Speaker’s #1 priority: Tax cut for the rich
Posted February 23, 2023 in Press Releases
Flat tax proposal cuts resources of the many for the benefit of the very few
One of Ohio House Speaker Jason Stephens’ top-priority bills, House Bill 1, is a massive giveaway to the rich, and the first of two such proposals by leading Republicans in Ohio’s House. According to a new analysis by Policy Matters Ohio, HB 1 slashes funding to children and all manner of local services, does nothing for low-income Ohioans, and provides less than $3 in tax savings to many middle-income Ohio families.
“The bill is obviously and appallingly unfair,” said Guillermo Bervejillo, Ph.D., state policy fellow at Policy Matters Ohio. “Families making less than $30,000 per year will get nothing from this bill. Families making $50,000 will see a tax cut of $3 or less. Meanwhile, an individual making half a million dollars per year could see a tax cut of more than $5,000.” The graph below illustrates how tax savings will disproportionately benefit higher-income households.
HB 1 would replace Ohio’s graduated income tax, under which tax rates go up with income to a top rate of 3.99% on income over $115,300, with a flat 2.75% tax on income over $26,050. Even without HB 1, low-income Ohioans pay nearly twice as much in state and local taxes as the most affluent do. The bill also includes numerous changes to the local property tax.
An examination of the flat-tax proposal by the Institute on Taxation and Economic Policy (ITEP)—a nonprofit with a sophisticated model of the state and local tax system—estimates a cost of more than $2 billion per year. Part of this burden will be shifted onto schools and local authorities by doing away with the state-funded 10% property tax rollback.
While Ohio’s currently strong balance sheet may fund this large tax cut for now, the bill is badly short-sighted, and would substantially weaken state finances going forward. It also will mean immediate cuts in funding for local governments and public libraries, which receive a percentage of state tax revenues directly. Another cost of this big cut could be future increases in sales and excise taxes, which fall disproportionately on lower income households.
The ITEP analysis found that 89% of the value of the tax cut will go to the richest 20% of households (those making more than $124,000 per year) and 35% will benefit the richest 1% of households (those that make more than $617,000), which will receive an average tax cut of more than $11,000. Meanwhile, the bottom half of Ohio households will receive nothing or very near nothing. The table below is for Ohio residents and uses 2023 incomes.
“The bill accomplishes an astonishing feat of redistribution,” said Bervejillo. “It takes resources out of the hands of many and puts them in very few (but rather large) pockets. Ohioans deserve to keep more of their money in their communities rather than damaging their critical local institutions so that a few wealthy individuals can go on an additional luxury vacation.”
The cost of the bill will actively undermine state economic growth, which is a function of healthy communities, educated workers and effective infrastructure made possible by state revenue. Decades of tax cuts and tax incentives have not produced the economic vitality Ohioans need. Flat tax proponents have offered little compelling evidence to suggest their latest experiment would be any different.
Under the 10% property-tax rollback, the state effectively pays 10% of homeowners’ tax bills. Eliminating it would drain $1.2 billion a year from schools, libraries, parks, community colleges, mental health and developmental disabilities boards, children’s services and other services reliant on property-tax levies. While the bill includes a statement that the General Assembly intends “to appropriate funds in fiscal 2024 and 2025 to local governments impacted by changes in this act,” it says nothing about replacing these revenues in future. Policy Matters Ohio will do additional analysis of the provisions of the bill.