Eight months ago, state lawmakers approved the creation of a board designed to take a hard look at the more than $9 billion in annual tax credits, deductions and exemptions in Ohio’s tax code.

Not only has there not been a meeting scheduled yet, as of Tuesday mid-afternoon legislative leaders hadn’t appointed a single person to the Tax Expenditure Review Committee.

“It’s past time for the General Assembly to get serious about limiting or eliminating unneeded tax breaks,” said Zach Schiller, research director for the liberal Policy Matters Ohio. “A first step is for legislative leaders to name members to the committee and for it to start work.”

After Schiller’s press release, and follow-up calls by the media, Senate President Larry Obhof, R-Medina, named his three members to the panel late Tuesday afternoon. Speaker Cliff Rosenberger, R-Clarksville, followed on late Wednesday morning.

Passed unanimously in December, House Bill 9 required that the committee hold its first meeting by June 19, one month ago today.

The committee is supposed to cycle through Ohio’s deductions, credits and exemptions — also known as state tax expenditures. Each is to be reviewed at least once every eight years to determine if they are meeting policy objectives, have impacted economic development, or if their goals can be better accomplished in other ways.

The committee’s first report is due in about 11 months.

The House caucus devoted attention to state taxes during the budget process, which ended in late June, said Brad Miller, spokesman for Rosenberger. The idea of the committee is to study tax expenditures outside the budget process.

“The first six months of this year would fall under the category of budget process,” Miller said. “This was a challenging budget cycle. Where all areas of the state’s tax structure would be a significant part of any budget cycle, it was especially true this year.”

The idea of studying Ohio’s tax expenditures has been kicked around for several years. But despite its growing impact on tax collections, majority lawmakers usually prefer to add tax expenditures rather than study existing ones. Three weeks ago, Gov. John Kasich vetoed two sales tax exemptions added to the budget, aimed at data processing/computer services and optical aides.

Studying Ohio's tax credits and deductions can be politically difficult, conjuring up the old adage, “don’t ask questions you don’t want the answers to.”

Even if there are good arguments to eliminate certain tax credits or deductions, each one was implemented for a reason, and the special interest group that pushed for it fights hard to keep it alive.

Two-thirds of state tax expenditures are in the sales tax. GOP lawmakers have repeatedly rejected Kasich’s proposals to expand the sales tax onto exempted products and services, such as lobbying.

Some of the biggest sales tax exemptions include sales to churches and certain nonprofits, property used in manufacturing, prescription drugs, and equipment purchased by electricity providers, farmers and mining companies.

In addition to Policy Matters and the Center for Community Solutions, the Ohio Society of CPAs also has advocated an examination of the tax expenditures. From 2016 to 2019, it’s estimated that income tax expenditures will grow nearly 22 percent to $2.4 billion.

In a report last year to the Ohio Tax Reform Tax Force, the CPAs group noted that many tax expenditures “impact a limited-time event or limited number of people.”

If lawmakers want to lower the overall income tax rate, credits and deductions are a good place to look to offset revenue loss, the CPAs said. A flat tax, with few credits or deductions, the group said, is cleaner and more transparent.

The CPAs also question Ohio’s largest income tax deduction, which allows pass-through business owners to pay no tax on the first $250,000 of income, costing the state nearly $600 million per year in revenue.

“It will be difficult to directly correlate the level of increased business investment in response to this tax expenditure,” the CPAs wrote. “Should the legislature consider an overhaul of the entire personal income tax system for all taxpayers, not just for business owners?”

Senate Democrats this year pushed to repeal the business exemption — and an additional 40 percent tax cut for business income over $250,000 — but were rebuffed by majority Republicans.

Named to the panel were Sens. John Eklund, R-Chardon, chairman of the Ways and Means Committee, Scott Oelslager, R-Canton, chairman of the Finance Committee, and Vernon Sykes, D-Akron, the longest-serving Senate Democrat. They are joined by Reps. Tim Schaffer, R-Lancaster, chairman of the House Ways and Means Committee, Gary Scherer, R-Circleville, a CPA and vice-chairman of Ways and Means, and John Rogers, D-Mentor-on-the-Lake, top-ranking Democrat on Ways and Means.

jsiegel@dispatch.com

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