Containing state spending is key for tax reformFeb 10, 2015
Governor Kasich’s proposed budget for FY 2016-2017 contains some positive features, but overall it continues the trend of unchecked growth in state spending. The Governor’s proposal expends an additional $912 million of the state-funded portion of the General Revenue Fund. While an increase of this magnitude is hard to justify from an economic perspective, it is not unusual from a historic perspective. GRF expenditures grew by over $1.6 billion in real dollars from 1996 to 2014, averaging 3.2% growth per year. For the last six years this growth has been closer to 5%, a trend that continues in this proposal.
It is hard to imagine a compelling reason for such a dramatic increase. From 1996 to 2014 Ohio experienced a very low rate of population growth, averaging .18% per year. Inflation averaged a moderate 2.3% per year. If GRF spending per capita were confined to 1996 levels, and merely kept pace with historic inflation and population growth rates, state GRF expenditures would have totaled less than $19.4 billion in 2016. Unfortunately, though perhaps not unexpectedly, spending did not merely keep pace with inflation and population growth. With Kasich’s proposed $912 million increase, state GRF expenditures will total more than $22.7 billion. This is $3.3 billion above what inflation and population growth require, and continues the recent trend of raising state GRF spending by 4-5%.
Increasing spending by $3.3 billion forces Ohio taxpayers to pay $3.3 billion in additional taxes. While the governor’s commitment to cutting individual income taxes is laudable, claims of true tax reform ring hollow in the face of spending growth. Merely shifting the tax burden to businesses is not “reform” in any sense of the term, particularly given the systemic problems with how Ohio taxes businesses. Once spending growth is contained the tax burden can be lifted rather than shifted.