State Rep. Dan Ramos says loopholes the GOP left in Ohio's tax laws cost $7 billion a year

In a newspaper opinion piece published last month, Ohio Rep. Dan Ramos said Gov. John Kasich and the General Assembly needlessly neglected the state's needs through their approach to balancing the budget.

"Gov. Kasich and the Republican-dominated legislature have foregone the popular option of closing tax loopholes that amount to $7 billion annually in this state, choosing instead to balance the budget entirely by selling public assets, cutting local funds and eliminating thousands of jobs," the Lorain Democrat wrote.

That drew the attention of PolitiFact Ohio. Loopholes and tax breaks are usually mentioned in relation to federal taxes, not those at the state level. And $7 billion almost equals the deficit that was projected as lawmakers worked on the state budget for 2012-13.

We asked how Ramos came up with that figure. His office referred us to two sources: a report by Policy Matters Ohio, a liberal think tank, and the Tax Expenditure Report prepared by the Ohio Department of Taxation.

The Tax Expenditure Report is issued as a companion to the governor's executive budget. It looks at the impact of tax expenditures, which are the credits, deductions and exemptions in the tax code that reduce the amount of revenue the state would otherwise receive.

"Tax expenditures result in a loss of tax revenue to state government, thereby reducing the funds available for other government programs," the report says. "In essence, a tax expenditure has the same fiscal impact as a direct government expenditure."

But "unlike direct budgetary expenditures, unless there is a pre-existing termination date, tax expenditures may remain in effect indefinitely with little or no scrutiny by policy makers."

This year’s report estimated that the credits and exemptions will amount to more than $7 billion in foregone revenue in both fiscal years 2012 and 2013. The report counts 128 tax expenditures -- an increase from 122 in the previous two-year budget.

While estimating their dollar value, the report offers no conclusions about the worth and validity of the tax expenditures. That's the responsibility of the General Assembly and the governor, although -- as the report noted -- no continuing or periodic review is required.

Lawmakers supporting the tax credits and exemptions say they are most often intended to spur economic development.

Policy Matters Ohio proposed in its report that the General Assembly set a target of reducing tax expenditures by 10 percent.

"We're not saying that you can just get rid of them all," the group's research director, Zach Schiller, told us.

Some, he noted, are exemptions valued by the public, such as one that exempts purchases of prescription drugs from sales tax.

"But you can cut sizable amounts," he said.

For example, he noted, a cap on the sales tax paid by buyers of shares in jet aircraft is estimated to be worth $1 million. And retailers who collect the state sales tax get a discount on what they collect, if they send in the tax by the due date of the tax return, a windfall for big retailers.

"But the $7 billion doesn't cover everything by a long shot," Schiller said, because the Tax Expenditure Report counts only items that would have been taxable if not specifically exempted. While the sales tax covers the sale of all goods that haven't been exempted, it covers only services that are specifically named.

"Hiring a lobbyist, for example, does not involve paying sales tax because it wasn't written into the law," Schiller said. "To me, that's a tax break," even though it does not count as foregone revenue.

Three years ago, Policy Matters Ohio listed "a dozen tax breaks Ohio can do without." noting that payday lenders and mortgage brokers were given a lower state tax rate than banks; that debt collectors, like lobbyists, don't have to bill clients for sales tax, and that a measure approved by the General Assembly made it easier for high-income individuals who spend part of the year out of state to avoid Ohio income tax.

Just those tax breaks cost the state more than $65 million a year, the group said.

Let's get back to the statement we questioned: "Gov. Kasich and the Republican-dominated legislature have foregone the popular option of closing tax loopholes that amount to $7 billion annually in this state."

Ramos was accurate in writing that tax exemptions and credits amount to $7 billion a year in Ohio -- though referring to them as "loopholes" adds a negative connotation that is not uniformly justified.

We found that this year's budget process increased the number of tax expenditures, rather than limiting them.

But we think it is important to note that even critics of the tax breaks don't recommend cutting all of them -- a point that helps provide clarification. Limiting tax breaks, in other words, is not an either-or option to increasing revenues or cutting spending in balancing the budget.

On the Truth-O-Meter, a statement that is accurate but needs clarification rates Mostly True.

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John Kasich

stated on August 12, 2010

On whether to eliminate the state income tax.