Some Taxes in Ohio Are Just Dumb
It has been said that taxes are a necessary evil. No one likes paying them, but for government to function, it must have some form of tax revenue. That does not mean that all taxes are created equally, though. Some taxes are fair and while people may grumble when they have to cough up the money, at least they are equitable. Other taxes, however, are just plain dumb. Ohio has a few of these dumb taxes and our policymakers would do well to consider ways to make them a little smarter.
Tax policy is a tricky area. It can easily be misused for political purposes. The best taxes are broad-based, have a low rate, and do not single out certain activities unless those activities impose some burden on the state. Since all taxpayers benefit from government services, all taxpayers should bear the burden on a relatively equal basis. Furthermore, taxes should not be used to promote social policy. Even activities that are unpopular should not be discouraged by taxes. The tax code is not an efficient way to promote public policy goals. It should be used merely to raise revenue, not distort business activity to favor one group over another.
Unfortunately, Ohio has a few taxes that do not meet this test. Take the tax on tobacco products, for example. The state taxes a pack of cigarettes at $1.25 a pack. Economists estimate that cigarettes, at most, cost the government 32 cents a pack. The difference between the two numbers is simply the state imposing a tax on an unpopular group of people in order to raise money and discourage a certain activity.
The tax on other tobacco products is even worse, though. These products impose no cost on government, so there is really no justification for taxing them at all. However, the state singles out users of these products to raise money for all Ohioans.
The type of tax imposed on these products is especially dumb. Cans of smokeless tobacco, for instance, are taxed based on their value. This distorts the economy, as the more a can costs, the more tax a person pays. Because of this, users of these products are indirectly encouraged by the state to buy cheaper products. It is a market distortion that discriminates against higher-priced smokeless tobacco products.
This type of interference in the market is exactly the opposite effect a tax should have. Lawmakers should get rid of the tax on other tobacco products completely, since there is no justification for it outside a desire to make an unpopular minority fund government services. However, if the state keeps it, lawmakers should stop distorting the market and tax the product on a per unit basis.
The estate tax is another dumb tax. When other states are reducing or even eliminating their estate taxes, Ohio refuses to see its pernicious effects on the state. When sunny states like Florida have no estate tax, it is easy for the elderly with large estates to move there and escape the Ohio tax man. The state should be reforming its tax laws to make it attractive for people to remain in, not flee, the Buckeye state.
Or there is the horse racing tax. This is a tax that taxes certain “exotic” bets—defined as any wager other than win, place, or show—and then uses the money to give corporate welfare to the horse racing industry. The state would be better off simply leaving horse racing alone. It should not tax it, nor should it subsidize it.
Dealers in intangibles also have to pay a dumb tax. These are individuals or companies that do things like provide loans or sell mortgages but are not part of a large financial institution. Ohio is the only state to tax them at a special rate. There is no reason to single these dealers out for their own special tax. All businesses should be treated equally in the state.
As can be seen, these taxes all fail the basic test of sound tax policy. They single out special groups for special taxes, they distort the economy, and they hurt Ohioans who are trying to be productive. Ohio should eliminate its dumb taxes and focus on making its tax code smarter, fairer, and less burdensome to individuals and businesses.
Marc Kilmer is a policy analyst with the Buckeye Institute for Public Policy Solutions, a research and educational institute located in Columbus, Ohio.
