House Bill 1: A trifecta of bad policy
Posted March 10, 2023 in Press Releases
Higher property taxes, less local revenue, tax cuts that aren’t paid for
*This release has been revised to include a correct description of the causes of the losses from HB 1 for schools and local governments and to correct the amount of unpaid-for annual losses to the General Revenue Fund.*
House Bill 1, which would convert Ohio’s income tax into a flat tax, would result in property-tax increases, cuts in property tax and state aid received by schools and local governments, and reduced state revenues that the bill does not pay for. Those are some Policy Matters Ohio’s findings based a fiscal note by the Legislative Service Commission released this week.
“The LSC analysis should convince legislators to pronounce House Bill 1 dead on arrival,” said Zach Schiller, research director of Policy Matters Ohio. “We’ve already found that the flat tax in HB 1 would be a handout to the richest Ohioans. The trifecta of bad policy made clear from LSC’s analysis should confirm the need to junk the bill.”
In addition to changing Ohio’s income tax into a flat-rate tax, the bill contains a variety of changes to property taxes. These include ending state payments that currently pay for 10% of most residential property taxes (known as the 10% rollback), reducing assessment values, expanding the homestead exemption and making changes in another program under which the state pays 2.5% of property taxes owed by owner-occupants. LSC reviewed each of these changes and Policy Matters Ohio has added up its fiscal estimates. While the interplay of these changes is complicated and effects will vary significantly for individual taxpayers and homeowners, the net impact in the aggregate is property-tax increases.
Policy Matters Ohio figured the ongoing long-term effects after the initial phase-in period based on the LSC analysis. It found that HB 1 would mean:
- Property tax increases of at least $600 million a year for residential and agricultural property owners, which result from changes in the bill and the operation of Ohio’s existing property tax limit, known as House Bill 920.
- Reductions in property tax and state aid received by schools, local governments and libraries of over $500 million a year, though losses to schools would be partially offset by increases in aid through the foundation formula.
- Some $780 million a year in net losses for the state that are not paid for in the bill. This takes into account $1.79 billion in reduced annual revenue for the General Revenue Fund because of the flat tax and additional expenses from paying for expansions of the homestead exemption, offset by $1.3 billion in reduced expenses by no longer covering the 10% rollback (LSC also said any indirect increase in revenues caused by the cuts likely would be small compared to the direct effects).
- Reduced property taxes for business property owners of $157 million a year.
“While bill sponsor Rep. Adam Matthews is expected to make changes, the flat tax at the heart of the bill provides Ohio’s wealthiest with thousands of dollars in tax cuts apiece,” Schiller said. “Meanwhile, the vast majority of Ohioans will see some combination of diminished public services and other tax increases to pay for this. Legislators should listen closely when the LSC provides additional explanation of its findings at a hearing of the House Ways & Means Committee next week.”