June 05, 2023
June 05, 2023
Ohio’s leaders can use the tax system to increase economic stability for every family in the state. The Earned Income Tax Credit (EITC) is a proven, powerful tool to do just that. In 2021, the federal EITC lifted about 5.3 million people above the poverty line, including nearly 3 million children. The EITC and similar income supports are linked to improved short- and long-term health outcomes for children, higher college attendance rates and greater earnings in adulthood. However, to fully unlock its potential and create meaningful impact, Ohio must take the necessary step of making the EITC refundable.
When the EITC is refundable, it means that if the credit exceeds the amount of taxes owed, the taxpayer can receive the remaining balance as a refund. A refundable EITC ensures that low-income individuals and families — who pay sales and other taxes but have little or no income tax liability — can still benefit from the EITC by receiving direct financial assistance they can use to put food on the table, pay the rent, or buy gas and other necessities.
The state’s current credit is set at 30% of the value of federal EITC, but it is not refundable. In tax year 2021, more than 1 million Ohioans claimed the state credit. Most of them (77%) had taxable income under $20,000. In that year, the EITC had an “on paper” value of more than $641 million, but the impact of the credit on claimants’ economic security is unclear because the credit is not refundable. If, after claiming allowable deductions and exemptions, the claimant did not have income tax liability, much of the value of the credit was lost.
As recently as April 2023, over 2.9 million Ohioans struggled to pay for usual household expenses. An estimated 463,841 children, constituting 18.2% of all children in Ohio, were living in poverty as of 2021. To combat these dire circumstances and provide tangible support to families with low wages, Ohio’s legislators should add a refundability option to the Ohio EITC.
Ohio's regressive tax structure disadvantages Black and brown Ohioans who, due to labor market and educational siloing, are disproportionately represented in Ohio’s lower income ranges. This is because in Ohio, lower income households tend to pay a larger share of their income in total state and local taxes. While they may have no or little income tax liability, they pay a disproportionate share of sales and excise taxes. On average, most Ohioans, the bottom 60%, pay more taxes now than they did before 2005, while the richest 1% pay an average of nearly $51,000 less. A refundable EITC is an opportunity to make the tax code fairer for all Ohioans while addressing some of the racial inequity baked into the code.
Ohio should add a 10% refundable option to the state EITC. House Bill 39, sponsored by representatives Skindell and Isaacsohn, does exactly that. An amendment to the state operating budget could also make this needed change a reality.
A refundable state EITC would help families and contribute to local economies. It would put Ohio in step with the growing national trend: 26 states, DC, and Puerto Rico already have refundable EITCs; only four other states have such credits that are nonrefundable. And it would give families the same treatment that other classes of taxpayers currently receive: film producers, developers, and corporations have long had access to refundable tax credits in their sectors. The 10% refundable EITC option will serve as a lifeline, offering tangible assistance to hundreds of thousands of Ohio families.
According to a new analysis from the Institute on Taxation and Economic Policy (ITEP), a nonprofit with a sophisticated model of the state and local tax system, implementing a 10% refundable state EITC would help an estimated 1,750,000 people (including 670,000 children) across the state. Eligible families earning less than $23,000 annually — none of whom receive any real value from the state credit now — would receive an average payment of $220, providing critical relief to cover essential expenses. Families earning between $23,000 and $47,000 would receive an average payment of $328, easing their financial burdens and promoting a measure of additional stability.
The ITEP analysis also shows that the 10% refundable EITC would be especially beneficial to Black and Hispanic Ohioans. Black Ohioans — who make up 12.6% of the state — would receive 21.7% of the total value of the EITC. Hispanic Ohioans — who make up 3.2% of the state — would receive 12.6% of the total value. On average, eligible Black Ohioans would receive a $243 tax credit and eligible Hispanic Ohioans would receive an average credit of $259.
The refundable EITC would cost an estimated $200 million, a modest figure relative to the $11 billion Ohio spends every year on permanent and poorly understood tax expenditures. The cost could easily be covered by cutting some unproductive and badly targeted existing tax breaks. Just closing the LLC loophole, a deduction for owners of certain business entities, could bring in more than $1.29 billion in revenue per year. Taxing the most affluent Ohioans at higher rates, or modernizing our corporate tax system could also bring in more than sufficient revenues and bring a measure of fairness to the tax code. Ohio has the opportunity to provide some immediate relief to working families and promote economic stability by instituting a 10% refundable state EITC. This simple policy change will benefit hundreds of thousands of working Ohioans. It is a crucial step toward a more equitable Ohio, where all families can thrive, and all communities can prosper.
 U.S. Census Bureau, Supplemental Poverty Measure, Table B.8, available at https://www.census.gov/library/publications/2022/demo/p60-277.html, accessed Jun 2, 2023.
 Waxman, S. and Hinh, I. States Can Enact or Expand Child Tax Credits and Earned Income Tax Credits to Build Equitable, Inclusive Communities and Economies. March 3, 2023. https://www.cbpp.org/research/state-budget-and-tax/states-can-enact-or-expand-child-tax-credits-and-earned-income-tax
 Ohio Department of Taxation, Ohio Individual Tax Returns Tax Year 2021, Table 23 All Returns by Ohio Taxable Income, available at https://tax.ohio.gov/researcher/tax-analysis/tax-data-series/individual-income/publications-tds-individual/it-2021, accessed Jun 2, 2023.
 Policy Matters Ohio calculation based on Ohio Department of Taxation, TY 2021 returns.
 U.S. Census Bureau Household Pulse Survey, Week 57. https://www.census.gov/data/tables/2023/demo/hhp/hhp57.html
 Petrick, W. New census data show Ohio lags most states in median income and childhood poverty. September 15, 2022. https://www.policymattersohio.org/press-room/2022/09/15/new-census-data-show-ohio-lags-most-states-in-median-income-and-childhood-poverty
 Bervejillo, G. The great Ohio tax shift, 2022. February 2022. https://www.policymattersohio.org/files/research/taxshift2022.pdf
 Ohio Department of Taxation. Tax Expenditure Report (Fiscal Years 2024-2025). January 25, 2023. https://archives.obm.ohio.gov/Files/Budget_and_Planning/Operating_Budget/Fiscal_Years_2024-2025/ExecutiveBudget/Book_Two_Tax_Expenditure_Report.pdf
 Bervejillo, G. Ohio’s LLC loophole: Public dollars, private benefits. July 20, 2022. https://bit.ly/3CjrklF Cummins, P. (Feb 17, 2023). Cost of the Business Income Deduction (BID) and 3% tax rate on business income. Letter to The Honorable Louis W. Blessing, III Ohio Senate. Ohio Legislative Service Commission. R-135-0396
Bervejillo, G. Setting the foundations for a thriving Ohio with a proactive tax agenda. January 05, 2023. https://www.policymattersohio.org/research-policy/quality-ohio/revenue-budget/tax-policy/setting-the-foundations-for-a-thriving-ohio-with-a-proactive-tax-agenda
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