Looking for tax revenue in all the wrong places: Kasich

The changes to taxes and distribution under the Kasich administration has had devastating effect on local governments. Most are scrambling to replace revenue that used to come from the “local government fund” and the windfalls of the inheritance tax used to prop up some communities that wouldn’t exist had it not been for wealthy residents kicking the bucket and consequently kicking in millions to the general fund:

That unpredictability has been most palpable in Elizabeth Twp. The Miami County township received $16.1 million in 1999 and $20.7 million in 2002 in estate tax revenues, both linked to the estate of Yellow Pages magnate John W. Berry.

That immense revenue is in stark contrast to other years – 2003, 2006 and 2009, for example – in which Elizabeth Twp. received no estate tax revenue.

via Communities find losing estate tax money painful.

Shifting tax burdens is never easy, and almost always, someone gets hurt more than others. In general, taxes are able to be classified as progressive- as in the tax increases on those that have more- or regressive, as the tax affects those with less more. Sales tax is considered a regressive tax by most accounts- and due to the digital divide, it has become even more regressive- many internet shoppers don’t pay a sales tax when buying from companies that don’t have operations out of Ohio (Amazon being a prime example). Now, our governor wants to “lower the sales tax” but increasing the number of things it is applied to. I remember being shocked when I moved to Georgia as a teen and finding that groceries carried a sales tax- something Ohio deems an essential and excludes.

Kasich wants to lower the state sales tax rate by half a percentage point, lower local sales tax rates by varying amounts and expand eligible goods and services to generate about $3 million over three years. Revenues from sales tax and higher taxes on oil and gas extracted from Ohio soil would fuel across-the-board income tax cuts.

via Changes to Kasich tax plan.

In my business, advertising, the only thing I charge sales tax on is the printing of business cards, letterheads and envelopes. Anything that’s considered advertising- is exempt. It has always seemed a little odd to me. However, with Kasich’s sweeping sales tax expansion, all we’re doing is shifting taxes around to be collected under a different vehicle. Instead of one kind of tax, we’re going to another. Sales tax depends on businesses to self-report and collect, whereas other taxes are collected by the government. Tracking tax liability in all cases requires monitoring and collecting and with these sweeping changes, many businesses will have added expense, complexity and be subject to fines (haircuts are pretty much a necessity, much like food and medical care, yet will no longer be excluded. When Joe Hairdresser doesn’t file properly, the state can send an estimated tax bill that would far exceed the real liability, never mind how much hair is cut on a cash basis).

Of course, since our governor is a former Wall Street banker, a very needed tax isn’t being considered- the Wall Street transaction tax. This video explaining the “Robin Hood tax” as they are calling it in the UK makes it very clear where there is room for a new tax that would have benefits of slowing down a wild Wall Street’s programmed trading and volatility that has hurt us all:

Yes, I understand this isn’t a tax that Governor Kasich can levy, but it would be a start to protecting public pensions, investments and ordinary citizens’ retirements from the fake economy created by churning fiat paper that is so weakly linked to actual company performance. Kasich has no problem taxing casino revenue- but, our country hasn’t addressed the biggest casino of them all- Wall Street. Here is a brief bit about what the transaction tax would do from the New York Times:

On this side of the Atlantic, there is a ghostly silence on a transaction tax in respectable political quarters. But that might change. This month, Senator Tom Harkin, Democrat of Iowa, and Representative Peter DeFazio, Democrat of Oregon, plan to reintroduce their bill calling for just such a tax.

A transaction tax could raise a huge amount of money and cause less pain than many alternatives. It could offset the need for cuts to the social safety net or tax increases that damage consumer demand. How huge a sum? Mr. Harkin and Mr. DeFazio got an estimate from the bipartisan Joint Committee on Taxation, which scores tax plans. It’s a hearty one: $352 billion over 10 years.

The money would come from a tiny levy. The bill calls for a three-basis-point charge on most trades. A basis point is one-hundredth of a percentage point. So it amounts to 3 cents on every $100 traded.

And the bill contains some exemptions intended to make the tax more politically palatable. The first sales of stocks (initial public offerings) and bonds are exempted, so that the markets’ capital-raising function isn’t harmed. Initial investments and withdrawals from tax-protected accounts, like retirement or education funds, also have a measure of protection.

via Time to Revive the Financial Transaction Tax – NYTimes.com.

With the growing economic divide in the United States the last thing we need to increase is a regressive tax like the sales tax while leaving other areas like Wall Street virtually exempt from taxation- where even the revenue generated is taxed at a lower rate.

The one big question I have about the new Ohio sales tax reduction is: Will the counties and RTA all get a windfall from their sales tax overrides (Montgomery County and RTA currently collect an extra 1% on sales taxes) that will now extend to more goods and services? I’ve missed the details on this part- if so, local governments will probably fall in line to support it, just out of pure necessity thanks to Kasich’s other tax cuts that have devastated their financial base.

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5 Responses

  1. truddick February 7, 2013 / 9:28 am

    Well, Kasich is raising taxes, and most of it will be on us middle class consumers.  Swell,
    A better plan would be to eliminate all taxes except income and estate, and raise those rates to compensate.  That way, businesses would not be burdened with all the collecting and reporting, people would pay out of income (a system that guarantees that all will be able to pay when taxes are due), and the out-of-state sales tax will become a moot point.
    Guess I’ll be doing more of my shopping out of state soon.

    Brilliant or Bozo? Thumb up 2 Thumb down 3

  2. Dad February 7, 2013 / 10:03 am

    Of course out-of-state purchases are taxed even now. It’s on your state income tax forms. But it is a matter of taxpayer honesty, to report or not report.

     

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  3. Mark Manovich February 7, 2013 / 10:30 am

    A transaction tax on financial products is a terrible idea.  According to the quote above “The money would come from a tiny levy. The bill calls for a three-basis-point charge on most trades. A basis point is one-hundredth of a percentage point. So it amounts to 3 cents on every $100 traded.”  This is exactly what was said about the income tax when it was enacted.  The initial income tax rate was only 6% and applied only to a small percentage of the popluation. One hundred years of experience gives us enough history to show how “small” taxes grow.  As for estate and inheritance taxes, where is the fairness in taxing amounts that have already been taxed at least once, just because someone has died.  If the government can TAKE part of the estate what stops them from taking all of it?
    If you want to improve the current tax system, here is a list off suggestions
    1  Flatten the rate and eliminate the mortgage interest deduction, charitable contribution deduction and deduction for state income taxes.
    2.  Tax carried interest at the new flat rate.
    3.  Eliminate the corporate tax and tax corporate income directly to shareholders (like a sub S corp)
    I don’t support the  Governor’s tax proposal, but the general rule is that whatever is being taxed, you will have less of it.  Therefore, the higher the tax is on income, the less income will be reported.

    Brilliant or Bozo? Thumb up 4 Thumb down 4

  4. David Esrati February 9, 2013 / 7:11 am

    We now have an update on how the sales tax will change- I can only guess that the fine people at the DDN read this article and said “DOH!” we forgot about how this will impact things locally- and followed up:

    Counties in the Dayton area would receive at least $19.5 million in additional sales tax revenues next year under Ohio Gov. John Kasich’s budget plan, but some county leaders fear loss of local control.

    Meanwhile, the rates shoppers would pay in those counties would drop by amounts ranging from 0.65 percent (Butler County) to 1.3 percent (Clark County), due to a combination of factors included in the plan, according to a Dayton Daily News analysis of new details released by the governor’s office.

    Kasich’s plan would guarantee a 10 percent growth in sales tax revenues for counties and local transit authorities in 2013 and 2014, and a guaranteed 15 percent growth in 2015.

    The new revenue is backed by a state funding guarantee, to be underwritten by the increased sales tax collections expected to result from newly taxing a variety of services that had previously been tax-free. Some previously exempt services that would be subject to sales taxes include cable TV, haircuts and legal services.

    Meanwhile, the broadening of the tax base would be accompanied by a half-percent cut in the statewide sales tax rate. That’s in addition to a further reduction in local sales tax rates proposed by Kasich that varies county by county.

    County commissioners statewide are encouraged by the prospect of additional funding, but concerned about the implications of other elements of the plan, including a loss of local control, said Larry Long, executive director of the County Commissioners Association of Ohio….

    Sales taxes are a key source — and in often cases the largest source — of revenue for county governments across the state…

    Montgomery County shoppers would see a total 0.9 percent cut in their sales tax rate, the second-biggest cut in the Miami Valley. That’s because Kasich’s plan would cut both the Montgomery County tax rate by 0.25 percent, as well as an additional 0.15 percent cut to the sales tax imposed by the Greater Dayton Regional Transit Authority.

    But due to the funding guarantee from the state, Montgomery County would collect at least $6.8 million in new sales tax revenues, while the Day-ton RTA would get another $3.4 million, according to the governor’s office.

    via STATE BUDGET Kasich plan boosts sales-tax haul.

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  5. David Esrati February 9, 2013 / 7:14 am

    And yet another analysis on how this regressive shift of taxes will be a burden on the poor:

    A study released Thursday found the overall tax burden would increase for Ohioans earning less than $51,000 a year.

    The Institute on Taxation and Economic Policy, a Washington, D.C.-based nonpartisan think tank, calculated the overall impact of the plan on the average taxpayer in seven earning levels.

    Kasich’s proposal, excluding higher severance taxes, would provide a $10,369 annual tax cut on average to the top 1 percent of Ohio taxpayers who earned more than $335,000 in 2012, the study said. The poorest fifth of Ohio taxpayers, making less than $18,000 a year, pay $63 more in taxes. The middle fifth, making between $33,000 and $51,000 in 2012, averaged an annual tax increase of $8.

    via Kasich: Tax changes will create Ohio jobs.

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