Ohio Can Raise Money And Be Fair
Posted April 10, 2003 in Op-Eds
With a projected $4 billion gaping hole in the state budget, Ohio desperately needs revenue. Basic services — education, home care for senior citizens, child care that we vowed to provide poor families when we ended welfare — are at stake. The state must raise taxes, and it must do so in ways that put the burden on those most able to pay.
Since 1989, taxes paid by families earning less than $41,000 a year have climbed by more than 1.8 percent, while taxes paid by those earning an average $660,000 a year have dropped by 0.5 percent. Modest and low-income families now devote more than 10 percent of their incomes to state and local taxes, while the wealthiest 1 percent spends just 6.7 percent, after federal deductions.
The shift has occurred because we now rely more on sales, excise and property taxes, and less on progressive income and corporate taxes. Schemes like a flat tax would accelerate this trend.
Ohio should instead raise some of the revenue it needs and increase tax fairness in three easy steps that would cost most families in Summit County nothing.
First, Ohio should join the 17 states that offer a state Earned Income Tax Credit (EITC) to taxpayers who qualify for the federal EITC. The federal EITC provided tax refunds or credits to 1.9 million working families in 2001, lifting more families above the official poverty line than any other government program.
A new study from Policy Matters Ohio finds that piggybacking on the federal credit would help more than 676,000 taxpayers in Ohio, nearly 30,000 of them in Summit County.
A credit at 20 percent of the federal EITC would provide an average $328 annually to working Ohio families earning $33,000 or less. For less than 1 percent of Ohio’s projected fiscal year 2004 general revenue fund expenditures, Ohio could ease the burden on families who, despite working hard, struggle to get by in our demanding economy. The state would also bring an estimated 8,000 children above the official poverty line with this step.
At the same time, Ohio should increase taxes on those in the top bracket. This would only affect annual earnings of more than $200,000 and is imposed on less than 2 percent of Ohio tax returns. About half of those affected now earn more than $750,000 a year. Increasing this bracket by just 1 percentage point would pay for the EITC change we’re suggesting and leave funding left over to help fill the budget shortfall.
Upping it by 2.5 percentage points would raise more than half a billion dollars for vital services. In a time of war and recession, this is an appropriate place to go for needed revenue.
The state should also close loopholes in the corporate franchise tax, as Gov. Bob Taft has suggested, while keeping rates the same. Revenue from the corporate franchise tax fell from 16 percent of the taxes supporting Ohio’s general revenue fund in the 1970s to 4.6 percent in fiscal year 2002. This trend is neither fair nor wise.
Ohio is a strong state with much to brag about — one of the nation’s best library systems, a higher-than-average high school graduation rate, a history of supporting hard-working people. Slashing education, libraries, and social services will put us in a state that we don’t want to be in. But a strong public sector requires resources.
Raise the revenue we need. Raise it from those most able to pay. That’s a formula that works for Ohio’s working families, and works for Ohio.