Wrongsizing State Tax Revenue

The State's budget impasse may be near a conclusion but the real issues with the long term budget structure are not going away.

I've been barking about the massive failure of the tax reforms enacted in 2005 and 2007 for some time now. Those changes instituted under the guise of reform may have been politically expedient buy have contributed to the historic crash in State tax receipts.

The latest confirmation comes from an official analysis conducted by Office of Budget & Management. Careful examination reveals just how badly the reforms have buried Ohio government in a sea of red ink. Consider the findings released in this weeks GONGWER NEws Service (s/r) report for July 9th:

Agency spokesman John Kohlstrand said the annual drop is by far the largest in years for which the state has easily researched data, as he personally looked up numbers dating back more than 50 years.

"Nothing remotely like this has happened in the past half century," he said. "Certainly, it is a historic drop."

While not a surprise to officials given the dismal performance of the personal income tax and other revenue sources in the later months of FY 2009, the final year-to-date numbers were dragged deeper into the red by a month that saw Ohio's coffers take in nearly 24% less in tax collections than in June 2008.

State budget administrators have said the biggest factors in the drop are the economic anemia and the tax restructuring of 2005, which reduced income tax rates across the board by 21%, cut or eliminated certain business taxes and made other changes.

The economic impacts became clearer with the close of tax filing season, after which Gov. Ted Strickland's administration revised its already dampened financial projections and later announced the state faced a roughly $1 billion deficit for FY 2009. That hole was filled with the drainage of the Budget Stabilization Fund, which now stands at 89 cents.

Last fiscal year was the third in a row in which the state collected less tax revenue that the year before - a streak that's also considered a record. Mr. Kohlstrand said the agency could only find three other years dating back to 1957 in which such declines occurred.

The changes in fact did not ameliorate the impact of the recession as predicted by the supply side faithful and anti-tax geniuses that had insisted this would be the case. Why not? Tax cuts work in every situation.

It seems event the magic elixir of unbridled tax cuts didn't do the job of protecting the rust belt capital from the effects of the Great Recession. Maybe a more moderate and you know, sensible regime of changes would have left us a more sustainable budget structure.

This latest budget and future budgets will not be made right until someone has the courage to patch the flawed tax reforms of General Assemblies past.