More Must be Done for Real Municipal Income Tax Reform

Forty of the fifty states have NO municipal income tax.

Not only is Ohio saddled with a municipal income tax, but ours is among the “most complicated, absurd, and punitive” local tax system in the nation, according to numerous experts.

As Ohio’s General Assembly starts reforming this broken tax system, The Buckeye Institute has released a new report, More Must be Done for Real Municipal Income Tax Reform, to underscore the bare minimum any proposed legislation should do:

  • Standardize reciprocal municipal income tax credits across jurisdictions for tax fairness;
  • Allow for an eventual 20-year Net Operating Loss Carryforward to facilitate start-up business formation;
  • Use a simple “bright-line” residency test that taxes non-residents based on their primary place of employment;
  • Set a higher threshold for filing a net profit return (which is currently set at $10) to avoid having taxpayers spending more to file than they owe in tax liability;
  • Require a simple form for businesses to declare that they conducted no business in a specific municipality and therefore did not need to file a complete tax return for that municipality;
  • Include a “Taxpayer Bill of Rights.”

Buckeye report author Greg R. Lawson stated, “The recommendations in this report represent commonsense reforms focused on making Ohio’s municipal tax system simpler, fairer, and more uniform for individuals and small businesses.”  Lawson continued, “These requirements are the least we should do, particularly given Ohio’s competitive disadvantage relative to other states of having municipal income tax in the first place.”

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Labor Force Sees Biggest Increase of the Year, Private Sector Up 3,000 Jobs 

The latest Ohio By the Numbers report shows that Ohio’s private sector economy saw modest improvement in September, picking up 3,000 jobs. Meanwhile, the government sector also added 3,000 jobs. However, local governments lost 3,400 jobs in September, partially offsetting the large unadjusted gains seen in August. Year over year, local government employment is up by 1,000 jobs since September 2013.

The unemployment rate ticked down to 5.6 percent from 5.7 percent in August. This small decline in the unemployment rate coincided with particularly large growth in Ohio’s labor force–over 11,000 people were added to the labor force. Unless this figure is subsequently revised substantially downward, the gain in September will stand as the largest one-month labor force gain since well before the Great Recession in October 2006. It also put an end to five straight months of decline in the labor force. Despite this gain, Ohio’s labor force is still down 31,000 people since the beginning of 2014.

Though it is only one month, the declining unemployment rate combined with the increasing labor force indicates that the economy could be picking up steam as people re-enter the labor force and find jobs.

Overall highlights from the report:

  • Ohio gained 3,000 private sector and 3,000 total government jobs in September;
  • Ohio’s unemployment rate dipped slightly to 5.6 percent;
  • Ohio ranked 28th nationally in private sector job growth since January 2010, increasing 7.5 percent;
  • Ohio currently ranks 47th nationally with a 10 percent growth in private sector jobs since January of 1990 (top-ranked Nevada grew 99 percent during the same time span).

For the full report, please click here.

For the full labor force update, click here.


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Ohio Business Tax Climate Ranks Poorly in New Tax Foundation Study

With the release of the non-partisan Tax Foundation’s 2015 Business Tax Climate report, a massive spotlight is being shined on the imperative for further, major reform in Ohio. Unfortunately, what shows up under the glaring light at the moment is not pretty.  Ohio ranks an uninspiring 44th in the nation.

It is important to note that this ranking does not focus only on rates. It attempts to examine qualitatively the complexity and interaction of the multiplicity of different taxes that impact businesses in the state. Consequently, while Ohio has been making steady improvement with respect to the lowering of the state income tax rates, the overarching tax system still runs afoul of a variety of sound tax principles such as: fairness, simplicity, and transparency. These violations are a major contributor to the fact that Ohio has, for decades, had more sluggish economic growth than the nation as a whole.

The report essentially analyzes five different types of taxes that states levy on businesses: 1) corporate income, 2) income, 3) sales, 4) unemployment compensation, and 5) property.

In Ohio’s case, two taxes stand out as particularly bad. First, Ohio is one of only 10 states that levy a local tax on both personal and business income. As we have stated previously in Forbes and the Columbus Dispatch, this tax is the most byzantine and absurd tax in the entire nation. It penalizes individuals and, especially, small, start-up businesses. It can make contractors file literally hundreds of W-2s, often spending more in filing costs than the amount actually owed in tax liability. It also does not include standard reciprocal credits between cities where work is performed and cities that act as a place of residence. This frequently leads to the fundamentally unfair situation where an individual is taxed twice on the income that they earn. Additionally, there are no standard net-operating loss carryforwards. These are indispensable for new businesses that might struggle turning a profit in their first few years of existence. Indeed, Ohio ranks poorly in measures of health for entrepreneurial businesses. According to a recent study by the University of Nebraska, Ohio ranked 42 out of the 50 states in its entrepreneurial index.

A watered down package of municipal income tax reform appears to be potentially ready to move in the post-election lame duck session. Even if it passes, the marginal improvements it contains will still not level the playing field for Ohio when compared to the 40 states that do not levy this form of tax. Rather, Ohioans will still be subjected to a municipal income tax that is not fair, not simple, and not transparent.

The second tax which hurts Ohio’s ranking in the study is the Commercial Activities Tax or CAT. This tax was implemented in the mid 2000s as part of a package that was designed to lower the personal income tax rate and to phase-out the particularly burdensome tangible personal property tax. That tax typically hit Ohio’s manufacturing sector hard. However, in order to alleviate that burden, the CAT shifted the burden from large-scale manufacturers to all businesses in the state. As a gross receipt tax, the CAT is levied irrespective of the profitability of a business. This means that many high volume businesses that have low profit margins are particularly negatively impacted. They pay the tax whether they make a profit or not. The Tax Foundation report also points out that while the CAT acts in lieu of a corporate income tax, it is still applied to limited liability companies and pass-through entities that are usually taxed through the income tax as well. This can severely limit their ability to experience growth.

Overall, Ohio needs to have a large-scale discussion over its whole tax system. While reducing, flattening, and eventually eliminating the state income tax is a worthy goal, other Gordian knots will have to be untied as well in order for Ohio to reap the benefits of a truly sound, tax system. The new Tax Foundation study should be mandatory reading for all Ohio policymakers. The ability of Ohio to finally shed its half-century of underperformance in job growth hangs in the balance.


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Medicaid Expansion: More Spending Will Lead to More Taxes

Proponents of Medicaid expansion, including Ohio’s Governor John Kasich, have suggested recently that “[t]he opposition to [Medicaid expansion] was really either political or ideological,” and have claimed that expanding Medicaid has nothing to do with ObamaCare.

As the leading opponent of Medicaid expansion in Ohio, The Buckeye Institute’s opposition-as our latest blog explains-does not stem from politics or ideology, but is rooted in our concern for sound public policy.

Medicaid expansion was bad policy last year, it remains bad policy this year, and it will continue to be bad policy with rising and unforeseen long-term costs for years to come.  As we have argued:

“[Expanding Medicaid] places unsustainable financial liabilities on future taxpayers. It will provide an additional burden to a labor market that has already been reeling in Ohio, doing long-term damage to the economy and compounding the expansion’s direct impacts to the state budget. We have also pointed out that this economic sacrifice is for a program that has not proven to be able to obtain significantly better health outcomes for most recipients and fails to provide a real saving grace to the most vulnerable.”

Further, to suggest that the Medicaid expansion is somehow distinct from ObamaCare is simply not accurate.  The Heritage Foundation revealed this week that nearly 71% of individuals receiving coverage under ObamaCare are getting it through the expanded Medicaid program.  The Medicaid expansion was a key component of ObamaCare and the Obama Administration’s so-called healthcare reform initiative, and to suggest otherwise borders on the disingenuous.

Even more misleading is the revisionist claim that expanding Medicaid extends President Reagan’s legacy.  Former Reagan Attorney General, Ed Meese, and the Buckeye Institute’s president, Robert Alt, set the record straight last year in an article for National Review:

“Reagan cut through irrational federal regulations to allow children to live with their parents, where they could receive care that would cost the taxpayer one-sixth as much as institutional care. By contrast, Obamacare has added thousands of pages of bureaucratic regulations and will cost the federal government untold billions.”

Next year, the Medicaid expansion will have to be re-authorized, and Ohio leaders should take a hard look at their ill-advised expansion-a move that, so far, has led to more than 400,000 new enrollees-that is already 12% above expectations for the middle of next year.  As enrollment continues to escalate, so will the costs, especially as the state assumes its share of the burden required by Obamacare.  And if the federal matching rate changes, these costs could rise exponentially.

Rea Hederman, our Executive Vice President, reminded us in a recent interview of at least one serious danger tied to these rising costs:

“Remember that all government spending ultimately results in taxation. If Ohio continues Medicaid expansion, that means higher taxes on citizens of Ohio to pay for Medicaid expansion at the federal and state level.”

Ohio’s policymakers cannot hide from that ominous but fundamental fact, and they should not hide behind misleading rhetoric, name-calling, or a revisionist rewriting of history to prop-up bad policy decisions.  The expansion of Medicaid under ObamaCare was bad policy for Ohio when it was enacted, and it is bad for Ohio today.  The Buckeye Institute will continue to oppose bad policy-precisely because it is bad policy-as we work for a better tomorrow.

To support our continuing efforts to educate the public, opinion leaders and policymakers on good, free market public policy, please consider contributing to the cause.

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Forget Politics and Ideology, Medicaid Expansion is Just Bad Policy

Ohio Governor John Kasich made national news with an Associated Press interview concerning Obamacare and Medicaid expansion.

“The opposition to it was really either political or ideological,” Kasich told the AP of Medicaid expansion. “I don’t think that holds water against real flesh and blood, and real improvements in people’s lives.”

We plead guilty to opposing the Affordable Care Act and Medicaid expansion, but on  purely policy grounds.  Doctors provide better care in a market-based system than a system controlled by the federal government. Medicaid remains a poor way to expand health care to low-income people.

The Buckeye Institute has repeatedly argued that Medicaid expansion is bad policy for Ohio. It places unsustainable financial liabilities on future taxpayers. It will provide an additional burden to a labor market that has already been reeling in Ohio, doing long-term damage to the economy and compounding the expansion’s direct impacts to the state budget. We have also pointed out that this economic sacrifice is for a program that has not proven to be able to obtain significantly better health outcomes for most recipients and fails to provide a real saving grace to the most vulnerable.

In the same interview, Kasich said,

“I have favored expanding Medicaid, but I don’t really see expanding Medicaid as really connected to Obamacare.”

But in fact, the two are inextricably linked. According to the Washington Post, “If every state opted into the program, it would account for about half of the expected coverage gains under the law.” The Heritage Foundation finds that so far, 71 percent of the 8.5 million individuals who gained coverage did so via Medicaid expansion.

Further, Ohio is unlikely to have considered expanding Medicaid in absence of Obamacare and its dubious promises of federal grants to fund it, at least for the time being. The CBO estimates the total cost of the ACA coverage provisions at $80 billion in 2015 alone, of which $29.5 billion or 37 percent is Medicaid. Approximately 43 percent of the added $1.8 trillion projected cost of the ACA to the federal government from 2015-2024 is due to Medicaid and CHIP.

A legislative decision to reauthorize the use of federal money to pay for Medicaid expansion will need to be reached next year, presumably during the biennial budget negotiations. Ohioans should urge their legislators to shun politics and ideology and instead consider whether this is really the best policy for our future.

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The Buckeye Institute Supports Healthcare Solutions Week

The week of October 13 is Healthcare Solutions Week, a collaborative campaign to examine new healthcare reform ideas. Along with our partners, we are promoting the central purpose of the campaign. As Healthcare Solutions Week organizers noted:

“For too long, we’ve had a debate about the politics of health care, not the solutions that bring better health. The fact is, our health care system had complex and serious issues that needed addressing, and while the ACA may have been a well-intentioned response, it’s time to move past the politics and acknowledge that the status quo isn’t working. We need a new solution for our health care problems.”

The Patient Protection and Affordable Care Act (ACA) features centralization of health care by the federal government and requires insurance exchanges that offer tightly regulated plans which Americans are coerced into buying via taxation. Supporters hoped the Act would provide health insurance to all Americans by overcoming what they perceived as failures in the health insurance market.

Unfortunately, the market for health insurance was hardly free when the ACA was passed. Many of the prior problems came from market-distorting regulations. Introducing more complex regulation, centralized decision-making, and price controls will make matters worse. Thus the ACA is fundamentally a vain attempt to fight the symptoms of big government with even bigger government. This has already produced or begun to produce several problems here in Ohio:

1. Premiums and deductibles have risen steeply for those previously insured, while many of the previously uninsured have still been unable or unwilling to obtain coverage. For example, the average Ohioan’s premium rose 41% from 2012-2013.

2. There is decreased choice among available insurance plans, including coverage of providers (doctors and hospitals) and prescription drugs. Further, while more people may have health insurance, the problem of access to actual health care is exacerbated by the increased demand on an already-strained system.

3. The law skews incentives so that businesses are discouraged from increasing payrolls while simultaneously reducing the employee’s rewards to work, which increases dependence and hurts families. This is particularly true of Medicaid expansion under the ACA and demands that Ohio reconsider expansion.

4. Higher government expenditures and a weaker labor force are troubling the future prospects of Ohio’s private economy.

But hope yet lingers on the horizon, and many individuals and organizations with interests in health care reform — including The Buckeye Institute — are working to implement more effective policies at the state and national level. These policies advocate for a system where a free and innovative market revolves around the wants and needs of individual patients — not arbitrary and ever-changing government mandates — and the most generous benefits are reserved for those who truly cannot support themselves.

For more information, including cutting-edge ACA reform ideas, stories of Americans negatively impacted by the ACA, and ways to get involved, please visit

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Transparency and Fiscal Accountability Go Hand in Hand

Does $787,637 sound like a reasonable salary for the public executive in a city of 38,000 people?

In 2010 a major scandal erupted when the Los Angeles Times revealed via a public records request that the Chief Administrative Officer of tiny Bell, California made over twice as much money as the Chief Executive of Los Angeles County. Bell is not an affluent area — per-capita income is roughly half the national average. Yet, other public Bell city employees were similarly overpaid.

While certainly an extreme case, this example highlights the importance of government transparency. Because elected officials and other public employees are paid through taxes on the incomes of hard-working private citizens, it is important for those citizens to know how much public employees are being paid. This allows the citizens to address any issues through the democratic process.

The Buckeye Institute has long argued for more transparency of government information, and we host transparency databases that include the salaries of many of Ohio’s public employees. In addition to our efforts, the office of Treasurer Josh Mandel has proposed that it host the state’s checkbook in a similar online database. The office of Auditor Dave Yost has a trove of financial data and information online. And DataOhio is another proposal to help citizens stay informed. The common theme is the belief that a better-informed citizenry can hold their public officials accountable.

A recent working paper from the National Bureau of Economic Research, “Does Transparency Lead to Pay Compression?”, confirms that transparency initiatives such as these actually do produce tangible positive results by helping to reduce the costs of government. Princeton researcher Alexandre Mas compared the pay of California local government employees before and after a law that required California’s cities to publish employee salaries in an online database. He found that the increased transparency reduced salaries of city managers by 8 percent, and led to a 75% increase in voluntary terminations of employment.

The government provides necessary services for all of us, but sometimes people in government abuse the use of tax dollars that citizens work so hard to earn. One of the ways they abuse tax money is through excessive compensation — that is, salaries and benefit packages that can be far higher than those in the private sector. Often compensation costs comprise over 75% of government expenditures. Transparency efforts are critical if concerned citizens are to keep public officials in line by using such information to help vote abusers out when necessary.

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