Tax reform critical to Ohio's future

By DAVID. W. JOHNSON
SPECIAL TO THE VINDICATOR
State policy makers in Columbus are debating what to do about Ohio's outdated and anti-competitive tax code that puts our businesses at a big competitive disadvantage and forces our manufacturers to shoulder one of the highest tax burdens in the nation. Our outmoded system is costing Ohio jobs and deterring job growth and economic recovery.
How serious is the problem? Since 2000, more than 200,000 manufacturing jobs have disappeared from Ohio-about 20 percent of all manufacturing jobs in the state.
When you consider that manufacturing accounts for about 15 percent of all jobs in Ohio, generates about one-fourth of the Gross State Product, and pays average annual wages of almost $46,000 -- more than twice the average wage for a retail worker -- it's easy to understand the impact of 200,000 lost manufacturing jobs on the state's economy.
Time for action
State tax policy is not the only reason for the job loss. But it's a big reason, and it's one our state leaders are poised to take action to address.
Three major problems need to be fixed:
First, at a time when other states and countries like China are doing everything they can to attract jobs, Ohio's outdated tax system punishes companies for making the capital investments they need to stay competitive by hiking taxes whenever they buy new machinery or equipment.
Second, manufacturers pay a disproportionately large share of the business tax burden -- as much as 500 percent higher than other business sectors.
Third, the state's existing corporate franchise tax is easy to avoid. It's a high-rate tax compared to other states, but collections are low and dropping each year because companies with sophisticated tax-management practices are able to avoid the tax.
According to Ohio Department of Taxation data, four of Ohio's 10 largest companies, each with annual Ohio sales ranging from $1.5 billion to $5.2 billion, paid the minimum $1,000 corporate franchise tax-and two others got refunds. Other companies were left to shoulder the burden of this tax avoidance.
A better plan
Gov. Bob Taft has introduced a fair, reasonable and effective plan for addressing these problems.
The governor's reform package will phase out the tax on machinery, equipment and inventory, and will eliminate the ineffective and easy-to-avoid corporate franchise tax. The plan will replace these two taxes with a fair, low-rate, broad-based "commercial activity tax" that will pay in precise proportion to their share of the state's economic activity. The plan also will stimulate small businesses and entrepreneurs with a 21 percent reduction in personal income tax for all Ohioans.
Support needed
State legislators should support the governor's tax reform plan, which is contained in House Bill 1 (and its companion legislation, Senate Bill 1). The reforms are fair and reasonable. They will:
USpur investment and create jobs.
UStimulate economic growth that will benefit all sectors of the economy, not just manufacturing.
UEnsure that all businesses pay their fair share.
UProvide more stable revenues to support schools and essential government services.
If Gov. Taft's proposed reforms become law, Ohio can look more confidently to a future of growth and opportunity. If the legislation is defeated, or the reforms are watered down, we will have missed a historic opportunity to stem the continuing decline of Ohio's economy.
X David W. Johnson is President and CEO of Summitville Tiles, Inc. in Columbiana County and current Chairman of The Ohio Manufacturers' Association.