To the editor:

We at Policy Matters Ohio were pleased that we were able to publish the March 6 column “Kasich plan to take over municipalities’ business-profits tax collection raises concerns.”

Ohio Tax Commissioner Joe Testa complained in a March 8 letter of “misinformation” in the column, which reviewed the administration’s proposal to take over collection of the municipal income tax on business profits and found that Ohioans have good reason to be wary of it.

A close reading of our column and Mr. Testa’s letter shows no misinformation in our column.

Mr. Testa claims that “cities pay from two to five times higher costs than having the state collect and process the tax.” Some cities do. But as our column noted, others don’t. That includes Columbus, which spends just a fraction over the 1 percent the state would charge; Cincinnati, which spends less than that; and average cost of the Regional Income Tax Agency, which collects for 270 Ohio cities and villages.

These three entities alone collect over a third of the business profits tax statewide, but don’t spend as much as Mr. Testa claims. This means that the savings he claims “could be exaggerated,” as our column stated.

If the administration proposal is such a windfall for cities, why have so many municipal officials gone to Columbus to testify against it?

Our column states that cities rely on the municipal income tax as their biggest source of revenue, and that they collect over $600 million in taxes from net profits each year out of the total of more than $4.7 billion. Yet, Mr. Testa contends the column “claims that municipalities would lose control over their major source of revenue,” a point we did not make. This suggests he is not a very careful reader.

Mr. Testa dismisses our concern that the local tax on business profits could be eliminated. We noted that isn’t a part of the current proposal, but based on recent history, this fear is all too real.

In 2011, the Kasich administration slashed the Local Government Fund, a key source of state aid for decades, and has not restored it since. It cut back sharply on promised state reimbursements to school districts and localities for a local property tax that the General Assembly repealed.

Numerous other laws have cut into local government authority, even as the legislature has repeatedly cut the state income tax. Mr. Testa has testified repeatedly – as he did last month – that individual income taxes “are detrimental to job creation and economic growth.”

While the current administration may not move to wipe out the municipal income tax on business profits, it is hardly illogical to suggest that possibility.

Municipal officials have voiced a variety of concerns about the tax-collection proposal. These include the loss of their ability to audit taxpayers and that the Ohio Business Gateway, the electronic portal that businesses will be required to use in filing returns, will require a huge increase in capacity.

Debate over this proposal is healthy. But we at Policy Matters stick to the facts in describing it.

Sincerely,
Zach Schiller
Research Director
Policy Matters Ohio