Tax cuts in 2012 could further harm schools and local governments

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For the second day in a row now Governor Kasich has alluded to a possible tax cut in 2012 if he gets everything he wants in his state budget.

In the comments that the Governor has made on the subject neither time has he been specific in outlining exactly what taxes he would cut.  Monday, he was so vague on the matter it seemed like the mention of a tax cut may have just been the slip of a tongue, but he brought it up again at the Chamber of Commerce’s annual state meeting.

“All I’m saying is that if we are in a position where we have significant revenue that is not necessary to fund the government, we should give that back to the taxpayers,” Kasich said.

As we outlined late last week, rumors are that the state is going to be about $1 billion ahead of projected revenue come the end of this fiscal year. (When do get to start calling this the Strickland Surplus? Any day now, right?) Speaker Batchhelder is already on the record that he wants to spend the money on schools and nursing homes.

The Strickland Surplus brings up a tough dilemma for Republicans in the legislature.  Do they take the extra revenue and stash it away in the rainy day fund, or do they use it to relieve some of the cuts made to schools and local governments in the budget? If they decide to spend the money what does that say about the budget in its current form? Is that an implicit sign that this budget severally under funds services that citizens need? If we follow the logic put forth by most Republican legislators and this Governor, the cuts made in spending and in taxes in this budget are appropriate considering the current fiscal pressures that the state is under so any extra revenue should not be spent.

Either way the decision that is made on what to do with this extra $1 billion will directly impact the possibility of a tax cut in 2012.  It is too early to tell exactly what the Governor means by a tax cut in 2012. Does that mean passing legislation to cut tax rates sometime during the next biennium? If that is the case they better not spend that extra $1 billion now because they are going to need it to close a revenue hole caused by the cut. Or, does it mean that the Governor would support legislation brought forth next year to lower the tax rate in future bienniums, that policy decision would have to be made based upon projections of how the economy will be doing two, four, five, ten years down the line.

With school districts and local governments still reeling from the proposed cuts in the upcoming state budget don’t forget that one of Candidate Kasich’s earliest policy proposals was getting rid of the income tax. Kasich was fond of talking about how getting rid of the state income tax here in Ohio would make the state more competitive. More competitive for what I’m not certain, considering that there is no clear correlation between state’s that have income taxes and ones that don’t and their economic competitiveness  And that is without even discussing the massive hole such a policy would leave in the state’s coffers.  If school districts and local governments think things are bad now they really haven’t seen anything yet once the state income tax is abolished.

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