House tax plan needs an overhaul
Posted May 15, 2019 in Press Releases
Cutting a big loophole makes sense, but benefit to lowest-income Ohioans is limited
Policy Matters Ohio today released an analysis of the biggest provisions of the tax plan in the Ohio House budget bill, which calls for limiting an income-tax deduction for business owners, eliminating two tax brackets and reducing rates by 6.6%. It found that only 1% of Ohio tax filers would pay more under the plan, but that the tax cuts would do nothing for most of the poorest Ohioans.
“Though restricting the costly, unproductive business tax break is a big positive step for Ohio, the House would use the proceeds on tax cuts that most Ohioans will hardly notice,” said Zach Schiller, Policy Matters research director. “Only 24% of the poorest fifth of Ohioans will see a tax cut under the plan. We would do better to target the tax cuts and invest in essential services.”
The analysis was done by the Institute on Taxation and Economic Policy (ITEP), a Washington, D.C., based nonprofit with a sophisticated model of the state and local tax system. Among its findings were that:
- 57% of the tax cuts in the plan would go to the top fifth of tax filers making $101,000 or more;
- Those receiving a cut among the middle fifth of taxpayers, who make between $42,000 and $63,000 a year, would receive an average tax reduction of $64;
- Four-fifths of the tax increase would be paid by the top 1% of Ohio earners, who make at least $496,000.
ITEP found that replacing the cuts in rates and brackets with a 10% refundable Earned Income Tax Credit would provide considerably more benefit to the poorest working taxpayers. Those making less than $24,000 a year would get 56% of the tax cut, compared to just 8% under the House plan. A greater share of the poorest Ohioans would benefit, and those who did would get more on average.
That would also still leave most of the savings to spend on badly needed services. “Better funding our K-12 schools, allowing more parents to get affordable child care and providing more aid to foodbanks are just some of the ways this money could be used,” said Schiller. “That would do more for Ohio than the tax cuts in the House bill.”