Outcome of inequality

Akron Beacon Journal - February 12, 2013

An editorial in today’s Akron Beacon Journal takes a serious look at the state budget plan released last week by Gov. John Kasich. The editorial notes the governor’s views of tax cuts as “indispensable to spurring the state economy.”

He talks about how the current top rate drives talented Ohioans to flee the state for less burdensome locations, say, Florida, which doesn’t have an income tax.

The reality is, little evidence supports the governor’s argument. The state Department of Taxation doesn’t track whether Ohioans depart for tax purposes. The governor may have anecdotes to relay. They are no substitute for the broad and concrete. Economists long have explained that tax rates rarely prove so decisive in the performance of a state economy. Taxes do not rank as high as such items as the quality of the work force, the innovative capacity and the ease of doing business.

What has been firmly established is that income tax cuts favor those at the highest rungs of earners. That is how the Kasich proposal would work.

The paper then cites our release of an analysis by the Institute on Taxation and Economic Policy, which found that top earners would benefit more from the changes than would less affluent Ohioans, further tilting the state’s tax system in favor of the affluent.

No question, wealthier Ohioans would pay more in sales taxes under governor’s plan to expand the base and lower the sales tax rate. Yet that would amount to a small fraction of their overall relief. At the same time, those at the middle and down would see a slight tax increase.

Recall that the top income tax rate in Ohio was 9.025 percent in the 1980s. It dropped to 6.9 percent in 1990, and then returned to 7.5 percent in 1995, the state economy growing and creating jobs. The 2005 tax reductions set the top rate on a path to 5.925 percent. Now John Kasich has called for a 4.74 percent top rate.

The argument goes that those at the top receive large tax cuts because they pay such a large portion of income taxes. Worth stressing is that during the past three years of a struggling recovery, a troubling trend has deepened, the bulk of new income flowing to the top 1 percent. One study puts the share at 93 percent of all income growth.

Such income inequality ill serves the country and the state, among other things, dampening consumer spending and the ability of so many to invest in themselves, from education to starting a small business. Yet the Kasich tax cuts would work to aggravate the problem.

Outcome of inequality

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