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Education Tax Policy Institute Cites Flaws in Tax Foundation Report.

State rankings do not reflect actual tax climate

COLUMBUS, Ohio, Sept. 3 /PRNewswire/ -- The Education Tax Policy Institute (ETPI) says that the recently released Tax Foundation Report, citing Ohio residents as having the 7th highest state and local tax burden in the country, is based on a highly subjective methodology, and is not a true representation of Ohio's business-friendly tax environment.

"The fundamental flaw of the Tax Foundation's report is that it is based on a series of non-standard and poorly documented adjustments to each state's taxes rather than measuring the actual level of taxes," said William Driscoll, a consultant for the Education Tax Policy Institute. "The result is a subjective and inaccurate measurement of which state has higher taxes and which ones are truly more business-friendly."

An analysis of the Tax Foundation report issued by the ETPI ( http://www.etpi-ohio.org/Library/082708TaxNonsense.pdf ) cited four main areas where the methodology is fundamentally flawed:
 1. The actual construction of the tax climate index is based wholly on
 subjective judgments made by the Tax Foundation relating to the
 taxation policies of other states and the estimated consumption
 patterns of its residents. The Tax Foundation attempts to justify its
 approach by appealing to economic theory, but the methodologies used in
 this report constitute significant departures from accepted models.

 2. While the Tax Foundation does describe its methodology and lists
 references, it never actually shows the computations by which it
 derives its results. Replication of the Foundation's study thus becomes
 impossible, and no way exists to assess the Foundation's assumptions,
 critique the details of the computations, or evaluate their accuracy.

 3. Based on the Tax Foundation's methodology, Ohio's "tax burden" results
 from tax policy decisions made in other states.

 4. The methodology is inconsistent in the extent to which it takes into
 account future tax changes, which have already been enacted in the
 Buckeye state.





The ETPI analysis suggests that objective methodologies, such as those used by the Federation of Tax Administrators ( http://www.taxadmin.org/fta/rate/07taxbur.html ), are a more accurate picture of a state's true tax climate. The latest reports available using this methodology show Ohio as much closer to the middle for state and local tax burden. For example, Ohio is ranked 24th in terms of state per capita and 18th for percentage of personal income.

Because of timing issues, it is unclear to what extent the Tax Foundation Report accounts for Ohio's five year plan to restructure business taxes. The ETPI analysis shows that in the upside-down world of the Tax Foundation, major net reductions in Ohio business taxes benefit non-residents more than Ohioans.

Ohio business analysts echo the criticism of the Foundation's analysis as flawed and impractical.

"It is completely illogical that the Tax Foundation methodology would punish the state of Ohio for enacting sweeping tax reform designed to increase the global competitiveness of Ohio companies through the elimination of the corporate franchise tax, elimination of the tangible personal property tax, along with a reduction of the personal income tax rate by 21 percent," said Ed Burghard, executive director of the Ohio Business Development Coalition, the nonprofit organization that markets the state for capital investment.
 Ohio's tax reform package benefits businesses by:

 -- Reducing operating costs - No tax on inventory or corporate income
 -- Enhancing productivity - No tax on investments in machinery and
 equipment
 -- Attracting talent - Shrink labor costs through a 21 percent reduction
 in personal income tax
 -- Creating a level playing field - All companies taxed the same low rate
 -- Boosting return on investment - No tax on products sold to customers
 outside Ohio
 -- Rewarding entrepreneurship - First $1 million in gross receipts are
 tax-free





Independent, third-party economic models project that by 2010, Ohio's tax reform will grow the state's economy by increasing gross state product by $5.6 billion and personal income by $3.6 billion. It also is expected to lead to an additional $6.3 billion of new capital investment in Ohio's economy.

With its revamped tax code, Ohio's state taxes are on track to be the lowest in the Midwest for companies making new capital investments. Projections show that by 2010, Ohioans will see a real world impact of up to a 63 percent reduction in tax burdens. Just three years after implementation, the new tax code is already growing the state's diverse economy, improving the standard of living and enhancing Ohio's standing in an increasingly competitive market.

About the Education Tax Policy Institute

Formed in 1997, the Education Tax Policy Institute provides school districts, local governments and policy makers with the ability to acquire data and to project the outcome of tax changes on education funding and on local government resources. For more information, visit http://www.etpi-ohio.org/ .

For more information about Ohio's tax climate, visit http://www.ohiomeansbusiness.com/ .

CONTACT: Dace de la Foret, +1-614-224-8114, ext. 235, delaforet@paulwerth.com, for Education Tax Policy Institute

Web site: http://www.ohiomeansbusiness.com/ http://www.etpi-ohio.org/ http://www.etpi-ohio.org/Library/082708TaxNonsense.pdf http://www.taxadmin.org/fta/rate/07taxbur.html
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Date:Sep 3, 2008
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