When it comes to tax policy, there are two ways of making changes. You can lower the need for revenues, and then reduce tax collections. Or you can increase taxes to raise revenue. The first option is difficult as cutting programs are difficult. There are often well-funded interest groups who oppose cuts and population growth and other factors often drive costs. It is problematic to reduce the Ohio Department of Transportation without shutting down roads.
In Ohio this year, the governor proposed a budget that adopted a third way that politicians often take. The play a shell game with taxes, reducing one, while increasing another to offset the revenue lost.
They may change incremental rates in a confusing fashion or change names of taxes to things such as user fees. For instance, both Ohio and Pennsylvania tax oil and gas as it leave the ground in the state, but here in Ohio it is called a severance tax. In Pennsylvania, it is called an impact fee.
In his proposed budget, the governor wanted to increase the commercial activity, cigarette, severance and sales tax and add a tax on electronic vapor cigarettes.
The Ohio House responded by cutting the income tax and leaving the other taxes more or less unchanged. They also changed a small business tax exception, which the governor wanted to increase, but could have led to distortions as it would enable some taxpayers to manipulate there business structure and avoid taxes in a manner that would not necessarily improve Ohio’s economy.
But whether any of this will actually become law is an open question, as the Ohio Senate is essentially going to “start from scratch” with its own budget, which could contain elements of the other two proposals.
We may know by June 30, when the legislature is due to finish their session.
Forbes.com, “Ohio House Markedly Improves On Gov. Kasich’s Budget Plan,” Scott Drenkard, April 21, 2015
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