House budget: Tax cuts favored vs. support for key programs
Posted April 15, 2021 in Press Releases
Tax plan does nothing for the poorest, could cost double what’s estimated
The 2% income-tax cut the Ohio House Republican majority proposed as part of the two-year state budget would go largely to the most affluent Ohioans, without doing anything to help Ohioans making less than $22,000 a year.
That’s the key conclusion of an analysis prepared for Policy Matters Ohio by the Institute on Taxation & Economic Policy, a Washington, D.C., nonprofit with a sophisticated model of state and local tax systems. The tax cuts also could cost the state double the $380 million legislative staff have estimated over the next two years. Policy Matters Research Director Zach Schiller said the $380 million would be better spent on Ohio’s people and communities. For instance, that could include accelerating implementation of key components of the Fair School Funding Plan, expanding the number of families assisted by the public child care program, boosting support of kinship care families or strengthening Ohio’s weak and underfunded local public health system.
“Sixteen years of tax cuts have failed to produce economic results while draining tax revenue and shifting the tax load from Ohio’s most affluent to lower-income residents,” Schiller said. “Legislators should scrap the 2% rate cut and consider boosting these programs instead.”
The ITEP analysis found that the fifth of Ohioans making less than $22,000 a year would get nothing from the rate cut. The three-fifths of tax filers who are paid less than $61,000 a year would get just 7% of the total tax cut. Those in the middle fifth of the income spectrum, making between $40,000 and $61,000 a year, on average would pay $7 less a year. Nearly half of the tax reduction would go to the top 5%, who are paid more than $205,000, with the top 1%, who make at least $490,000, averaging a $612 cut and getting nearly a quarter of the tax savings.
The tax cuts also could cost the state double the $380 million legislative staff have estimated over the next two years. The American Rescue Plan Act (ARPA) approved by Congress last month requires that states adopting net tax cuts pay back an equal amount of ARPA funds. “Guidance from the U.S. Department of Treasury will establish what is covered by this language, but it’s quite plausible the 2% rate reduction could be covered,” Schiller said. “That would make the rate cut expensive indeed.”