Ohioans pool our resources together to tackle big societal challenges, like educating our children, caring for our aging loved ones and maintaining a transportation system. If lawmakers cut the state income tax, they’ll take more than $9 billion a year or almost a quarter of all state revenues from our communities.
That’s more than the state spends to support K-12 education; it is more than three times what we spend on higher education. As it is, when it passed a new school funding formula last year, the General Assembly didn’t even fund half of it. Local governments and public libraries, which get a set percentage of state revenues, would see huge reductions.
The alternative to reckless cuts would be offsetting the income-tax cuts with increases in other taxes. Since the income tax is the only tax based on ability to pay, that alternative would further shift taxes from Ohio’s most affluent to low- and middle-income residents.
Ohioans with the lowest incomes already pay almost twice as much of their income in state and local taxes as the richest 1% do. Since 2005, state lawmakers have slashed income and other taxes while increasing the sales tax and other regressive taxes — leading to an eye-popping $50,000 average annual cut for the 1% making more than $551,000 a year. Meanwhile, average state and local taxes for middle-income Ohioans showed a small uptick and the people with the lowest incomes paid an average of $164 more a year. Eliminating the income tax would reinforce that trend. Ultimately, anyone who is not very rich will lose out, either from increased regressive taxes, cuts to basic shared services like education, or both.
Repealing the state income tax would also be fiscally irresponsible. It would threaten the state’s ability to stay within the debt limit required under the Ohio Constitution, which says that we can’t spend more than 5% of general revenue taxes and net lottery proceeds on debt service. If we bust through that limit, it would jeopardize the state’s ability to issue debt to pay for school buildings and other capital projects.
State revenues rise and fall with the economy. Even before Huffman’s proposal, Fitch Ratings, one of the leading credit rating agencies, warned that, “Major tax policy changes under consideration or already enacted by US states in response to a second year of exceptional revenue growth could have negative long-term credit implications if current revenue growth is not sustained.”
Ohio lawmakers have cut the income tax by nearly half since 2005, with little to show for it. Our incomes lag, as do our economic output and job growth. And they’re expected to continue to do so. That’s what the Ohio budget director noted in testimony last year. Between 2009 and 2019, the Institute on Taxation and Economic Policy found that states with the highest income tax rates did as well or better on key measures of economic performance as those without broad-based income taxes.
Ohio’s state and local taxes per person and as a share of income are below average for the nation, according to the U.S. Bureau of the Census.
Far from repealing our income tax, policymakers should be boosting it on those who can afford it most – the wealthiest Ohioans – so that we can fund our schools, cut college tuition, make child care affordable and expand broadband across the state. That’s the best way Ohio can prepare for the future.
Zach Schiller is the Research Director for Policy Matters Ohio.