Budget shifting tax burden to low incomes
July 2nd, 2013
By Wendy Patton in The Cincinnati Enquirer.
Ohio’s new budget bill makes our tax code less fair, raises less money than it should and misses opportunities for Ohioans. The budget shifts taxes from top earners to middle- and lower-income workers, increases the opportunity for tax avoidance and drains $2.7 billion from mental health, addiction treatment, senior centers, and local government. If history is any proof, tax cuts like those in House Bill 59 do not boost job creation in Ohio relative to the nation.
The 10 percent income-tax cuts included in House Bill 59 shift taxes to low- and middle-income Ohioans from upper-income residents who are in a better position to pay. Ohio already leans too heavily on those at the bottom: non-elderly in the bottom fifth of tax filers pay, on average, 11.6 percent of their income in state and local taxes while the top 1 percent pay 6.3 percent. Ohio’s income tax, in which top earners pay a higher percentage on higher earnings, provides balance. Income-tax cuts and sales-tax hikes in this budget make the situation worse. On average, the bottom quintile of earners will pay $12 more annually under the new plan. People in the third quintile – the middle – see an average tax cut of $9 annually. Meanwhile, the top 1 percent get an average tax cut of over $6,000 per year!
There is also a tax cut on pass-through business income. Referred to as a “small business” tax break, this is a tax cut on income business owners pay through their personal income tax filings. It also benefits law partners, passive investors and various corporate ownership forms.
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The vast majority of the owners who benefit from this giveaway do not have employees. This tremendous tax break, more than a half-billion a year, is not going to create jobs, since nearly 90 percent of recipients have no employees other than themselves. Further, those who have studied this form of tax break report that it invites tax avoidance in reporting and allocating income.
The administration has no estimates of jobs that would ostensibly be created because of this or other proposed cuts. But cutting taxes necessitates cutting public spending, and slashing spending means fewer jobs for teachers, police officers and others who provide public services.
Like most states, Ohio must balance its budget, so every dollar cut from taxes means a dollar not spent on services or a dollar increase in some other tax.
Ohio has been down this road before. Nearly eight years ago, the General Assembly passed an extraordinary set of tax cuts in House Bill 66, justified on the promise that they would boost the state’s struggling economy and grow jobs. A serious look at job performance since the implementation of the tax cuts points to only one conclusion: The promise has not panned out.
Since the tax cuts were implemented in 2005, Ohio has lost ground when compared to the nation in total job growth. Despite a good month last May, Ohio has the fourth worst job growth rate among states over the whole period and has lost more than 200,000 jobs since the phase-in began.
The General Assembly considered some good options offered in the executive budget: a broadened sales tax base that better reflected the modern economy; a modern severance tax on oil and gas being removed forever from the land; an opportunity to examine the $7 billion in tax loopholes that may not benefit the economy; and a chance to bring in billions in federal Medicaid dollars and insure the working uninsured.
Unfortunately, the best ideas were abandoned, leaving just regressive tax shifts and inadequate revenue. Ohio will be worse off for these choices.