Research & Policy
Policy Matters Ohio

More of the same bad tax policy

April 16, 2015

More of the same bad tax policy

April 16, 2015

Screen Shot 2015-04-16 at 11.09.22 AMA new state budget bill now being heard in the Ohio House Finance Committee would cut the state income tax by 6.3 percent, while expanding an existing tax break for business owners. The House budget bill, as it stands now, eliminates nearly all of the major tax increases Gov. Kasich had put forward, and scales back his proposed income-tax cuts and business tax break. But in so doing, it would increase the net state tax cut by nearly half, to $1.2 billion over two years.

Cutting the income tax is not smart policy for Ohio. Much of the gains go to the most affluent, and poor and middle-income residents see little (stay tuned for more details on that soon). It leaves the state more dependent on the slower-growing sales tax, and could prove risky: Tax cuts enacted in 2005 and phased in over five years helped create a fiscal crisis six years later, as the recession also pounded state revenues. That resulted in painful spending cuts, some of which are still being felt — witness the reductions in aid to local governments.

Previous income-tax cuts have not brought prosperity to Ohio — in fact, we have continued to lag  the nation in job growth. The business-income deduction that the House bill would expand has been a bust. New hiring by the smallest businesses is lower than it was before, and the total number of jobs has grown more slowly than it did prior to the tax break’s creation. Yet proponents want to throw another $140 million a year into this dubious deduction.

Most important, spending $1.2 billion for tax cuts is inappropriate when money is badly needed for investments in Ohio and Ohioans. We need to hire back firefighters and police, help more families pay for child care, and provide additional aid so students can afford college. We need to demolish or rehabilitate the tens of thousands of vacant and abandoned properties that scar communities across the state, a result of the foreclosure crisis. State support for public transit is scandalously inadequate. And despite the increase in school funding in the House bill, it leaves dozens of districts with less than they had before.

Some of the tax provisions in the House Finance Committee bill merit support. All of our tax breaks need a review, which the bill would provide. Means-testing the income-tax deduction for Social Security benefits and other such credits, so they would only go to those with income of $100,000 or less, is sensible. But using the additional revenue to cut income taxes is a failed policy the General Assembly should reject.

-- Zach Schiller

 

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