There comes a time in which you can sit on the sidelines in your self-imposed retirement and watch so much derp being passed off as policy by the Ohio Republican Party before you just cannot take it anymore. Specifically, the Senate GOP unveiled that their version of the State budget will remove the across-the-board 7% income tax cut passed by the House and replace it with what Governor Kasich’s called a 50% tax cut for “small businesses.”
Here’s why of all the tax cuts ever proposed by Republicans this is, well, the derpiest tax cut of all time.
1) It’s not a tax cut for small businesses.
Look, if I were a politician, I could say my tax cut was for patriotic Americans who like Batman, but unless it was targeted to pay for the expense of patriotic body armor, martial arts training, Batcave construction and Robin funerals, that doesn’t make it so. In fact, back in February, the Cleveland Plain Dealer reported that what Kasich was calling his “small business tax cut” would provide little help to actual small businesses:
“About 80 percent of Ohio’s small-business owners potentially affected by Gov. John Kasich’s proposal to slash income taxes would save $400 or less per year.”
And that’s also because…
2) It’s not even a tax cut for BUSINESSES at all.
In order to call something a “small business” tax cut, you’d think it would first be a tax cut that businesses paid. But it’s not. The Senate GOP tax cut, like Kasich’s, is really just a tax cut on what owner’s pay on income taxes they incur from their ownership share of a business. It’s not a tax cut on the Commerical Activities Tax businesses actually pay. Not all business owners get this tax cut, just ones that have their businesses organized as “pass through” entities, which for tax purposes is treated as passing all income to its owners (as opposed to C corporations, which are taxed as separate and distinct entities from its owners). That may seem unimportant, but this legal distinction is important because that leads to…
3) It’s a tax cut for businesses for not creating jobs.
Not all business owners have any say whether a company creates new jobs or buys equipment that stimulates the economy and increases production of goods. In fact, most don’t have that kind of say over such business decisions. And yet, Senate Republicans claim that this tax cut will encourage job creation.
“We want to do something that’s targeted at the 90 to 95 percent of those who create the jobs,”Senate President Keith Faber, R-Celina, said of the decision to go with a tax cut aimed at business owners. “We believe the small-business tax cut will help directly grow jobs in the immediate future.” [Source: Columbus Dispatch]
The only problem is that they don’t seem to have a single economist who would agree:
“The amount of money the vast majority of people will get is so small that even if they wanted to expand, they wouldn’t have the flow,” Mazerov said. “Even at the maximum level, the savings is enough to hire someone at a poverty-level wage.”
Even supply side advocates like retired O.U. professor Richard Vedder was hard pressed to praise it at the time Kasich first proposed it:
“With this proposal, down the road, somewhere somehow, jobs will be created,” Vedder said. “How many? Well, that can be debated.”
In fact, because it is a tax cut on pass through income, that means the tax cut isn’t levied until after the business has passed on revenues as profit to its owners after taking out any revenue to expand jobs or purchase equipment. So, to maximize on the tax cut for its owners, businesses would have to refrain from expanding payroll in order to maximize the tax cut. It’s purely a tax cut for shareholders, partners, and other business owners of pass through business entities for taking profits instead of creating jobs. Yes, you read that right. The Kasich/Faber tax cut is a cut that rewards business owners for NOT creating jobs.
Over the past twelve months, Ohio has ranked 47th in the nation for private sector job growth. That’s basically Mitt Romney territory. Now, the Ohio Senate is proposing a tax cut that would actually put the brakes on businesses creating jobs in Ohio. It creates an economic incentive for business owners to put their short-term personal greed over creating jobs in Ohio that could benefit them, too, economically long-term.
And even for those actually small businesses in Ohio, this tax cut would probably still not lead to job growth because as the Dispatch pointed out:
But national studies say about 80 percent of those who file business income employ no one beyond themselves.
In 2009, of the 717,000 Ohioans who filed some sort of business income, 90 percent earned less than $50,000, qualifying them for a tax break of $1,000 or less under the proposed 50 percent deduction.
So 80% of business owners will get less than $400 a year from this tax cut. Another 80% of such businesses are so small they employ nobody beyond the owner(s) currently. So the chances that this tax cut would actually encourage job growth is incredible low if not outright negative. This isn’t about job creation, folks.
4) The Ohio Senate never understood that Kasich never meant for this tax cut to be a stand alone proposal.
In choosing to enact this particularly portion of the Kasich tax reform plan, the Senate GOP revealed just how utterly clueless they are in understanding why Kasich proposed it in the first place. The “small business” tax cut, quite obviously, was created as an attempt to soften the blow with the business community over Kasich’s overarching proposal to cut income taxes by 20% by radically increasing what fell under the sales tax, which would upset some in the business community who provides services not subject to such taxes.
Whenever the business community protested Kasich’s sales tax proposal, he’d tout this tax proposal in reply and suggest it was more than even trade off. It was a political marketing ploy, not a sound and serious policy proposal.
5) It’s not even a tax cut that is limited to Ohioans.
As Luke pointed out yesterday, this isn’t even a tax cut that benefits just Ohioans, but it benefits out-of-state taxpayers as well. Meaning the “wherever” component of Prof. Vedder’s faint praise of this proposal’s positive economic effects are not confined to Ohio at all. As Luke also pointed out, the Kasich Administration itself admits that 20% of the tax cut will go to people outside of Ohio! The Kasich/Faber tax plan pumps millions of dollars in other State’s economies that could have stayed in Ohio and paid for quality schools or better roads.
Just like the rest of the Jobs 2.0 budget and Kasich’s first budget wasn’t really about job creation (as borne by the results), neither is the Kasich/Faber business owner tax about job creation. It’s nothing more than cyncical act of political marketing by conservatives to pass massive tax cuts for the rich while cuttting the foundation of middle class economic advancement with budget cuts in school funding, affordable college, good infrastructure and public safety staffing at the local level. By promising it’ll lead to job creation even though no serious, objective analysis of the proposal shows it will, Faber believes he can fool middle class voters that Kasich’s massive tax cut to the rich is to benefit them by addressing their economic fears. But it won’t. It never has. It’s nothing more than a disgusting, cyncical way to convince the middle class to allow them to pass policies that benefit the rich at their expense.