x
x

House budget may derail Ohio's economy

Rea S. Hederman Jr. May 20, 2019

This opinion piece appeared in The Cincinnati Enquirer.

As the Ohio House of Representatives passed Gov. Mike DeWine’s budget proposal, one could almost hear Ozzy Osbourne’s anthem "Crazy Train" churning in the distance.

The House’s budget has some very good things going for it. It lowers some tax rates and eliminates costly and unnecessary tax credits on airplanes, film-making and campaign contributions, for example. Such credits ultimately required higher state sales and income taxes to make up lost revenues. Closing those tax loopholes and reducing tax rates are marked and laudable improvements.

Unfortunately, DeWine’s budget also risks becoming a runaway freight train as it barrels toward the Ohio Senate, taking unsuspecting taxpayers along for the ride. The proposed budget would grow government spending as much as Ohio law allows. In fact, the Ohio House reduced the general revenue fund in order to meet the statutory appropriation limit on spending growth. Under the House version, state spending will be 4.3% higher in fiscal year 2020, and then another 2.8%.

Even those elevated levels assume no additional spending increases next year and that there are none of the usual budget tricks hiding up anyone’s sleeve – an unlikely scenario inasmuch as the House has already set the table for more spending by postponing a major education spending overhaul and taking on DeWine’s spending priorities outside of the usual budget process.

The governor, for example, wanted to begin investing $900 million in the H2Ohio fund over 10 years to protect the Great Lakes. The House treats this line item separately and proposes using debt – government bonds – to pay for it instead. Of course, government spending is government spending. It makes no real difference to taxpayers whether the government spends with bonds or budgets – the spent money all comes from the same place: the Ohio taxpayer.

Instead of slowing the governor’s spending spree, the House added more than $120 million to DeWine’s proposed education budget, even as some legislators and the education bureaucracy push to revamp the public school funding formula that will practically guarantee significant state spending increases down the track. Instead of saving or refunding current budget surpluses, instead of reprioritizing spending to focus on essential programs, the House stoked the engine of an overloaded locomotive that will surely careen off the rails on the next economic downslope.

To make matters worse, the House’s tax plan effectively raises taxes on small business owners by lowering the small business income tax deduction from $250,000 to $100,000. That deduction may have been problematic, but it provided some relief to small business owners who continue to struggle under the cumulative burden of Ohio’s byzantine municipal income tax structure that can add another 2.5% to some small business tax bills as well as Ohio’s commercial activities tax. Coupling tax increases with government overspending has historically proven to derail even robust economies.

During this record-long straightaway of economic expansion, Ohio has prospered. Today, thanks to prudent fiscal policy and a chugging economy, the Buckeye State has climbed like the Little Engine that Could from the depths of the Great Recession and now enjoys a budget surplus that it should not squander and an economy that it should not endanger. The next recession may be just around the bend. Policymakers must resist the temptation to spend today with no care for what may lie ahead.

The House budget includes some sound tax policies and promising improvements, but if the Ohio Senate fails to tap the brakes on the proposed "crazy train" spending roaring out of the House of Representatives, the Ohio taxpayer will be on board for a spectacular economic train wreck.

Rea S. Hederman Jr. is vice president of policy and the executive director of the Economic Research Center at The Buckeye Institute.