Ohio’s proposed tax changes could mean higher tax bills for some
Cleveland Plain Dealer - February 11, 2013
Rich Exner at the Plain Dealer looks at IRS data and what has happened in other states to determine how Ohioans would fare under Gov. John Kasich’s plan to overhaul Ohio’s tax laws. His analysis suggests that lower and middle income families would not do as well as higher earners under the new system.
Here’s how Kasich’s plan would work: The governor called for a 20 percent cut across the board in state income tax rates. At the same time, he plans to raise more sales tax money by doubling the number of services the state taxes. Things like haircuts, parking fees and funeral services would be taxed for the first time.
While your savings in income tax might be simple, the effects of sales tax changes are more complicated. Along with taxing many more services, Kasich would also reduce the sales tax rate for the state, as well as sales taxes for counties and county agencies.
Exner’s analysis found that “if South Dakota’s far-reaching sales tax system was applied to the new rate of 6.45 percent in Cuyahoga County, lower income families could end up paying more in taxes — even after the income tax cut.”
The biggest overall tax savings would be realized by single, wealthier people.
For example, a family of four earning $25,000 a year would end up paying an estimated $117 more in taxes, an increase of 14 percent.
But a single person, making $110,000 a year would pay an estimated $787 less in taxes, a cut of 15 percent. A two-wage-earner family of four making that same $110,000 would pay $499 less in taxes, or 10 percent less.
The Plain Dealer’s findings parallel those in a joint report this week by the left-leaning research group Policy Matters Ohio and the Washington, D.C.–based Institute on Taxation and Economic Policy. Those groups found that lower-income people would pay more taxes, while middle-income people would see small reductions and high earners would gain the most.
Unfortunately, the otherwise-solid article ends with two assertions, from conservative think tanks, that have little or no research to back them up. A spokesperson for the Tax Foundation claims that taxing goods and services while cutting income taxes can lead to economic growth. A Cato Institute spokesperson claims that a flat sales tax that has everyone paying the same rate is more fair.