When Ohio had a corporate franchise tax, companies were able to write off losses against future income. The idea was that the companies would generate taxable profits in the future.
Ohio eliminated the franchise tax in favor of the commercial activity tax. However, the state never eliminated the write-offs against future income even though future profits are no longer taxed.
This is one of 128 tax loopholes, some dating back nearly a century, that a variety of think tanks that cross party lines pointed out last year. Finally, at the prodding of Gov. John Kasich, the state is about to address the $7.4 billion in tax credits, deductions and exemptions granted yearly.
A push is now under way for a review process that would include a disclosure of who benefits from the loophole and what the beneficiaries provide the state in return. An automatic sunset to loopholes is part of the proposal.
The Buckeye Institute for Public Policy Solutions, the Center for Community Solutions and the Greater Ohio Policy Center called for eliminating what have become known as "tax expenditures" in May of 2011. Nine metropolitan chambers of commerce threw their support behind the issue. Policy Matters Ohio joined the cause with testimony during a Senate Ways and Means Committee meeting in December.
The Buckeye Institute and the regional chambers are conservative; the other groups are liberal. Naturally, they do not agree on what to do with the money if loopholes are eliminated.
The beauty in Kasichs aim is that this would not result in more revenue for the state. Every loophole eliminated would result in an income tax cut worth the same value. This is on top of the income tax cut that Kasich wants in exchange for a "frack tax" on oil and gas operations.
Tax loopholes allow people and businesses to escape paying their fair share to support state government. Thats really no different than writing a check for a wasteful government program which is why the term "ax expenditure" was created. It has the same result on the state's budget.
Among the specific loopholes that Policy Matters Ohio cited is a 1963 law that allows brewers and beer importers to receive a credit on beer and malt beverage taxes they pay if they pay them a few weeks in advance. The state should examine why the same privilege is not granted to all. Minus a reasonable explanation, the brewers and beer importers should start paying just like everybody else.
Another tax expenditure placed under scrutiny recently is a $50 credit for contributions to political campaigns. Others exempt part-owners of private aircraft and those who employ lobbyists from sales taxes. There is a tax deduction for contributions to college savings accounts, which are already tax-free.
Ohio lawmakers should support the review process and sunsets. Naturally, some tax breaks -- such as no sales tax on prescription medication -- should remain. And it will be very tempting to use closing tax loopholes as a way to increase state spending.
Instead, the potential to put billions of dollars in taxes back into the pockets of Ohioans should receive top priority.