Ohio's unemployment rate has fallen in recent months, but too many working families still struggle to make ends meet. A liberal think tank that advocates for low-income households has an intriguing idea that could help.
Last year, Policy Matters Ohio points out, the 21 percent cut in state income taxes phased in over the past several years benefited the top 1 percent of earners more than the bottom 99 percent. Only the top 30 percent of Ohio earners are paid more now than they were in 1979, taking inflation into account, the U.S. Bureau of Labor Statistics says. For the other 70 percent, wages have fallen.
And even though Ohio’s tax rate is higher for earners in the top 1 percent, they still pay a lower percentage of their earnings in state and local taxes — less than 8 percent — than any other income group. The lowest 20 percent of wage earners spend 12 percent of their income on state and local taxes.
Policy Matters says an Ohio version of the federal earned income tax credit could restore fairness to the state’s tax structure and help its neediest families.
The federal credit began under President Gerald Ford. It has expanded under every administration — Republican and Democratic — since. Almost 950,000 Ohio families claim the credit every year, with an average refund of $2,211 each.
Most of the $2.1 billion in tax money that the federal credit returns to working families in Ohio each year gets spent on food, clothing, gasoline, housing, child care, and other necessities. Some gets saved, providing working-poor households with a needed cushion against unexpected expenses.
A state earned income tax credit of 10 percent of the federal credit would cost Ohio $210 million a year, Policy Matters says, and put an average of $221 in the pockets of nearly 1 million low-income working families. The spending the credit would stimulate would have a positive effect on local economies.
Twenty-four states, including Michigan and Indiana, have their own credit for earned income. The programs range from 3.5 percent of the federal credit in Louisiana to 50 percent in Maryland. In most cases, the credit is refundable, so families can get money back if the credit is more than the taxes they owe.
The 2005 state tax cuts given to top earners were supposed to stimulate job creation and encourage businesses to move to Ohio. That didn’t happen.
A state earned income tax credit would reward poor families for working and give them a boost out of poverty. Investing in Ohioans would be good policy.