Sales-tax credit would help low-income Ohioans
April 8, 2013
An Ohio sales-tax credit based on one in New Mexico would benefit hundreds of thousands of Ohioans, according to a report released today by Policy Matters Ohio.
These credits, which five states currently offer, provide a set amount for each member of a family to offset some of the cost of a sales or similar tax. “An Ohio sales-tax credit would provide a targeted way to offset the regressivity of the state sales tax,” said Research Director Zach Schiller, author of the report.
The New Mexico credit is available to filers with income below $22,000 a year, is biggest for large, low-income families, and gradually phases out as income grows. A family of three with income of $19,530 or below – the federal poverty level – would receive $40 a year.
The Institute on Taxation and Economic Policy, a Washington, D.C., research group with a model of the state and local tax systems, examined how the creation of a New Mexico-style credit would affect taxpayers of different income groups in Ohio. Assuming that half of those eligible for the credit would receive it, ITEP found that nearly half of Ohioans in the bottom fifth of the income spectrum, with earnings of less than $18,000 in 2012, would benefit from such a credit. On average, those qualifying in this income group would receive $106 a year. It would cost the state about $70 million a year.
Gov. John Kasich has proposed broadening the sales tax to cover most services. That would produce needed revenue and make the sales tax more viable long-term, but would fall most heavily on low- and moderate-income Ohioans. If qualified filers were offered such a sales-tax credit or a 10 percent state Earned Income Tax Credit, whichever was larger, more than 700,000 Ohioans making less than $18,000 a year would receive protection from the effect of such base-broadening. The $230 million annual cost would amount to less than a tenth of the additional revenue generated by the sales-tax expansion.
Kasich’s proposal to broaden the sales tax may not survive, or it could be scaled back. “Legislators should consider a sales-tax credit anyway, because the existing sales tax helps slant our current state and local tax system against low- and moderate-income taxpayers,” Schiller said. “The New Mexico credit should be expanded upon here, and promoted so it reaches the most Ohioans.”