First, Ohio’s tax burden is too high to keep us competitive in the global economy, but it’s not just our state taxes that are a problem.  Local taxes are just as bad or worse.  According to the Ohio Department of Taxation, Ohio ranks 13^th in local tax burden as a percentage of income.  According to the non-partisan Tax Foundation, our business tax climate ranks a poor 39th while our overall state and local tax burden still puts us in the top half at 20th place.

To reform our tax system in the long run, we must address not only the rates we pay but also how we tax.  In the shorter term, there is something Ohio can do to alleviate serious burdens on Ohio businesses, particularly small companies: municipal income tax reform.

Ohio is one of only a few states that even allow municipalities to levy income taxes.  Of the states that allow municipal income taxes, the majority of these only see taxes assessed by major cities. By contrast, with 593 municipalities levying this tax, Ohio trails only Pennsylvania, with 2,492, in the number of taxing municipalities nationwide.

Unfortunately, Ohio is unique in the nation as the only state allowing each municipality to draft its own rules for withholding and the calculation of penalties.  This leads to absurd situations where contractors may have to file income tax returns for each jurisdiction in which they do business (there was testimony from small businesses that had to file over a dozen returns) no matter the size of the liability.  Often, the cost of complying with the labyrinth of paperwork exceeds the actual tax!  Remember, small and especially entrepreneurial businesses are the typical net job creators in America today.  Many of them are unable to afford the legion of accountants and lawyers necessary to assure compliance with these local taxes.

This raises the question of why Ohio would want to raise significant barriers to entry for these new companies.  The answer is that it doesn’t, but until it can simplify its uniquely complex and burdensome municipal income tax structure, Ohio will in effect be doing just that.  And until then, The Buckeye Institute will continue work to reduce barriers to business entry, and to create a simpler, flatter, more transparent tax system for Ohio. ]]> http://buckeyeinstitute.org/the-liberty-wall/2013/05/10/buckeye-testifies-about-the-critical-need-for-tax-reform/feed/ 0 http://buckeyeinstitute.org/the-liberty-wall/2013/04/16/delay-in-dsh-cuts-means-no-need-to-rush-on-medicaid/ http://buckeyeinstitute.org/the-liberty-wall/2013/04/16/delay-in-dsh-cuts-means-no-need-to-rush-on-medicaid/#comments Tue, 16 Apr 2013 16:24:53 +0000 Greg R. Lawson http://buckeyeinstitute.org/the-liberty-wall/?p=1995 This week, the Ohio House of Representatives is poised to pass its version of the biennial budget.  While the bill looks much different than the blueprint originally introduced by Governor Kasich, and now includes changes to his tax reform and education funding plans, the biggest change involves Medicaid.  The Ohio House stripped the expansion from a substitute version of the bill that was introduced last week.

While special interest groups favoring expansion have argued that federal cuts to uncompensated care make it essential that Ohio expand Medicaid in this budget cycle, the Obama Administration, ironically, has given everyone a good reason to take a deep breath and focus on making good public policy.  As the Heritage Foundation’s Nina Owcharenko states on National Review’s Corner blog,

“Tucked away in the president’s latest budget was a recommendation to delay scheduled cuts in payments to hospitals that treat large numbers of the uninsured patients and therefore provide a disproportionate amount of uncompensated care. The cuts in Disproportionate Share Hospital (DSH) payments were enacted under Obamacare, and the call to postpone them constitutes another admission that Obamacare’s grand plans and promises are falling short. More important, it provides another reason for states not to undertake the Medicaid expansion encouraged by Obamacare.”

Furthermore, the expansion proponents claim that the DSH cuts made the expansion absolutely essential to prevent some hospitals from having to close down seems a bit hyperbolic given a recent report by Jason Hart of Media Trackers Ohio:

 “Contrary to Ohio Hospital Association (OHA) claims that the Ohio General Assembly must expand Medicaid to fund care for the poor, most of the hospital lobby’s members would have recorded positive net income in 2011 even with no charity care offsets.”

The decision to expand Medicaid would likely be irreversible—both for legal and political reasons.  Even if the federal government changes the rates, Ohio likely would be trapped in the program.  The decision to expand is therefore not one that should be made in haste.  The Obama administration’s recommendation to delay DSH cuts removes an argument that had been made in a rush to judgment, allowing Ohio policymakers to take more time to look at all of their options without having a “Sword of Damocles” hanging over their heads.

Thanks to reforms Ohio has made in recent years, Buckeye State residents are finally clawing their way back into the bottom half of the tax burden.  This year we rank 28^th.  Meanwhile, Californians (no surprise here) will be working nearly two more weeks to pay their tax bills off by April 24 and New Yorkers (again, no surprise) will be working all the way to May 6.  Overall, the average Tax Freedom Day in the U.S. has crept up by five days since 2012 to April 18.

So why does it take so long for people in this country to pay off their tax bill?  Simply put, it is because of the multiple layers of taxation everyone faces. Consider the myriad of different of forms taxation that we all pay:

* Federal, state and (especially in Ohio) local income taxes;

* Various social insurance taxes (Social Security, Medicare, unemployment);

* Federal, state and local excise taxes (like sales taxes);

* Corporate taxes;

* Capital gains taxes;

* Estate taxes (though thankfully no longer in Ohio); and

* Property taxes.

The graphic below does a good job of breaking these down by the average number of days Americans must work to pay for each type of tax.

As the Tax Foundation indicates, Tax Freedom Day moved back due to a combination of factors, especially income tax increases as part of the Fiscal Cliff deal and the deluge of new taxes coming online due to ObamaCare’s implementation.

While some level of taxation is obviously necessary, the longer we push Tax Freedom Day back, the less capital is available for more efficient allocation in the overall economy.  This is where the Keynesians continue to fail by thinking that the bureaucrats in D.C. and Columbus know what to do better than individuals.

Unfortunately, the picture for economic freedom gets even darker if you factor in federal borrowing which really represents future taxes owed.  That pushes the U.S. Tax Freedom Day twenty-one days later to May 9.  Given that the latest “deficit included” Tax Freedom Day was at the height of World War II on May 21, 1945, this is astounding.  We simply should not be running up debt in 2013 at similar rates to when we fought a world war to defeat fascism in 1945. Of course, we run the risk of further increasing that debt by signing onto any Medicaid expansion in Ohio.

The bottom line is that Ohioans, and all Americans, need to keep pushing fundamental tax reform so that we can grow our economy, get people to work, and free ourselves from onerous tax and debt burdens.

“Where there is discord, may we bring harmony. Where there is error, may we bring truth. Where there is doubt, may we bring faith. And where there is despair, may we bring hope.” –Margaret Thatcher upon election as Prime Minister, 1979

Margaret Thatcher, one of the most consequential of Great Britain’s 20^th Century Prime Ministers, passed away earlier today, thus closing a major chapter of conservative and free market history.

At a time when all-too-often we call people “giants” for relatively mediocre accomplishments, Margaret Thatcher truly earned the title.  Along with President Reagan and Pope John Paul II, the “Iron Lady” as she came to be called, played a pivotal role in the final phases of the Cold War.  She was also an unabashed and tireless advocate for free markets.  As Ed Feulner, the Heritage Foundation’s long-serving President, states in a eulogy to Lady Thatcher:

“At home, Lady Thatcher’s free-market reforms were revolutionary – and salutary. Using deregulation and privatization, she restored Great Britain, once dismissed as the “sick man of Europe,” to its position as a world power. Indeed, her policies led the way and inspired other nations – including those in newly free Eastern Europe – to adopt similar reforms to boost their economies.”

According to the Economist,

“She thought nations could become great only if individuals were set free. Her struggles had a theme: the right of individuals to run their own lives, as free as possible from the micromanagement of the state.”

Her legacy is broad and timeless. Just as with President Reagan, Lady Thatcher will always be a beacon of hope for those that believe in individual freedom and the power of principle.  At a time when it seems the march of government intrusion into every corner of American life seems unstoppable, we can remember it is not inevitable, thus we continue the fight.  Indeed, as Lady Thatcher once said herself:

 “I fight on.  I fight to win.”

According to the Columbus Dispatch, a new study from the Society of Actuaries found that,

“The cost of health care for Ohioans who buy individual coverage directly from insurers is projected in one study to soar by more than 80 percent by 2017 under the federal health-care overhaul.  That would be the largest percentage increase among all states, according to a report released this week by the Society of Actuaries, a national group of financial-risk analysts.”

Overall, the same study found that premiums are expected to rise approximately 32 percent nationally.

While this study focused on the individual market, not the employer-based market where many individuals and families obtain coverage, it still raises concern about the veracity of ObamaCare’s promise of affordable health care for all Americans and the longer term implications of ObamaCare’s implementation.

There remains a high likelihood that many healthy young adults will opt to pay the “tax” associated with ObamaCare rather than availing themselves of employer, much less individual, insurance coverage.  In fact, for nearly all healthy young adults, that is the more prudent financial decision because they will be able to procure coverage during enrollment periods after a diagnosis based upon ObamaCare’s requirement that insurers provide coverage for those with pre-existing conditions.  Over time, this probability will lead to many older and sicker individuals being relegated to insurance pools that will further reinforce the upward trend in premiums.

As scholar Walter Mead mentions in his blog,

“As we’ve noted before, there’s nothing stopping the young and healthy from paying the penalty instead of the premiums and waiting until they’ve incurred serious medical costs to jump into the insurance market.  Remember that under Obamacare pre-existing conditions don’t disqualify you from coverage.  As older people and those with greater need for services increasingly dominate insurance pools, premiums will rise.”

Do you suppose Nancy Pelosi now regrets her infamous statement?

 “We have to pass the bill so that you can find out what is in it.”

Click here to view the embedded video.

What about President Obama’s promise?

 “If you like your health care plan, you’ll be able to keep your health care plan, period.  No one will take it away, no matter what.”

Tell that to part-time workers at Universal Studios in Orlando.  As the Heritage Foundation reports,

 “Most recently, Universal Orlando announced that it will no longer offer coverage for its part-time workers.  The reason is Obamacare’s prohibition of annual benefit limits beginning in 2014, causing Universal’s plans to become too expensive.  It’s estimated this will affect about 500 Universal employees.  But the law began phasing out annual limits over the past few years, which Universal—along with 1,230 other health plans—had a waiver for.  However, those waivers expire January 1, 2014, and the likely outcome will be that the nearly 4 million Americans enrolled in those plans will be forced out of their current health plan.”

Let the incongruity of promise vs. reality serve as a reminder to Ohio policymakers grappling with deciding whether or not to expand Medicaid, as called for in ObamaCare.  As the insurance bills trickle in to homes across the state, they are all but certain to be more expensive than promised and probably a whole lot less popular.

This Thursday, he will be debating the Vice President of Government Affairs for Cleveland’s MetroHealth and former Ohio Medicaid Director, John Corlett, at the Cleveland Metropolitan Club.  More information on this event can be found here.

Then he will debate Sean McGlone, the Senior Vice President and General Counsel for the Ohio Hospital Association at a meeting of the Federalist Society on Tuesday, April 9 at the Columbus Athletic Club.  More information can be found here.

Not only has the education process been interrupted as students meet different substitute teachers on a near-daily basis, but some of the nearly 400 members of the Strongsville Education Association (SEA) who have been on strike for three weeks have engaged in provocative and—in some cases—illegal behavior.  For example, members of the Strongsville School Board allege that union members barricaded the parking lot of the negotiating site using 100 people who, at least initially, refused to let the school board members leave.  SEA members also protested in front of the homes of school board members, and two teachers were arrested in the first week of the strike—one for disorderly conduct after refusing police orders not to block the entryway to a school and another for reckless operation of a motor vehicle (member’s pick-up truck was used to attempt to cut off a van carrying substitute teachers).

Meanwhile, in neighboring Parma, residents began receiving flyers telling them that “scabs” live in their neighborhood.  Of course, the so-called “scabs” are simply temporary replacement workers for those on strike.  In this case, they are substitute teachers trying to assure some continuity to children’s education.  One of the substitute teachers had his name, address, and other contact information involuntarily disclosed presumably with the intent to encourage intimidation.

So what is driving all of this nasty behavior?  The SEA is unhappy with several School Board recommendations made during the current collective bargaining process.  Among the concessions sought by the School Board were:

1. A three-year continuation of suspended automatic step raises (teachers want automatic increases each year regardless of performance);
2. Conversion of the 9.3 percent State Teachers’ Retirement pension pick-up, wherein the district pays a portion of the employees’ share of the pension in addition to the 14 percent employer-share already being paid, to a 9.3 percent salary increase (the union wants a 10.3 percent salary increase in exchange for converting the pension pick-up);
3. Requiring teachers to pay a portion, 15 percent, of their own dental care premiums (teachers wanted the district to pay 100 percent of dental premiums);
4. Increasing teachers’ monthly health premiums from 10 to 15 percent (teachers wanted a $175 family cap);
5. Using evaluations for layoffs and only utilizing seniority as a tie-breaker.

The Strongsville School Board sought the above concessions to proactively address the significant fiscal challenges that were outlined in the district’s December 2012 five-year forecast to the Ohio Department of Education (ODE).  Strongsville Schools are projecting that they will be in the red by Fiscal Year 2013 to the tune of nearly $2 million.  By 2017, they will be running a $9.3 million deficit and have a negative cash balance of $19.9 million.

In 2013, 87 percent of the district’s projected revenue will be consumed by salaries and benefits, which then jumps to 96 percent by 2017.  In other words, absent major changes, in 4 years, 96 cents of every dollar brought into the district will be going to personnel costs and only 4 cents of every dollar to all other education-related expenses (facilities, transportation, programs, etc..  This discrepancy explains the district’s rapid descent into red ink.  By 2017, pension and benefits alone count for a shocking 38 percent of projected revenue.

Additionally, according to the ODE, the median teacher salary in Strongsville for 2010-2011 was $68,916.  By contrast, the median teacher salary in the state was only $54,797.  A median teacher in Strongsville was making nearly 26 percent more than the median teacher statewide for 2010-2011 (2011-2012 data has not yet been released).  This discrepancy shows that teachers in Strongsville are already well compensated in comparison to their peers around the state.  The incongruence would certainly continue under the proposal where the teachers would receive a significant salary increase in lieu of the pension pick-up they have historically received—and that many other districts in Ohio do not offer.

Not only are the Strongsville teachers’ salaries higher than those of many other teachers in the state, but their benefit packages are particularly generous, especially in comparison to the majority of other Ohio workers.

According to the Kaiser Family Foundation, the average annual employee contribution to an employer-sponsored family insurance plan was $4,316 or over 27 percent of the total premium cost of $15,745.  Compare that to the mere 15 percent proposed by the Strongsville School Board, much less the family cap demanded by the union which would amount to a mere 13 percent of the average total premium costs.

Additionally, according to a 2012 employer benefit survey done by Savitz Employee Consultants, employees pay around 37 percent of dental insurance premiums for single coverage and 44 percent for family coverage.  Here, the school board sought only a 15 percent cost share while the union demanded that teachers pay no premiums whatsoever for the dental benefits.

The union also wants to continue embracing the status quo by stubbornly clinging to seniority as the basis for layoffs instead of peer review and quality of outcomes.  They also want to force the school to provide taxpayer-funded facilities, equipment, and paid time off for union business.

Overall, these unreasonable demands indicate exactly what is broken in our collective bargaining system.

Reasonable proposals from a local school board attempting to grapple with tough fiscal realities are pushed aside in favor of a strike that breaks educational continuity for students.  Instead of acknowledging that the times are changing and adjustments are needed to sustain the solvency of cities, towns, and municipalities in Ohio, the SEA is attempting to intimidate the School Board into capitulating to demands that would relegate Strongsville into an untenable financial position.

The nastiness of what is transpiring in Strongsville should serve as yet another reminder that not all is well with Ohio’s collective bargaining law and that reform remains essential to avoid this level of brinkmanship.

You can review the Board’s last best offer here and the SEA response here courtesy of Media Trackers Ohio.

This concept can very simply be explained by the below video that was produced by our friends at the Competitive Enterprise Institute.  Based on the famous essay by Leonard Read (so famous that Milton Friedman wrote an introduction to a reprint), this video shows how something as seemingly simple as the creation of a pencil requires a complex web of relations to function together not through government fiat, but through free associations.

Watch it and you will understand what the free market is all about and why it needs to be defended.

Click here to view the embedded video.

According to a recent Dayton Daily News story, Ohio’s population grew a paltry 3,218 from July 1, 2011 to July 1, 2012.  That is a .03 percent increase and is another reminder of the long decline of Ohio’s relative economic position nationally. According to the U.S. Census, Ohio had the third worst population growth rate in the nation between 2000 and 2012, growing at only 1.59 percent, or under 181 thousand residents.  This comes on the heels of the fact that Ohio is already suffering a real brain drain as its youth population has already been declining.  According to the 2010 Census, Ohio’s under 18 population declined nearly 158 thousand.

This cannot be a surprise given that Ohio lost over 614,000 private sector jobs from 2000-2010, the second highest number of any state.  In fact, only Michigan lost more with over 700,000 private sector jobs lost, and Michigan was also the only state to actually lose population during the 2000-2012 timeframe.

As our Ohio by the Numbers shows, even during the “golden years” of the 1990s when the economy was booming by most standards, Ohio was growing far below the national average.  In fact, its private sector job growth rate of 17 percent was only good enough to clock in at number 38 nationally.  By contrast, the top state in the country, Nevada, grew 66 percent.

While Ohio has seen serious improvements over the past couple of years in terms of private sector job growth, ranking 17 since January of 2010 with nearly 209,000 net jobs, it is going to take serious reform for Ohio to climb out of the hole its in and to attract businesses that create jobs and potential residents evaluating their economic prospects.

So is there anything fast population growing states are doing differently?  Yes.

The top five states for population growth between 2000 and 2012 are all Right-to-Work states (Nevada, Utah, Arizona, Texas and Idaho).  Additionally, these are states that have kept their total tax burden in reasonable order.   According to the non-partisan Tax Foundation, in 2010 all five of the top population growing states had a combined state and local tax burden that ranked them in the bottom half of combined state and local tax burden.  Three of them- Texas, Nevada, and Arizona- were in the bottom 10.  By contrast, the five states with the worst population growth rates were all in the top 20 for highest combined state and local tax burden.

It should be pointed out that Ohio has been improving its comparative position regarding tax burden.  As recently as 2005, Ohio ranked as the seventh highest combined tax burden in the nation compared to only twentieth in 2010 according to the non-partisan Tax Foundation.   This was after significant tax reform, including a 21 percent personal income tax cut initiated by former Governor Taft that was frozen by Governor Strickland and then allowed to fully phase in by Governor Kasich.

However, Ohio still has a complex, multiple bracket income tax that could stand further reform, or better yet, elimination.  We also simply cannot ignore the fact that according to the Ohio Department of Taxation, we have the sixth highest local tax burden as a percentage of income in the nation.  Not only do we have local property taxes, we have local sales and, most problematic, local income taxes!  Staggeringly, we have the second largest number of municipal income taxing entities in the nation at 593 and we also have 181 school districts that can levy income taxes as well.

Here is the bottom line: while there are a myriad of reasons that play into migration patterns within the United States, labor freedom and taxes are key.  People are voting with their feet and they are choosing states that embrace workplace freedom and relatively low state and local tax burdens.

Ohio is improving, but it remains to be seen if it can improve fast enough to get back into the game and compete with other states on a sustained basis.  In this sense, Ohio remains an ongoing experiment of democracy in action: will it embrace a freedom agenda that will unshackle small businesses and incentivize other businesses in America to give Ohio a more favorable look?  Or will it slip back into a complacency that has pushed it to the bottom of the pack of states with population growth and economic opportunity?

Defense spending should not be viewed as a “jobs program” or through any other type of Keynesian lens.   Yet, as articulated in Part 2 of our series on the “Fiscal Cliff,” it is important to understand that Defense is, arguably, the most important function with which the Federal government is tasked.  It is also explicitly referred to by the Constitution.  Consequently, while the unbalanced cutting that targets Defense should be viewed primarily through the prism of how it will impact our overall security, it should be noted that there are many jobs in Ohio that will be impacted as well.

The exact number of jobs losses that can be expected due to Defense cuts as part of “sequestration” is practically impossible to nail down with certitude.  Despite this, numerous efforts at some quantification have been attempted.

A study done for the Aerospace Industries Association estimated that Ohio could see a loss of 18.4 thousand jobs with a resulting $1.6 billion hit to the Gross State Product as a result of Defense cuts.  This particular study understates the total number of likely job losses as it only took into account those in the aerospace industry in Ohio.   Other industries such as those affiliated with the Joint Systems Manufacturing Center, popularly known as the Lima Army Tank Plant, or Battelle in Columbus were not included in the study.

Meanwhile, the Center for Security Policy (CSP) also attempted to put some numbers on paper.  It used 2011 data regarding the dollar amounts for a variety of Defense related contracts as a baseline to approximate the cuts Ohio businesses could anticipate.

Overall, CSP estimated that Ohio businesses would stand to lose over $1.1 billion.  You can view a dollar breakdown of the cuts by county here, by city here and by type of business here.

Obviously, substantial revenue losses translate into either hiring freezes (at best) or, more likely, less jobs.

The point here is not to argue that Defense cuts should be off the table.  If the U.S. is ever to begin getting its domestic fiscal house in order, there can be no area of the budget that are sacrosanct.  However, Defense, unlike entitlement spending, is a core function of government.  A scalpel approach to Defense makes a great deal of sense, using a meat cleaver does not.

The tragedy of the present situation is that we now face a crisis bequeathed to us by politicians that were unable to make tough decisions earlier.

National tax policy reasonably could have been addressed years ago and resulted in a more fair and competitive tax code.  It was not.  Intelligent, not haphazard, spending cuts could have been implemented years ago that would put us on a more sustainable path.  They were not.  Now, we face a crisis that could result in millions of Ohioans taking home less in their wallets for a day’s work thanks to increased taxes which are set to be hiked in order to pay for unsustainable government spending.  All the while, they will also be watching careless cuts to core government functions take place that will lead to unnecessary job losses and gaps in security.

We need a rational policy in D.C. that keeps us from going over the “Cliff” and puts us back on a path to security, sustainability and prosperity.