A fairer tax system
3/30/2013Gov. John Kasich’s proposed changes to Ohio’s tax system, which include broadening the sales tax base and slashing income and business taxes, would reward Ohio’s wealthy but do little for poor and working-class families. Even if Mr. Kasich doesn’t get everything he wants in the next two-year budget, the tax plan that finally emerges from the General Assembly almost certainly will make the tax code more regressive and unfair.
A good way to make Ohio’s system fairer would be to do what 24 other states, including Michigan and Indiana, already have done: Enact a state earned-income tax credit for lower-income workers.
The federal government has provided an earned-income tax credit for decades. With bipartisan support, it has become one of the nation’s most effective anti-poverty programs.
A state earned-income tax credit would inject needed fairness into Ohio’s tax code, especially if Mr. Kasich’s proposed changes become law. For the top 1 percent of Ohio’s taxpayers — households with incomes of more than $335,000 a year — the governor’s income tax cut would generate an average annual savings of $7,777, the liberal advocacy group Policy Matters Ohio calculates. The bottom 20 percent would save $7 a year, barely enough for lunch at McDonald’s.
The state earned-income tax credit would follow the guidelines of the federal program, which last year provided average credits for Ohioans of $2,238. Nearly a million Ohio workers claim the federal credit, pumping more than $2 billion a year into Ohio’s economy.
About 160,000 Ohio families qualify but don’t take advantage of the program; they should. Larger families can earn as much as $50,270 a year and still qualify for the federal credit.
States set their earned-income tax credits at different levels of the federal program. In Ohio, a state credit set at 20 percent of the federal credit would create an average benefit of $446, said David Rothstein of Policy Matters Ohio. That would cost the state $360 million a year, or 2 percent of the state budget.
Families would use the credits to pay for basic and immediate needs, such as food, housing, clothing, and child care. Such spending would boost local businesses and jobs, as well as stimulate the state’s economy. Ohio would collect additional taxes on those purchases.
Earned-income tax credits encourage and reward workers who often perform hard and dirty jobs. Gov. Kasich has made a mantra of cutting income taxes. He and lawmakers ought to put a state earned-income tax credit in the code, to give a break to lower-income workers and their families.