Tax Boost Must Be Dealt Fairly

Dayton Daily News - January 13, 2003
   

Dayton Daily News 

In launching his economic stimulus proposal,
President George W. Bush can throw around tens
of billions of dollars like chips in a penny ante
poker game, even with the federal budget in
deficit.

Not so the State of Ohio, which must balance its
budget. With just five months remaining before
this fiscal year ends, making the numbers work
could be tough. The state’s revenues for the six
months ending Dec. 31 were even gloomier than
predicted.

Meanwhile, still bigger challenges are ahead.
When Gov. Bob Taft presents his two-year
budget proposal in February, he’ll need to bridge
a shortfall that could range from $3 billion to $4
billion. With the election out of the way, the
governor has become somewhat more plain in
acknowledging the state’s flagging revenues.

The governor has not intimated, much less
suggested, any increase in personal income tax
rates or any other sweeping tax increases. But
there’s no more talk of short-term fixes, such as
raiding tobacco trusts and rainy-day funds, either
in part because both have already been picked
clean.

Instead, Gov. Taft is speaking of “comprehensive
tax reform proposals . . . how to generate
additional revenue and make the tax system
simpler, more fair, more supportive of our
economic development goal.”

This means that, in some form, Ohio will have to
bite, rather than dodge, the tax bullet.

It’s significant that the governor says fairness 
will be a principal feature in his efforts at state
tax reform. A national study of state and local
taxes, released last week by the Washington,
D.C.-based Institute on Taxation and Economic
Policy, has called into question the fairness of
Ohio’s and many other states’ tax policies (read
it at www.policymattersohio.org).

Progressive tax codes set rates based on
taxpayers’ ability to pay. But when all taxes are
taken together, Ohio’s state and local taxes don’t
spread out the burden.

Working poor and middle-class Ohioans pay a
larger percentage of their income in state and
local taxes than do the top 20 percent of wage
earners. And when federal tax deductions are
figured in, the gap becomes more pronounced.

The bulk of more affluent Ohioans’ state and
local tax obligations are in property and income
taxes, which are deductible and reduce the
amount of federal tax these citizens pay. This
federal tax break essentially subsidizes these
higher-income families’ payment of state and
local taxes.

Lower- and middle-income families are eligible
for, but benefit less, from this deduction. Their
state and local tax burden is centered more on
sales and excise taxes, which are not deductible
on their federal returns.

As a result, Ohio taxpayers earning $65,000 and
more the top 20 percent pay between 6.7
percent and 9 percent of their incomes on state
and local taxes. Ohioans earning $41,000 or less
the bottom 60 percent pay 10 percent to 11
percent.

State tax changes made during the past dozen
years have served only to widen the gap, with
middle- and lower-income groups experiencing
the highest increases in state and local tax
burdens measured as a percentage of income.

Ohio’s tax system is not the most regressive
among the states, but it’s nothing to brag about.

“Fairness” is not one of its prominent features.

What’s plain is that working-class Ohioans
shoulder their fair share and more of the state
and local tax burden and Gov. Taft should take
that into account as he assesses his options for
balancing the budget.

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