No state income tax? Ohio lawmaker seeks repeal

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COLUMBUS, Ohio (WCMH) – A state legislator envisions a future where Ohioans aren’t required to donate a penny of their wages to the state government.

A bill introduced by Sen. Steve Huffman (R-Tipp City) would repeal Ohio’s personal income tax over 10 years, with a 10% annual reduction until incomes residents of Ohio are no longer taxed.

While some have sounded the alarm about the “disastrous” effects the bill could have for the state’s funding source and for low-income families, others said it will was a long-awaited tax reform that will generate economic growth and allow Ohioans to get more of their paychecks back. .

“It makes the business environment more attractive for companies, and it also puts that million or billion dollars back in everybody’s pocket every year,” Huffman said.

Ohio generates billions through state income tax

The state income tax, enacted in 1972, generates on average about a third of the state’s general revenue fund — which pays for everything from state parks to prisons, according to the state tax department. ‘Ohio.

In 2010, Ohio generated $7.8 billion in income tax, with the highest income bracket being taxed at around 6%. Four rounds of tax cuts later, Ohio reaped even more, reaping $9.3 billion in income tax revenue in 2019, with the highest income bracket taxed at about 4, 8%, according to the Ministry of Taxes.

Tax cuts associated with income growth are a sign, Huffman said, that demonstrates the Laffer effect — an economic theory that holds that cutting taxes stimulates more money to flow through the economy.

“Rather than paying $1,000 in personal income tax, you’re going to buy clothes, buy food, buy a car, and that’s going to generate more people going to work,” Huffman said.

Fiscal year Total revenue (in millions)
2017 $7,981.1
2018 $8,796.2
2019 $9,313.4
2020 $8,285.0
2021 $10,663.38
Personal income tax collections: fiscal years 2017-2021 (in millions)

But Guillermo Bervejillo, a state policy researcher at the left-leaning think tank Policy Matters Ohio, said the complete repeal of the state income tax would have “disastrous” results, both for the economy of the state and the wider social context.

“For the past 17 years, we’ve cut income taxes, and that’s resulted in tax cuts for wealthier Ohioans and tax increases for poorer Ohioans,” Bervejillo said.

Since Ohio began a series of tax cuts and reductions in the number of income brackets in 2005, Bervejillo said the richest 1% in Ohio who earn an annual income of $ 551,000 benefit average annual tax cuts of $51,000, citing a February report from the Institute on Taxation and Economic Policy.

Taxes for Ohio’s poorest 20 percent, who earn $23,000 or less a year, by contrast, have seen an average increase of $164 since 2005, according to the report.

“[It] it doesn’t look like much, but it’s a grocery week,” Bervejillo said.

How could Ohio recoup lost tax revenue?

To fill the void of what he said is an $8 billion loss in tax revenue each year, Bervejillo said the state would likely have to make sacrifices elsewhere — like implementing higher sales taxes. or the reduction of state investment in infrastructure, public education, or state-run medical programs.

Unlike state income tax, Ohio’s 5.75% sales tax is flat across all areas, meaning residents pay the same tax on property regardless of their level of income.

Raising taxes elsewhere, such as sales and gasoline taxes, would fall disproportionately on the shoulders of low-income families, according to State Sen. Nickie Antonio (D-Lakewood).

“Low-income people are then going to shell out more money out of pocket for basic necessities, food, than someone who earns a higher income and that won’t be such a big percentage of their overall annual income” , Antonio mentioned.

Huffman claimed he had no plans to raise taxes elsewhere. A complete repeal of the income tax, he said, would further stimulate economic and job growth by encouraging businesses, such as Intelto relocate and invest in Ohio.

“If you look at northwest Ohio near Toledo, or southeast Michigan, and you’re a business and you know Michigan is 5% (income tax) and the Ohio to zero, you’re basically giving your worker a 5% pay raise with no more money out of your pocket,” Huffman said.

Ohio taxable income Calculation of taxes
$0 – $25,000 0.0%
$25,001 – $44,250 $346.16 + 2.765% deductible over $25,000
$44,250 – $88,450 $878.42 + 3.226% deductible over $44,250
$88,450 – $110,650 $2,304.31 + 3.688% deductible over $88,450
Over $110,650 $3,123.05 + 3.990% deductible over $110,650
Ohio income tax rates, for tax years beginning in 2021

Bervejillo is not swayed by the promise of greater business development. A company’s decision to innovate is based on a multitude of factors in addition to the state tax system, he said.

“Businesses move to a location based on infrastructure, education levels, logistics, strategic positioning – a whole host of characteristics that a state may or may not have, many of which depend on government services. ‘State funded by state income tax,’ he said. mentioned.

If Huffman’s bill becomes law, Ohio would join nine US states that have no income tax, according to a report by the American Association for Retired Persons.

Rea Hederman, executive director of the economic research center at right-wing think tank The Buckeye Institute, said Ohio’s $1 billion surplus is another reason why now is the time to abolish income tax completely.

According to the Office of Management and Budget, the state’s unencumbered closing fund balance for 2022 — the remaining projected revenue after spending from July through November — is estimated at $2.75 billion.

While the OMB said that number could be lower due to future spending, Hederman said Ohio’s economy is booming, thanks in large part to Gov. Mike DeWine’s decision to limit spending. of the state during COVID-19.

“They can take their taxes and be able to spend them on their needs, making sure you have plenty of gas, or extra help for a K-12 kid who’s had their education disrupted, or a nice vacation. with family where he gets a chance to relax,” Hederman said. “Everyone could take the opportunity to have more money in their pockets.”

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