A popular Ohio tax credit that investors and entrepreneurs swear by is in danger of expiring as soon as this summer, and it’s unclear whether state lawmakers have any desire to continue the credit.
The state is authorized to issue a total of $45 million in tax credits under its Technology Investment Tax Credit (TITC) program, in which investors who put money in approved companies are eligible for a tax credit of up to 25 percent of the amount they invest.
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The looming problem for investors and entrepreneurs is that the state has already issued $38.2 million through the credit, and the $45 million cap could be reached as soon as the summer, according to a spokeswoman for the Ohio Department of Development. Raising the cap requires action from the Legislature.
Perhaps more troubling for investors is that the issue doesn’t seem to be anywhere near a top priority for Gov. John Kasich or Ohio’s Republican-led House and Senate.
“The program is being looked [at] and evaluated,” said Rob Nichols, a spokesman for Kasich. “We’ll have more to say in a month” when the administration unveils a new economic development plan, Nichols said.
A spokesman for the Senate Republican caucus was equally noncommittal. “As of now, there has not been any real discussion about raising the cap,” said Sam Rossi. “It’s not something that we’re necessarily against or have a stance on; it’s just that the issue hasn’t been ventured into a great deal.”
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It’s difficult to overstate how much investors and entrepreneurs who’ve benefited from the credit love it — after all, we are talking about free money. Many Ohio medical technology entrepreneurs say the credit has been a critical component in launching their companies.
“It can be the turning point of whether somebody invests in your company,” said Mike Haritakis, an executive vice president with Cleveland-area medical device firm Thermedx. Thermedx has taken advantage of the tax credit like few others, becoming one of just 11 companies to reach the maximum $1.5 million that’s eligible to be raised through the credit.
Since the tax credit was launched in 1996, it’s led to more than 3,500 investments totaling more than $150 million in 590 companies, according to the state.
Democratic Rep. Jay Goyal said he’d like to see the tax credit reauthorized, but he doubts it will happen. “While I’m supportive of it personally, I’m extremely skeptical that the Legislature will increase the amount of tax credits for this program,” he said.
Goyal also noted that a bill he introduced that would expand a state-backed venture capital program hasn’t been given a hearing by current House leadership, even though a similar bill passed the House with a 98-0 vote during the last legislative session. “That seems to indicate to me that innovation and entrepreneurship don’t seem to be a high priority for the House, at least,” he said. (A call to the Speaker of the House wasn’t returned.)
But there is some good news for supporters of the tax credit — it’s been reauthorized before, so it’s not difficult to imagine it happening again. In 2009, the Legislature increased the tax credit’s cap to $45 million from $30 million.
The bad news? Lawmakers may feel that a new small business tax credit program launched by the Kasich administration called InvestOhio may remove the need to reauthorize the TITC program. And InvestOhio offers a smaller tax credit than the TITC — 10 percent, which applies to investments of up to $10 million that are held for two years in eligible businesses.
Plus, given the still-shaky economy and the fact that 80 percent of the nation’s wealth gains in the last 25 years have gone to America’s top 5 percent, the public may simply not be in the mood for government handouts to the wealthy investor class. For example, even fellow Republicans have blasted Mitt Romney as a “crony capitalist” and “predatory corporate raider,” criticism that’s nearly impossible to imagine coming from the GOP just a few years ago.
What’s more, a recent public opinion poll shows that tensions between the rich and poor are increasing and at their most intense level in nearly a quarter-century, the AP reported. And why shouldn’t they be? Consider the following astonishing statistic from the same report: A record number of Americans — nearly 1 in 2 — have fallen into poverty or make earnings that typically classify them as low income.
Personally, I’m very sympathetic to the idea that for far too long tax policy in the U.S. has been a means for the government to help those who need it least. But while I may harbor some philosophical opposition to the tax credit, I support Ohio reauthorizing it for one simple reason: It’s very cheap.
During the last two full years for which data is available, the state issued $8.8 million in tax credits under the program. That represents a tiny, minuscule amount of the state’s most recent $55.5 billion two-year budget. That’s a pretty small price to pay for something that apparently has been so helpful in supporting young and ambitious companies, as the state’s numbers indicate.
So in the end, the tax credit represents one of those rare instances in which it’s OK for the government to help the wealthy have their cake and eat it, too. And while the state’s at it, why not make the tax credit refundable so it’s attractive to out-of-state investors?
[Photo from flickr user picocarhot]
