activity
• 36 in overall state rankings by measures of
  business taxes

10
Tax CompetitionConvergence of State and Local
Tax Burdens
11
Keeping the Tax Changes "Is Not Going to Be Easy,
and It Isn't Going to Be Painless"Richard Levin,
Dir. of Taxation

• Strickland administration has said that agency
  budget requests need to be cut by 1. 5 billion.
• Funding Turn Around Ohio programs mean fewer
  dollars for other programs.
• To realize a one dollar state savings in
  Medicaid, you must cut 2.40 because of federal
  matching funds. Each 1 in Medicaid spending
  costs 40 million.
• Funding for many state services have already been
  cut below late 1990s levels, and many services
  have already been eliminated.

12
Tax Issues That May Arise in 2007

• Delaying implementation of personal income tax
  reductions.
• Changing the rate of the CAT.
• Renewing the CAT exemption for petroleum industry
  or carving out other exemptions
• Created a state Earned Income Tax Credit
• Permanent replacement for loss of tangible
  personal property tax revenues at local level.
• Increasing the cigarette tax