New data show just how upside-down Ohio’s tax code is
Posted January 30, 2024 in Op-Eds
This piece was originally published on Cleveland.com and is reprinted here with permission.
A smart, progressive tax system has enormous benefits: great schools and libraries, well-maintained roads and bridges, public goods that benefit everyone and public support for people who need it.
When designed correctly, a tax system ensures that these benefits are sustained by the people who have gained the most advantage from our economy and minimizes the impact on those with low incomes.
But Ohio’s tax system is upside-down: Low- and middle-income families spend a far larger share of their income on taxes than wealthy Ohioans do.
Decades of decisions by state policymakers have created this problem -- and current legislators are only making things worse.
In 2023, the lowest-paid Ohioans spent more than twice as much of their income on state and local taxes than the highest-paid, according to a new study by the Institute on Taxation and Economic Policy (ITEP).
The study finds that the top 1% of non-elderly Ohio families -- those who earn at least $622,800 annually -- pay an average 6.3% of their income in state and local taxes.
In comparison, Ohioans with incomes in the lowest 20% -- those who earn less than $22,500 -- pay an average effective state and local tax rate of 12.7%.
Ohio families and individuals in the middle 20% of income distribution -- those making between $43,600 and $76,200 annually -- pay an effective state and local tax rate of 10.4%.
This isn’t just unfair (Ohio’s is the 15th most unfair tax system in the country, according to ITEP), it’s also illogical. People with low incomes need more cash, and people with high incomes can afford to have a little less.
It’s neither right nor reasonable for a tax code to run counter to that principle.
Ohio’s state income tax is designed correctly: It is progressive. That means those with the highest income pay a greater share of it in income tax. But Ohioans pay a variety of taxes, and the income tax is the only one that is based on a person’s ability to pay.
The income tax is far outweighed by Ohio’s other taxes, notably the property tax and the sales and excise taxes. These are regressive, falling most heavily on people with the lowest incomes.
ITEP’s analysis also includes local income taxes in Ohio, which are neither progressive nor regressive: They are flat (or close it it). Each income group pays roughly the same share of their income.
Combined with regressive sales and property taxes, flat local income taxes contribute to a tax code that places a disproportionality high tax burden on people who can least afford it.
According to ITEP’s report, roughly three-quarters of all Ohio’s tax revenue comes from either property or sales taxes -- roughly 5% above the national average. In comparison, Ohio’s income tax generates revenues roughly 4% less than the national average.
In the past two decades, Ohio policymakers have chosen time and again to make this problem worse by eliminating income tax brackets, or “flattening” the income tax.
They did so most recently in the 2024-25 budget bill, which included roughly $750 million in annual tax cuts, most of which went to wealthy Ohioans.
Make no mistake: When politicians and lobbyists claim flat taxes are fair, they have either been sold a lie or are trying to sell you one.
How and from whom we raise tax revenue reflects our beliefs about fairness and equity as a society. Based on Ohio’s current tax system, our notions of equity are wildly distorted.
Original Article: https://www.cleveland.com/opinion/2024/01/new-data...