Flat-rate Ohio Income Tax Would Hurt Middle-Income Families

April 10, 2004

Low- and middle-income Ohioans pay more of their income in state and local taxes than do the state’s most affluent citizens. But the state’s income tax helps offset a good deal of this inequity. The more you make, the higher rate you pay, up through a series of nine steps. Income over $200,000 is taxed at a 7.5 percent rate. This progressive tax is under attack. Proposals have been made that would reduce the top rate significantly, while raising the amount that middle-income Ohioans would have to pay. The Ohio Department of Taxation recently analyzed one of these proposals at the request of Rep. Sally Conway Kilbane. It found that the proposal would shift $1 billion in taxes from those making over $100,000 a year to those who earn less than that.

Tweaking this proposal may reduce the amount, but the effect will be the same: To shift taxes from those who can easily afford them to those who are less able to do so. Ohio should be moving in the opposite direction. The proposal would eliminate income taxes for some of the poorest Ohioans, but other ways can be found to accomplish that goal.

The taxation department sharply criticized the plan because once a taxpayer moved into a higher bracket, all of his or her income – not just the income over that threshold – would be taxed at the higher rate. For instance, a married couple filing taxes jointly with income of $45,000 would pay $1,125. But the same couple making $1 more would pay $1,755.04. “ODT cannot support a tax system that imposes huge additional tax burdens for small increases in income,” the department wrote in a March 10 analysis.

Below are links to that analysis and to another ODT study that shows how taxpayers at different income levels would be affected by the proposal.

Review of Proposed Three Bracket Income Tax – Ohio Department of Taxation, March 10, 2004

Distributional Analysis of the Proposed Three Bracket Income Tax – Ohio Department of Taxation, March 31, 2004

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