Despite the rhetoric about Ohio’s tax rankings increasing, data made available by the U.S. Census Bureau Wednesday shows Ohio’s tax ranking actually dropped on a number of key measures compared to 2001-2002 when the data was last published.

In 2003-2004, Ohio ranked 20th in state and local taxes per capita. By comparison, Ohio ranked 18th in 2001- 2002. When controlling for personal income, Ohio’s state and local tax burden in 2003-2004 was 11th. By comparison, Ohio ranked 8th in 2001-2002.

On the broader measure of state and local own source revenue, Ohio ranked 21st in 2003-2004 when controlling for population. By comparison, Ohio ranked 19th in 2001-2002. When controlling for personal income, Ohio ranked 19th in 2003-2004 in state and local own source revenue. By comparison Ohio ranked 17th in 2001-2002.

The census data are the most commonly used sources data for comparing state and local tax burdens by public finance analysts.

When considering tax rankings there are a couple of things worthy of note. First, taxes paid also reflect the cost of services demanded by citizens. Second, while Ohio’s rank is higher than in prior decades, the difference between the highest taxed state and the lowest taxed state is getting smaller or converging. Consequently, there is less for states to compete over in the tax code. Finally, stronger economies have higher levels of taxation. Therefore, the notion that tax levels is harming Ohio’s economy are unsubstantiated, and therefore, incorrect.

[Posted for John Corlett]
The TEL constitutional amendment, proposed by Secretary of State Ken Blackwell and Citizens for Tax Reform, appears all but dead. That’s because the legislature’s Republican leadership, the Governor, and Secretary Blackwell worked out a deal that allowed the amendment to be pulled from the ballot in return for the passage of a statutory TEL (referred to as TEL-Lite). The maneuver was the result of mounting criticism of the constitutional TEL from nearly every quarter of the state. Community Solutions' staff were at the center of the debate, crisscrossing Ohio educating local governments, community groups, and others about the dangers of a constitutional TEL amendment. Unfortunately, the statutory TEL passed by the legislature will create its own set of problems, particularly for education, health care, and social services. But, unlike a constitutional amendment, it can be changed by future legislatures. Community Solutions published a brief analysis of impact of the legislation prior to its passage: "Education Shoulders Greatest Burdens Under Proposed Statutory TEL."

Documents describing the statutory TEL are available on the Legislative Service Commissions website. The last document, the Fiscal Note, simulates the impact of the TEL on the General Fund. Had the TEL been put in place in 1987, state GRF spending would have been reduced 2.8 billion under actual spending by FY2007 (Table 7). Also, The average annual growth foe each major category of state spending was higher then CPI over this time (Table 8). The one exception is "other state spending." Since this is such a small portion of the GRF, the TEL would have required severe tradeoffs across programs to stay under the TEL. In other words, inflationary increases in one category of state spending would require significant cuts in other programs to stay under the TEL. An alternative would be fee increase, such as tuition, or local tax increase, such as school property tax increase. Most programs in Ohio are jointly funded by the state and local governments. Squeezing state spending puts pressure to increase local governments’ revenues to maintain services. Here are links to the relevent documents

The bill as passed by the House Finance Committee.

Bill Analysis

Fiscal Note

A number of groups and public officials commonly and incorrectly suggest that Ohio’s state and local tax burden is 3rd highest in the country. The claim is based on misleading data published by the Washington DC-based Tax Foundation. Few people that examine state and local public finance use those rankings because of methodological deficiencies.

Instead, most people interested in state and local tax burden’s turn to data complied and published by the census bureau and bureau of economic analysis. For instance, the respected analysts at the Ohio Department of Taxation’s Tax Analysis Division recently updated their “Brief Summary” of Ohio taxes. Included in publication are the most recent rankings for Ohio.

According to these commonly accepted data Ohio ranked 19th when controlling for state population, and 13th when controlling for personal income.

It’s important to note that state and local tax burdens are converging. There is less of a difference between the highest tax state compared to the lowest tax state. Also, stronger state economies are associated with HIGHER levels of taxation. These data are contained in testimony on the recently passed tax reform package. The point is that those that argue Ohio’s tax system is deleterious to the state’s economy are not only wrong, but they don’t understand the mechanics of the modern economy. This is not to suggest that increasing the marginal tax rate to 100% is a good idea. But, neither is gutting the capacity of the public sector to support our economy would be nearly as bad.

The public sector provides substantial support for our education and workforce systems. Ohio’s success in the global economy depends on the effectiveness of our workforce. If you rip apart the public sector, you undermine our ability to compete.

Today’s Plain Dealer article “GOP Tries for Plan to Cap Spending” and editorial “Taking on TEL” illustrate just how deep opposition to the proposed Tax and Expenditure Limitation (TEL) has become. Last week the boards of two major universities (OSU and Bowling Green), and Lt. Governor and Director of Development Bruce Johnson expressed their opposition to the TEL. This week key legislative leaders and staff began exploring alternatives for removing the proposal from the fall ballot. Formal opposition from the business community appears eminent. Finally, the Education Tax Policy Institute also added to the research on TEL with a biting, and insightful analysis. It’s worthy to note that most fiscal and economic analysts (and ETPI are among the best) that examine the proposal are overwhelmed by just how poorly the proposal is written, and the numerous and wide-ranging destruction it would cause to government operations, and Ohio’s economy. Hopefully, the momentum to remove the TEL from the ballot can be sustained and is successful.

Ohio Senator George Voinovich was one of only three Senate Republicans to oppose H.R. 4297, the Tax Relief Act of 2005.

The legislation is tilted towards the wealthy and adds $70 billion to the nation's every growing deficit. Middle-income households would get an average tax cut of just $20 from the agreement, according to preliminary estimates by the Urban Institute-Brookings Institution Tax Policy Center, while the 0.2 percent of households with incomes over $1 million would get average tax cuts of $43,000, and the top 0.1 percent of households (whose incomes exceed $1.6 million) would get average tax cuts of $84,000.

Senator Voinovich said he opposed the tax cuts for three reasons, "we do not need them right now; we cannot afford them right now; and we should be working on fundamental tax reform rather than tinkering with piecemeal tax cuts." He added "I am thinking not only about our generation, but also the generations of our children and grandchildren and the legacy we leave them."

The federal deficit has grown at an alarming rate since President Bush took office in 2001. This latest legislation will just add to the sea of red ink are country is swimming in.

Senator Kirk Schuring (R-Canton) has introduced Ohio Senate Bill 313 which would create the Federal Domestic Violence Options Task Force. The bill is slated to have a second hearing and a possible vote at the May 17 meeting of the Ohio Senate State and Local Government & Veterans' Affairs Committee. Ohio is one of a very small group of states that hasn't taken advantage of a domestic violence option in the federal welfare law. The bill holds the promise of getting advocates and state officials on the same page regarding this issue and their findings could be rolled into the next years biennial state budget.

The legislation (http://www.legislature.state.oh.us/bills.cfm?ID=126_SB_313) is bipartisan and has six cosponsors. It's the product of a lot of hard work by Senator Schuring and the Ohio Empowerment Coalition along with the Contact Center in Cincinnati. The committee hearing will begin at 4:00 p.m. in the Ohio Senate South Hearing Room and testimony is welcome. If you do plan to testify you should bring 25 copies of your testimony to the hearing.

A May 4, 2006 article in USA Today by Dennis Cauchon includes a chart showing growth in personal income between 2000 and 2005. Ohio ranks an anemic 38th, but wait Colorado ranks 44th, only six states had slower growth in personal income than Colorado.

TEL proponents want desperately to belive that the TABOR amendment in Colorado produced an economic miracle for the state. That's just not the case. On the other hand TEL opponents should be careful about pointing to the TEL as the source of all of the state's economic woes, thats not accurate either. A recent study from the Urban Institute entitled The Colorado Revenue Limit: The Economic Effects of TABOR is worth reading and can be found at http://www.urban.org/publications/1000940.html. It is very helpful at sorting out some of the conflicting claims.

The source for the data according to USA Today "included economists and research analysts including Edward Barbier, University of Wyoming; Paul Brewbaker, Bank of Hawaii; Beth Ashman Collins, Rhode Island Policy Council; Eleanor Craig, University of Delaware; Carl Ferguson, University of Alabama; Stephen Fuller, George Mason University; Ernie Goss, Creighton University; Ivars Graudins, Washington Department of Employment Security; John Knapp, University of Virginia; Laurie Lachance, Maine Development Foundation; Gregory Miller, SunTrust Banks; Phil Pepper, state of Mississippi. Data from Bureau of Labor Statistics; Bureau of Economic Analysis; Federal Deposit Insurance Corp."

Recently in a May 9, 2006 OSU Lantern story, Gene Pierce spokesperson for Citizens for Tax Reform, acknowledges for the first time that public universities are covered by the TEL. He says, "Too often what happens is that people are bulldozed by public administration and don't have the means to get people's attention. So, what this does is it gives the individual the ability to take a university to court if they believe the university is not adhering to the rules and the laws of the state."

Mr. Pierce is referring to one section of the amendment that creates legal standing for anybody to sue any state or local governmental entity for not complying with the TEL amendment. In effect, he is saying that the TEL amendment does then apply to public universities.

Previously TEL proponents have claimed in their written materials (http://www.kenblackwell.com/media/pdf/tel-thetruth.pdf) that TEL spending limits don’t apply to public universities. So either Mr. Pierce is suggesting that only certain parts of the amendment applies to public universities or Citizens for Tax Repeal has finally come to understand what the amendment actually says.

The Coalition for Ohio’s Future, the main group opposing the amendment, has maintained from the beginning that state universities are covered by the amendment. Why is that? It’s because that’s what the amendment actually says.

Section 14 (F) of the amendment is the definition section of the proposed amendment, it is where the authors defined who was to be covered by the TEL. In Section 14 (F) (E) of the amendment they define State to mean “the state government, including any branch, state office, authority, agency, board, commission, institution, instrumentality or any other unit of state government which is directly supported with tax fund.”

The word instrumentality is important in this instance because Ohio Revised Code Section 4115.31 defines colleges and universities as state instrumentalities.

So there you have it, the Ohio Revised Code defines colleges and state universities as “instrumentalities”, and the TEL amendment includes “instrumentalities” in its definition of the “State”, and then includes the “State” among those entities covered by the TEL amendment.

In short, in the case of constitutional amendments, words matter, definitions matter, and state colleges and universities are covered by the proposed amendment. Case closed.