Skip to comments.Taft unveils $2.3 Billion tax-hike proposal
Posted on 01/31/2003 1:57:31 AM PST by Deadeye Division
Taft unveils $2.3B tax-hike proposal
Some Republicans stunned by governor's plan
By William Hershey
COLUMBUS | Gov. Bob Taft on Thursday outlined a plan to raise taxes by nearly $2.3 billion during two years as part of a sweeping reform package that would affect every major state tax and the municipal income tax system.
Tax Commissioner Tom Zaino, who joined Taft at a news conference to unveil the plan, called it a "rebirth" of the state tax code.
The plan prompted comparisons to the enactment of the state income tax in 1971 under Gov. John J. Gilligan and the 90 percent income tax increase in 1983, when Richard F. Celeste was governor.
One notable difference, though, is that Gilligan and Celeste were Democrats and Taft is a Republican.
"I think youre going to see a new button, Tax-Hike Taft, " said Paul Tipps, a prominent lobbyist and a former chairman of the Ohio and Montgomery County Democratic parties who has worked in Columbus since 1975.
Taft said falling tax receipts because of the stagnant economy, and the escalating cost of Medicaid, the health insurance for the poor, forced him to act. He said he already has cut the state budget by nearly $1 billion during the past 27 months.
"We are seeking additional tax revenue as a last resort," said Taft, who during his re-election campaign bashed his Democratic opponent Tim Hagan as "Taxin Tim."
"It is something I am very reluctant to do," Taft said.
Taft said Thursday the good times of the 1990s masked flaws in the tax system. The system was developed for an economy much different than todays service-driven economy, he said. Also, businesses have used skillful tax planning to reduce their share of the tax burden.
Taft said the overall theme of the changes is to lower tax rates and broaden the tax base, but the proposal would extend the state sales tax to areas that have been exempt.
For instance, Ohioans would pay a sales tax on tickets to movies and professional sporting events, on parking and storage lockers, on newspapers and magazine subscriptions, on tanning and tattoos, on cable TV and dry cleaning, and on services provided by real estate agents.
In Montgomery County, if these services were subject to the combined state and local sales tax of 6.5 percent, an $8 Dayton Dragons ticket would cost $8.52, a $50 dry cleaning bill would be $53.25, and the $42.22 charge for Time Warner Cable's standard package would become $44.96. A seven-day home subscription to the Dayton Daily News, now $4.05, would go to $4.31.
The plan, however, also would lower the state's individual income tax rates, starting by rounding most brackets down to the nearest 0.1 percent next year. More than 500,000 of the states lowest income households would no longer pay the state income tax.
In addition, the rate for the corporate franchise tax a major tax on businesses would be lowered from 8.5 percent to 7 percent covering three years, but the plan would tighten loopholes that many businesses use to avoid paying much of the tax.
The maximum amount companies would pay under the net worth provision of the corporate franchise tax would rise from $150,000 to $500,000.
The proposal also would cap the property tax rollback available for homes valued at more than $1 million and cut in half the 10 percent rollback businesses receive on their tangible personal property tax.
The legislature would have to approve the plan. Tafts fellow Republicans control the legislature and many of them were elected on pledges not to raise taxes.
Senate President Doug White, R-Manchester, called the size of the proposed tax increase "tremendous."
"It will be a very strong debate," White said.
Taft presented his plan a day after another committee studying tax reform, this one including legislators and members of Tafts administration, released its report, which included much of what was in the governors plan.
State Rep. Jon Husted, R-Kettering, said he has "always been a big fan of tax reform" and that Ohios outdated tax code has hampered economic growth. Husted, however, also said that "$2 billion is too much," referring to increased taxes.
Sen. Jim Jordan, R-Urbana, a leader of the antitax forces in the legislature, said the scope of the governors proposal might add allies to his cause because business people will urge their legislators to oppose it.
"A $2 billion tax increase. Theres no way that can help the long-term economic vitality of the state," Jordan said.
Sen. Jeff Jacobson, R-Butler Twp., said mixing tax increases with tax reform makes the proposal harder to evaluate.
"The governor has a lot of work cut out for him," Jacobson said. "I think we all recognize this is being proposed in good faith and that there is a need for all of us to work together to solve the problem. I dont think anyone would reject immediately any valid proposal."
The $2.3 billion from the tax-reform plan is part of a total of about $3 billion in new taxes Taft is expected to seek in the two-year budget he'll unveil Monday.
The budget also is expected to call for continuing the tobacco and alcohol tax increases the governor has proposed to plug a hole in the current fiscal year, which ends June 30. Those increases would add an estimated $742.2 million during the two-year budget, said Tax Department spokesman Gary Gudmundson.
In addition, Taft has proposed raising the states 22-cent per gallon gasoline tax by 6 cents during three years.
Observers believe Ohio could face a deficit of $4 billion heading into the next two-year budget.
Democrats, whose votes Taft might need to pass the reform plan, gave the proposal a cool reception.
"Were adamantly opposed to participating in any across-the-board massive tax increase," said House Minority Leader Chris Redfern, D-Catawba Island.
Senate Minority Leader Greg DiDonato, D-New Philadelphia, said, however, Taft would be forced to seek Democratic help because Republicans wont supply the votes.
"There is a huge mountain of opposition building," DiDonato said.
At the top of the mountain is John Mahaney, president of the Ohio Council of Retail Merchants, a Republican, who came to Columbus in 1958.
"Its the most gigantic grab of taxes Ive ever seen," said Mahaney, a longtime supporter of Taft. He said the Taft administration put the plan together with very little participation by business interests that would be affected.
Contact William Hershey at (614) 224-1608. Staff writer Laura A. Bischoff also contributed to this report.OVERHAUL MAY ADD MILLIONS TO COFFERS LOCAL MERHCANTS: TAX WOULD HURT
[From the Dayton Daily News: 01.31.2003]
Taxes taken in for service
Taft's proposed overhaul includes expanding reach of state sales tax
By Dennis J. Willard and Doug Oplinger
Beacon Journal staff writers
COLUMBUS - Going to the movies? Getting a manicure or picking up some dry cleaning? Buying tickets for the Indians?
Be prepared to bring along your nickels. Plenty of nickels.
Gov. Bob Taft wants to apply the 5-cent state sales tax -- plus any local piggyback sales taxes -- on a host of services that historically have gone unassessed.
Taxing Ohioans when they do things like go to rock concerts, take a taxi, pay monthly cable bills or order pay-per-view movies will bring the state 26 billion nickels -- $1.3 billion -- for the 2003-05 two-year budget.
The sales tax increase is the largest single source of new income Taft unveiled Thursday in a $2.3 billion proposal that also includes a call to raise more money from taxes on corporations, personal incomes and real estate.
Taft, whose re-election campaign last fall branded his opponent a tax hiker, blamed the need to raise taxes on the state's lingering budget problems.
The governor said Ohio's economy has not rebounded, Medicaid spending is out of control and the state is paying this year's bills with almost $900 million in one-time money.
``Those are dollars that won't be there next year,'' Taft said.
Already this month, Taft has asked lawmakers to raise the cigarette tax by 45 cents a pack, and to double the tax on beer, wine and liquor to help balance this year's budget by June 30.
He also is asking lawmakers to increase the gas tax by 6 cents a gallon by July 1, 2005, and to raise fees on driver's licenses and vehicle registrations.
Thomas Zaino, Taft's Taxation Department director, said the reforms will broaden the tax base and reduce taxes for some in the long run. He admits the biggest tax break carrots in the package won't come until later this decade.
``It recognizes the budget restrictions we face,'' Zaino said.
He said the plan will make Ohio's taxes simpler, more equitable and stable, and will position the state to be more competitive economically with its neighbors.
The proposal is sprinkled with tradeoffs.
Corporations would see their franchise tax rates gradually reduced from 8.5 percent to 7 percent over three years, but they would pay more ($150,000 to $500,000) in net worth taxes.
The poor and elderly would be allowed to earn more without paying any taxes, while all but the highest earners would see a reduction in their personal income taxes.
Taft acknowledged it will be difficult to find a majority of votes in the legislature. Many there are anti-tax conservatives or angry Democrats who watched their colleagues lose elections last November after being painted as tax-and-spend liberals.
The broad package of ideas received mixed reviews in the capital Thursday. Taft is scheduled to unveil his two-year budget Monday, and the debate on the taxes and spending by state government is expected to dominate the Statehouse for the next several months.
Zaino briefed Republican legislative leaders and business representatives on the plan Wednesday. He will meet with all state lawmakers next week.
House Speaker Larry Householder, R-Glenford, and Senate President Doug White, R-Manchester, were represented at the Zaino briefing by some of their floor leaders. Neither chamber appears to be prepared to endorse anything the governor is proposing.
Dwight Crum, Householder's spokesman, said, `Basically, we're still in the process of reviewing the details.''
Householder formed a select committee to examine Ohio taxes last year.
``The committee recognized there are aspects of the tax code that puts Ohio at a competitive disadvantage,'' Crum said.
Senate Minority Leader Greg DiDonato, D-New Philadelphia, said some of the governor's proposals make sense.
DiDonato said he favors making changes to the corporate franchise and personal income taxes to make them more comparable with other states and relieve some people of taxes at the lower income levels.
He warned, however, of an anti-tax backlash.
``People have gotten up every morning for seven straight days and heard about a new tax proposal. I'm hearing a lot of resistance. They're asking, `What is he not going to tax?' '' DiDonato said.
DiDonato said he was concerned about the sales tax because it hits the poorest in the state the hardest.
Zaino said the administration opted to broaden the sales tax to discretionary spending, and avoided services like haircuts.
Scott Pullins, Ohio Taxpayers Association president, said Taft's proposal is a good starting point, but the bottom line is the state is trying to raise $2.3 billion more in the next two years.
``Gov. Taft wants to give some money back in income tax on one hand, but he's using the other hand to pick your pocket on things like cable TV, car trade-ins and manicures,'' Pullins said.
He said his organization, a growing number of business groups and many Republican lawmakers want to see the governor cut state spending.
``We think tax increases should be the last priority and not the first one on the plate,'' Pullins said.
He said there is a growing number of organizations that would prefer a 1-cent sales tax increase that possibly would apply to broadened services, but only after Taft made the case that spending cuts were exhausted.
Doug Oplinger can be reached at 330-996-3750 or firstname.lastname@example.org
Dennis J. Willard can be reached at 614-224-1613 or email@example.com
That's the sound of Taft's dad and grandfather spinning in their graves.
Add me to the list!
Aim is to reduce budget deficit
By Spencer Hunt and Shelley Davis
Cincinnati Enquirer Columbus Bureau
COLUMBUS - Gov. Bob Taft on Thursday called for a $2.3 billion tax increase that would add scores of everyday services and purchases to the state sales tax, raise business taxes and change income tax rates for thousands of Ohioans.
Saying more money is desperately needed to crack a huge budget deficit over the next two years, the governor outlined a proposal that would slap the sales tax on, among other things, real estate commissions, cable TV, used car trade-ins, amusement park tickets, dry cleaning, landscaping, tanning beds, massages - even tattoos. He also wants out-of-state residents who work in Ohio to pay Ohio income taxes.
The proposal, which must first be approved by lawmakers, is the most sweeping tax proposal in decades and would touch nearly every Ohioan.
"We face a dire budget situation in Ohio," Taft said. "We are seeking additional tax revenues as a last resort."
While tax experts praised the governor for trying to reform Ohio's aging tax codes, they also said that Taft faces an uphill battle to win the support of his fellow Republican lawmakers in the General Assembly.
"I must say he's created a tremendous public relations challenge," said Rick Yocum, president of the nonpartisan watchdog group, the Ohio Public Expenditure Council. "There is something in there for just about everyone to dislike."
"It's all dependent on how much money we have to make up," White said. "I'd hate to unleash that on the citizens of Ohio, but if the hole is $4 billion, we will have to do something."
Taft has already called for tax increases on cigarettes, alcohol, gasoline and drivers licenses. He has cut $1 billion from the budget in 27 months.
Ohio's current $44 billion budget was left crippled by the national recession, which sent income, sales and business tax revenues plummeting. Other states are experiencing similar problems.
Taft said his new two-year budget, which he will unveil Monday, is in even worse shape because the economy has yet to recover and the state's $1 billion rainy day fund is gone. The costs of Medicaid, the federal-state health insurance plan for the poor and elderly, also continue to climb.
Though some estimates put the two-year deficit at $4 billion, Taft said he will share his calculation Monday.
His plan to raise $2.3 billion over the next two years would include:
Collecting $1.3 billion by adding 22 new services and products to the state's 5 percent sales tax. Some counties, including Hamilton County, charge an additional 1 percent.
Changing corporate tax laws and eliminating more than 20 tax credits and exemptions to raise $777 million from Ohio corporations. Taft said Ohio's state and local corporate taxes on income equaled $67 per capita, while the national average was $124 per capita.
Raising $115 million in personal income tax revenues through a permanent tax on financial trusts and by forcing out-of-state residents who work in Ohio to pay Ohio income taxes.
The plan also calls for changes in the tax code that would save Ohio families and businesses money.
Up to 600,000 low-income individuals, families and seniors would no longer have to pay state income taxes. The 7.5 percent tax rate paid by Ohioans who earn $200,000 or more would also be lowered to 6.9 percent over a four-year period. All Ohioans who earn less than $100,000 a year would see the income tax rates for their brackets drop slightly.
Businesses would see corporate franchise tax rates drop from 8.5 percent to 7 percent over a three-year period.
There's one big problem: None of these changes would take effect within the next two years.
The proposal would also delay for six years a new law that would have adjusted Ohio's income tax brackets to match the rate of inflation.
Tax Commissioner Thomas Zaino said the need to fill the upcoming budget deficit was one big reason for delaying changes to the tax rates.
That earned some criticism from Scott Pullins, chairman of the Ohio Taxpayers Association.
"He may give some money back on one hand, but take it away with the other hand by taxing cable services and everything else under the sun," Pullins said.
One more immediate proposed change in the income tax code could provide a big headache for Northern Kentucky residents who work in Ohio. Taft's plan would force these residents to pay Ohio income taxes.
Zaino said Ohio would make an extra $17.9 million each year off this change because more out-of-state residents work in Ohio compared with Ohioans who work in other states.
Kentucky residents would be able to credit their Ohio income taxes paid against their Kentucky income taxes.
Taft and Zaino said the sales tax was added to services that can't easily be moved out of the state and on things most Ohioans don't have to have.
"Everyone needs a haircut," Zaino said. "So that's not taxed."
Most do need a car, and sales taxes Ohioans pay to buy new or used cars would increase substantially. The governor's plan would reduce the used car trade-in allowance by half for tax purposes.
In Hamilton County, a new car buyer with a $2,000 trade-in would pay an extra $60 in state and county sales taxes.
"I ain't happy," said Ace Ammann, executive vice president of the Greater Cincinnati Auto Dealers Association.
"The car dealers down here, quite frankly, think one of the bright spots in the economy has been the auto industry," Ammann said. "And now Taft is taking target at that."
Not even newspapers and magazines are left out of the plan, which would subject publications published at least bi-weekly to the sales tax.
The increased price would have a negative impact on the newspaper business, which is already hurting from a decline in advertising sales, said Frank Deaner, executive director of the Ohio Newspaper Association.
"It would be a shame if Ohioans end up being taxed for trying to be well-informed," he said.
Business leaders will also fight the governor over changes to Ohio's corporate tax laws.
Several changes target corporations that, according to Taft and Zaino, use sophisticated accounting practices to avoid paying "their fair share" of state taxes.
In one such scenario corporations can deduct large portions of their Ohio income taxes as royalty fees paid to an out-of-state subsidiary. That practice and others would end under the governor's proposal.
Dan Navin, a lobbyist for the Ohio Chamber of Commerce, said businesses are skeptical that the governor and lawmakers will follow through and lower corporate tax rates years later.
"Several conservative lawmakers say more cuts, not new taxes, are needed to balance the budget.
"Since the State of the State (speech) it's been a tax a day; beer, wine, cigarettes, and now cable TV," said Rep. Tom Brinkman Jr., R-Mount Lookout.
IF YOU GO
Personal income tax: $79.6 million
Make income tax on trusts permanent. Reduce individual tax rates beginning July 2005. More than 500,000 of the lowest-income households would pay no tax.
Reciprocal taxes: $35.8 million
Make Ohio residents who work out of state subject to income tax in the state where they work and make nonresidents who work in Ohio subject to Ohio tax.
Sales taxes: $1.264 billion
Expand sales tax to services, including real estate, lobbying, cable TV, dry cleaning, amusement park admissions, debt collection and many others.
Corporate franchise taxes: $777.3 million
Lower corporate franchise tax rates from 8.5 percent to 7 percent over three years while eliminating loopholes that reduce what Ohio corporations pay.
INCOME TAX REFORM
Make permanent the income tax on trusts. Senate Bill 261 subjected the income of trusts to the income tax only through 2004. Before that Ohio was the only state with a broad-based income tax that did not apply to trusts.
The income tax proposal reduces all state income tax rates over four years: In tax year 2005, all but the highest two tax rates are reduced by rounding them down to the nearest 0.1 percent. The top income tax rate of 7.5 percent is phased down to 6.9 percent beginning in tax year 2006 and ending in tax year 2008. In tax year 2006, the current personal exemptions and $20 credits are eliminated in favor of a universal credit per return of $105 ($210 for married taxpayers) and an additional credit of $80 per dependent.
In tax year 2006, the brackets of the joint filer credit are adjusted upward (from $50,000 and $75,000 to $60,000 and $85,000).
In tax year 2007, these credits become indexed to inflation.
Changes to Ohio's personal income tax system has the following impacts:
No taxpayer with Ohio Adjusted Gross Income under $10,000 will pay income tax, and 550,000-600,000 low-income taxpayers will no longer have any tax liability.
The highest percentage tax cuts go to the lowest income taxpayers, especially low-income seniors, 95 percent of whom will get relief.
More than 97 percent of single-parent households currently with tax liability get relief.
SALES TAX PROPOSALS
Sales tax proposals Gov. Bob Taft is proposing the following services be subject to state sales tax. Estimated revenue over two years, beginning July 1.
Professional entertainment and sporting events, theaters, concerts, movies, amusement parks, $101.8 million.
Personal storage and parking facilities, $45.6 million.
Tanning, tattooing, nail care, skin care, and spa services, $4.2 million.
Cable TV, satellite and pay-per-view, $158.2 million.
Lobbying, public relations services, $19.7 million.
Interior and landscape design, $16.9 million.
Dry cleaning and laundry, $31.2 million. Real estate commissions, $116.8 million.
Real estate title search, $19.6 million.
Real estate management, $58.5 million.
Replace WATS and 800 exemption with a call-center exemption, $103.7 million.
Delivery charges, $12.2 million.
Taxis, limos, and charters, $10 million.
Debt collection, $36.8 million.
Vehicle trade-in allowance, $141.9 million.
Newspapers, $31 million.
Local telephone service, $161.8 million.
Magazine subscriptions, $25.2 million.
Providers say cost will inhibit their economic growth
By Ken Alltucker
The Cincinnati Enquirer
Greater Cincinnati companies warned that Gov. Bob Taft's plan to raise $2.3 billion by taxing services, property and profits will leave some firms at a competitive disadvantage and could even force some out of business.
The Taft tax plan takes aim at everything from corporate call centers to tattoo parlors in an attempt to overhaul a tax code that the administration says is out of date and unfair.
But Tristate companies say Taft's plan to reel in $996 million in the next fiscal year and $1.3 billion the following year largely through corporate franchise tax collections and by taxing business services is punitive.
"This approach of taxing services like this is the act of a desperate governor who has lost control of the state," said Rick Segal, chief executive officer of HSR Business to Business, a Sharonville marketing communications firm that would be taxed for its public relations efforts under the Taft plan.
The Ohio Land Title Association, the Ohio Association of Realtors and other business trade groups have lined up against Taft's proposal. The plan is "under review" by the Greater Cincinnati Chamber of Commerce, spokesman Ray Buse said.
One of the largest areas of reform targeted by Taft is changes to the corporate franchise tax. The administration says current law allows big business to avoid taxes, part of the reason that Ohio's per-capita corporate tax collections of $67 are almost half the $124 national average.
The franchise tax changes would generate $325.8 million in the first year, and $451.5 million in the second year.
The other major area of reform is adding taxing business services. Dozens of firms will be affected by this initiative, which is expected to raise $556.6 million in the first year and $706.8 million in the second year.
"This is unfortunate," said Michael Riedel, owner of Michael's Lawn & Landscape in Anderson Township. "I charge a flat rate for my work. This will be a detriment to attracting new clients."
Todd Hennessy, owner of the Skincraft tattoo parlor on Vine Street in Corryville, worries about the extra paperwork he'll have to fill out.
"As a small business person in this city, I'm already taxed enough," he said.
One of the major money generators under Taft's plan is real estate transactions. In the first year alone, taxing real estate agent commissions will generate $53.1 million.
Many agents say that ultimately will result in swelling closing costs for home shoppers. "Most Realtors would have to pass that on to the consumers," said Dale Weisker, a Cincinnati agent and former president of the Cincinnati Area Board of Realtors.
For example, a typical 6 percent commission on a $150,000 home would be $9,000. Apply the 6 percent sales tax in Hamilton County and the home buyer would pay $540 in sales taxes, Weisker said.
Real estate fees won't stop with the broker's commission. Title searches - a routine step of any home sale - also would be taxed.
Title search prices vary across the state, but the typical Cincinnati home buyer can expect to pay $100 to $200 for such services.
Dan Dozer, executive director of the Ohio Land Title Association, worries about the extra paperwork.
"We need (tax strategies) that will create the most dollars and not just a lot of paper shuffling," said Dozer, who figured a small title agency would contribute just $100 a month in new taxes.
Not only do commercial real estate companies face the added cost of taxes on real estate agents, those that are in the business of managing property for third-party owners would be taxed for their services.
Bob Fessler, senior vice president for Duke Realty Corp., Greater Cincinnati's largest landlord, said the costs likely would be shared by businesses and commercial property owners.
"That dog grooming career looks pretty good now, but I guess they're getting taxed, too," said Jeff Carey, a broker with Carey Laumer Commercial Realty. "Looks like nothing is safe."
Howard Duvall, owner of Deer Park Suede and Leather, said mom-and-pop businesses like his would suffer the most under Taft's proposal. Larger dry cleaning shops often are able to offer cheaper prices, so charging sales tax could be the last straw that prompts even more customers to shop elsewhere. "You don't tax a service," he said. "I'm not in favor of this at all."
Tattoo artists, manicurists, real-estate brokers, tanning-bed operators and other small-business owners promised yesterday to fight Gov. Bob Taft's new sales-tax proposal, arguing that it would kill businesses already suffering the worst year in recent memory.
"They tried to do this in Arizona and all the tanning operators got together and sued the state and they won,'' said Skip Peters, owner of Sundash Tanning & Nail Center in Hilliard. He said sales have dropped nearly 30 percent since 2001.
Business hasn't been the same for Stacey Redman's East Side nail salon since terrorists slammed airliners into the World Trade Center and Pentagon, she said.
On really slow days, Redman gives one manicure. For months, she's been discounting prices to keep customers coming back.
"Getting your nails done isn't a necessity,'' said Redman, who owns the Palace Nail Salon, 1463 E. Livingston Ave. "It's a treat, and all businesses can do is run specials.''
Redman and other small-business owners, already reeling from a faltering economy, yesterday called Taft's $2.3 billion tax proposal a death blow. Under the plan, Ohio's 5 percent sales tax would be levied on numerous services currently not covered, including dry cleaning, tanning, interior decorating, landscaping, local telephone service and cable television. Tickets to movies, concerts and professional sports events also would be taxed.
"He should just put slot machines in racetracks,'' said Linda Zoundas, an interior designer with Lazarus at Easton Town Center. "There have to be other ways to raise money than to tax the people who have had the worst year of their lives.
"It's going to have to be passed on to the clients. We'll have to raise our prices.''
Mark Hawkins, co-owner of the Tanning Company on the Northwest Side, said his business is down about 20 percent so far this year. The decline followed the terrorist attack of 2001. Many of his customers who typically tanned before vacations stopped traveling.
"Since we've never come fully back, I'm concerned that any additional cost is going to keep people away,'' he said.
After 10 years in business, Hawkins, 42, started paramedic school this month so he could supplement his income with a second job.
Like many other small-business owners, Hawkins is skeptical that state funding of public schools would have to be cut without the additional revenue, as Taft has said.
"If I really, truly believed it had to be one or the other, I'd say pay for education, but I don't really believe it is down to that,'' Hawkins said. "Like when Taft reshot a travel ad to include himself -- that cost how many thousands? -- and now he wants us to believe it's come to this.
"I just feel there is so much waste in government that if they were really sincere, they could work on other cuts.''
Peters, 59, doesn't believe the only options are to expand the sales tax or cut education.
"The old saying goes, 'Somehow they will manage,' '' he said. "There is always extra money to be found.''
"Gov. Taft is playing a chess game,'' said Columbus real-estate broker J.P. Faulkner. "What he's asking the people to do is to lose the bishop and lose a pawn. He sets it up so someone will ultimately lose and then he throws out the hot-button issue of education. But I'm not so sure that the school systems are hurting for money. I think there are far bigger issues in the education system that money can't solve.''
Promising to be among the first pickets at the Statehouse, Faulkner questioned why Taft would want to mess with real estate, one industry in which consumers still have confidence.
One tattoo-shop owner, who asked to remain anonymous, said Taft "can take a hike,'' promising he will not collect the new sales tax.
But another tattoo artist said he will have little choice but to raise rates, acknowledging the state is in dire straits.
"Personally, I think it sucks,'' said Tim Miller of Tim's Tattoo Studio, 3915 E. Broad St. "But if it's the law, it's the law. You can pay the tax man or go to jail.''
Miller, who charges a minimum of $50, an average of $125 and up to $7,000 for tattoos, said, "We'll just have to raise prices of tattoos'' to make up for a sales tax.
Several merchants said it would be impossible for the Department of Taxation to enforce sales-tax collections on cash transactions -- from parking and massages to tattoos and tavern cover charges.
"Good luck,'' said Gus Bell, manager of Victory's Bar in German Village. "It would be absurd. I don't know how (Taft's) going to monitor it.''
Bell said weekend cover charges, which range from $3 to $5, likely would rise, turning people away. There would be a corresponding drop in liquor sales, he said, meaning less taxes collected on alcohol. "It's a double-edged sword.''
A few consumers called new sales taxes a necessary evil in hard times.
"People who can afford to pay for movies can afford the sales tax,'' Donald Cooper of Dublin said as he walked into Chicago yesterday at Lennox Town Center's AMC Theater.
The retired Ohio State University professor said, "I don't like it, but I think it's necessary. By law, we must balance the budget.''
Aware that Taft and Republican legislators won re-election in November by criticizing "tax-hiking'' Democrats, Cooper said, "Frankly, it gives me some pleasure. Republican legislators messed everything up.''
"These are 'tax reforms,' '' he said, mocking the governor's label.
Julie Carr Smyth and Stephen Ohlemacher
Plain Dealer Bureau
Columbus - Six American corporate giants doing business in Ohio paid the bare minimum $50 in state taxes two years ago. That's less than the $75 income tax charged to an Ohio worker making a mere $10,000 a year.
Such inequities in Ohio's tax code were highlighted by State Tax Commissioner Tom Zaino yesterday, as he and Gov. Bob Taft sought to build support for an additional $2.3 billion in new taxes the governor has included in a sweeping tax reform package. The tax changes are to be included in the two-year budget Taft releases Monday.
"We have an historic opportunity not just to raise the dollars that we need to balance our budget, but also to make our tax code more fair, more simple, and more in line with our economy," Taft said during a news conference.
State spending demands are expected to outpace revenues by as much as $4 billion in the next budget cycle.
For the current budget cycle, Taft already has proposed raising cigarette taxes by 45 cents a pack, to $1, and doubling taxes on alcohol, beer and wine to help plug a $720 million budget hole by June 30.
Taft is now faced with the difficult task of selling the tax plan to a conservative, Republican-controlled General Assembly.
It's a legislature elected, in large part, with the very support of corporations that would bear a third of the tax burden under his plan.
So far, no lawmaker has endorsed the plan. Some have completely ruled it out.
And there is growing talk about scrapping the reforms and raising the state sales tax instead - something Taft opposes.
"There is no question that this is a very thoughtful proposal, although I don't know that all of us appreciate the thoughts," said State Rep. Jim Trakas, Republican of Independence. "You can't have all the pain and not much gain. The sweetener in this plan, the lower tax rates, aren't for two or three years out."
The proposal calls for lowering income tax rates for all Ohioans - but not until 2005 - lowering corporate franchise tax rates, and easing many compliance requirements.
Zaino, a former private-industry tax consultant, said many of the proposed changes bring Ohio in line with surrounding states, national trends and economic changes.
What concerns, even angers, many legislators is that the plan also manages to impose more than $777 million in new taxes on businesses over two years by closing many loopholes, increasing minimum payments and caps, and making more businesses subject to taxation.
Income tax reductions for most Ohioans, meanwhile, are coupled with pricey sales tax reforms that will tack the 5 percent state sales tax (and up to 2 percent more locally) onto many non-necessities: dry cleaning, cable TV, beauty treatments, real-estate services, newspapers, and admissions to sports events, concerts and movies.
Zaino said the state's tax system is rife with inequities, including the fact that many corporate giants doing business here use out-of-state subsidiaries to all but avoid paying corporate franchise taxes.
"Some of the biggest corporations are paying less tax than companies one-tenth their size," Zaino said. "Something is certainly wrong." Privacy laws prevent him from identifying the corporations.
Daniel Navin, lobbyist for the Ohio Chamber of Commerce, replied: "Did they also say how many jobs those corporations created in the state of Ohio? How much business investment they made in Ohio, which helps school districts? How much sales taxes they pay? There's a heck of a lot more to it than just the corporate franchise tax."
Taft said he is coupling his call for more taxes with some tough budget cuts. He said yesterday that the budget he proposes "will hold state agencies to zero or very low budget increases," and he warned child advocates in a private briefing to expect cuts in child-welfare programs.
He asked the group to help promote the tax plan and said that even if the increases are approved, his budget will recommend funding for 15,000 fewer child-care spots and eliminate Medicaid coverage for 30,000 adults. Although the budget will propose all-day Head Start for 10,000 children, it would fund 4,000 fewer part-time slots than in the current budget, Taft told the group.
"The very same families that, five years ago, were told to get a job, have gotten a job," said Gayle Channing, who heads the Public Children's Services Association of Ohio. "But the only way they can keep jobs like that is if they have safe, affordable child care and if they have health care."
Conservatives want even deeper cuts.
Scott Pullins, chairman of the Ohio Taxpayers Association, opposes Taft's tax plan and is already planting the seeds for a temporary, 1-cent across-the-board sales tax increase - if cuts don't suffice.
"If a tax increase is needed, it would probably make more sense to cut income taxes across the board and do some sales tax increases in exchange," Pullins said.
The administration thought about a sales tax increase, Zaino said, but felt it would not do as much for local governments, many of which "piggyback" their own sales taxes onto the state tax, as the plan to tax a wider array of services.
Plain Dealer Bureau Chief Sandy Theis contributed to this story.
To reach this Plain Dealer reporter:
Taft wants to DOUBLE the alcohol tax in Ohio and increase state gasoline tax by 6 cents per gallon.
By Kimball Perry
Cincinnati Post staff reporter
Clifton resident Terri Mastin goes to a lot of movies and doesn't want to have to fork over at least 5 percent more for her tickets, as is being proposed by Ohio Gov. Bob Taft in his attempt to balance Ohio's budget.
"He's running the state into the ground," she said Friday. "I think he needs to spend a little bit more time looking for solutions than taxing us to death.
"He looks like a buffoon. There's got to be a better alternative."
Taft, hoping to overhaul the state's tax system and raise $2.3 billion to address a $720 million deficit this year and a deficit for the budget year beginning July 1 of as much as $4 billion, is proposing extending the 5 percent sales tax to services and goods not currently covered by it. Among them: taxi rides, movies, dry cleaning, parking, tattoos and newspapers.
The governor's proposal prompted Warren County resident Susan Hellebusch to muse that a name change was in order for him.
"Maybe Bob Taft should worry about cutting the budget instead of raising taxes across the board, especially on service industries," she said. "I'm beginning to think his name should be Governor Tax."
Jeff Wieste calls Taft's proposal -- which, if approved, takes effect July 1 -- unfair because it targets some businesses and services but omits others.
"I'm not a big fan of the sales tax and I'm certainly not in favor of expanding it to services," said Wieste, manager at Skincraft, a Corryville tattoo parlor.
Ray Kroner thinks the sales tax expansion might take his business to the cleaners -- and he's a dry cleaner.
"It's going to hurt our customers because we've got to pass it along," said Kroner, owner of Cheviot's Kroner Cleaners.
"We're glad to do out part but we feel like we've hit our limits. -- This is one more bitter pill to swallow."
Some of his customers already resent dry cleaning as a costly but "necessary evil." Kroner predicted even more resentment if tax is added to their bills.
Craig Barber knows exactly how Kroner feels.
Regional manager for Central Parking, he just moved here six months ago from New York, where parking is already taxed. "It's a pass-through tax," he said. "Suddenly, a cost that people feel somewhat negative about will be rising.
"When you're a community struggling like we are -- and I'd say we are -- this is not good. We're hardly in a position to roll back rates."
Taft's proposal, Barber noted, could hit his business twice, because in addition to proposing taxing the parking industry, the governor also proposes increasing real estate taxes.
The proposal would affect small businesses, too.
Frank Sullivan, owner of a Hyde Park landscaping company, said he was so upset by the plan that "it sure as hell would have me voting Democrat. I just can't imagine it," he said.
Jennifer Mooney, spokeswoman for Time Warner Cable, can -- but her company already is gearing up to fight it.
"The bottom line is we are going to oppose this," she said. "We're already taxed significantly locally and our competitors (companies offering satellite dish signals) are not."
Taft also hopes to get an extra $18 million annually by levying income tax on Kentucky residents who work in Ohio.
The good news for them is it's not likely to make much of a monetary difference in the total amount of income taxes they pay because they'd get a credit against their Kentucky income taxes.
The governor's plan did not play well with some Ohio legislators, either, who are discussing the possibility of a temporary penny increase in the state sales tax as an alternative.
Senate Republicans said the idea was one of several being debated and is considered a last resort after much deeper cuts to the state budget.
The 1 percent increase "is something that seems to have the most legs to it," Sen. Jay Hottinger of Newark, the third-ranking Republican and a member of the Senate Finance Committee, said Friday.
Increasing the 5 percent tax by 1 percent would raise about $1.2 billion a year, Hottinger said.
"All of us will be looking at the cutting side first, but there's a realization on many people's parts that it's not probable we'll be able to totally cut our way out," he said.
Republicans hold the majority in the Senate and House.
The theory behind the proposal is that "a broad-based source is better than nickel-and-diming every service industry out there," said Sen. Kevin Coughlin, a Republican from Cuyahoga Falls. "The hope would be doing it on a temporary basis would garner it enough votes to see it pass."
The Associated Press contributed to this story.
Publication Date: 02-01-2003
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