February 11, 2015
February 11, 2015
Ohio's tax system is slanted against the poor and middle class, and getting more so. Our legislators should remedy this - and generate more revenue to better educate Ohioans and provide other badly needed services - by increasing state income-tax rates on the most affluent.
In Ohio the top 1 percent of non-elderly residents by income, who earned at least $356,000 in 2012, pay 7 percent of their income in state and local taxes on average. The lowest fifth, who make less than $18,000, pay 11.7 percent on average. Those in the middle, making between $34,000 and $56,000, pay 10.6 percent on average. These were the findings of a just-released report by the Institute on Taxation and Economic Policy (see http://www.policymattersohio.org/inequality-jan2015).
These differences are even larger if you take into account that upper-income taxpayers can deduct more state and local taxes from federal taxes. Including those deductions, the top 1 percent of Ohioans is paying less than half as much as a share of income than the bottom fifth--5.5 percent compared to 11.7 percent.
The state collected more sales tax than income tax for the first time in a quarter century in its last fiscal year. We have cut the income tax while increasing the sales tax, which falls more heavily on lower- and middle-income Ohioans.
Ohio's tax system is slanted against the poor and middle class, and getting more so Ohio's income tax is the only major tax based on the ability to pay. This principle was embraced by the founders of our democracy, such as Thomas Jefferson, as well as by the intellectual father of capitalism, Adam Smith.
It's well known that inequality has been growing in Ohio and across the country, as a large share of income gains have gone to the already well-off (see http://www.policymattersohio.org/inequality-jan2015) Ohio's taxation system didn't cause this inequality, but it is adding to it.
A September report by Standard & Poor's Rating Services found that "increasing income inequality is undermining the rate of state tax revenue growth." The negative effect was greater in states that relied more heavily on the sales tax. This makes sense: In an era of stagnant or shrinking incomes for most, adopting a tax policy that relies on the poor and the middle class is not a path to greater economic growth or a sustainable revenue stream.
Some argue that slashing the income tax will lead to stronger economic growth. In Ohio, we have nearly a decade of experience with this approach. It has failed. Jobs in Ohio are down by 1.6 percent since the General Assembly approved major reductions in 2005, while the nation has gained 4.8 percent.
We need to do the opposite. This will help generate the revenue we need to better educate Ohioans, a key to higher wages. And it will allow us to tackle other key impediments to a strong state such as our high infant mortality rate, and the blight of vacant and abandoned homes. Legislators should change the tax system so it does not reinforce inequality, costing Ohio's poor and middle class a bigger share of their incomes than the most affluent.
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