Cross-posted from the archived Media Trackers Ohio site.
Municipal income tax reform legislation House Bill 5 (HB 5) was recently reintroduced in the Ohio House Ways and Means Committee, and the revised version has met sharp criticism from several large taxpayer advocacy groups.
The latest iteration of the bill “substantially alters many of the provisions of HB 5, keeping just a few positive aspects and changing many provisions for the worse,” Chris Stephens and Scott Drenkard wrote in a November 4 Tax Foundation release.
Stephens and Drenkard identified several changes which they view as detrimental, as well as several changes that neither the original nor the substitute version of HB 5 included.
“H.B. 5 does a great deal to remove some of the complexity built into Ohio’s municipal tax system,” Drenkard told the Ways and Means Committee in testimony back in May. “I’m hoping it represents a start to a movement by lawmakers to make the code more sensible and user-friendly.”
Americans for Tax Reform (ATR), National Taxpayers Union (NTU), Americans for Prosperity (AFP), and American Commitment all praised the original version of HB 5 submitted by Rep. Cheryl Grossman (R-Grove City) and Rep. Mike Henne (R-Clayton) in a November 5 letter slamming the substitute bill.
“General Assembly Members should reject this attempt at a phony reform bill that does little to improve Ohio’s climate for job creation,” the conservative groups wrote.
“Instead, we urge the General Assembly, with support from Governor Kasich, to pass a substantive municipal income tax reform bill this session,” they continued. “Such legislation can be readily crafted by combining the reforms found in HB5 (as introduced) along with additional improvements and reforms embodied in a subsequent version of the bill text prepared by the sponsors of HB5.”
The legislation described as “a phony reform bill” by American Commitment, AFP, NTU, and ATR was introduced by House Ways and Means Committee Chair Pete Beck (R-Mason), who has resisted calls to resign — and has retained his chairmanship — despite facing nearly two dozen felony securities and investment fraud charges.
In November 5 testimony before the House committee, Greg Lawson of The Buckeye Institute listed five reforms the free market think tank recommends HB 5 include:
- Elimination of the double taxation of pass-through entities
- A uniform and adequate length net operating loss carryforward that helps businesses today
- Uniform rules, forms, and instructions for taxpayers across jurisdictions
- A simple “bright-line” test for determining residency
- Simplification of the rules for casual entrant workers
“This is not an exhaustive list, but it illustrates the type of changes that must happen if reform is to have meaningful impact,” Lawson explained. “The current version of the bill fails to address all of these fundamental items.”
“While the current version of the bill might make some modest improvements to the terrible status quo, given Ohio’s unenviable status of boasting the worst local tax system in the nation, more than mere tinkering will be required to address Ohio’s stagnating economic climate.”
The Buckeye Institute has long advocated major reforms to Ohio’s public pension systems, as well, but the General Assembly instead opted for small short-term pension fixes last autumn.
Supporters of municipal income tax reform fear similar legislative posturing with HB 5, resulting in minor reforms that would make a serious overhaul of local tax laws even less likely for the foreseeable future.
“While there is clearly more that a business looks at than tax policy when deciding where to locate, taxes matter,” Lawson told Media Trackers. “Ohio’s municipal tax is a veritable labyrinth of sheer complexity that does nothing to help our relatively poor job creation numbers and labor force shrinkage in recent months.”
“As I testified to the Ohio House Ways and Means Committee, we need big reforms in this area, not mere tweaks,” Lawson added.