Make Taxation More Difficult

Ohio state legislators may be coming to understand the truth of an old warning: No good deed goes unpunished.

Some lawmakers have been considering a proposal that the state constitution be amended to make it more difficult for the General Assembly to increase taxes. On the face of it, that sounds like a wonderful idea.

But wait. Legislators are being cautioned that such action could make it more difficult for the state to sell bonds for initiatives such as highway improvements. And, even if they are sold, the tax restraint could result in higher interest rates on bonds.

Taxpayers could be penalized, in other words. They could be forced to pay more for the state to borrow money.

How can that be? How can a suggestion aimed at saving taxpayers a few dollars end up costing them money?

It is really quite simple. There are several bond rating agencies. When a state decides to sell bonds, the agencies assign ratings intended to give investors some idea of how safe it is to take advantage of the offerings. One, Moody’s Investor Services, uses a scale with a C rating reflecting low likelihood of bond investors being repaid, with an Aaa the most desirable mark.

Rating agencies base their decisions primarily on assurances a state can repay money borrowed through bonds. Hence, a state government with solid finances — and the taxing authority to ensure they stay that way — gets a higher rating.

So you see the situation: Restrictions on taxing power could be viewed by bond rating agencies as negatives.

Under consideration by some Ohio lawmakers is a proposal calling for a constitutional amendment that would require a “supermajority” vote for the General Assembly to increase taxes. Currently, only a simple majority suffices.

Still, some legislators hope to proceed to the point of asking Buckeye State voters for the required constitutional amendment. “I think it should be difficult for government to reach deeper into your pocket,” state Senate President Larry Obhof, R-Medina, commented recently.

Precisely. Surely the intelligent minds in the General Assembly can find some way to accomplish that while keeping the bond rating agencies happy. Of course, that will not happen if the idea of limits on taxation is abandoned.


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