At the last minute, leaders of the Republican-controlled General Assembly have sprung a tax-cut plan that would reward their party’s wealthy constituents while imposing new burdens on middle-class, working-class, and poor Ohioans. It is likely to become law — but it shouldn’t.
GOP leaders presumably would not be pushing the plan, which would become part of the new $61.7 billion state budget, unless they were assured of the votes in the Statehouse to pass it. Republican Gov. John Kasich supports the package. But its partisan appeal shouldn’t be allowed to mask its deficiencies as public policy.
The plan would cut state taxes overall by $2.56 billion over three years, up from the $1.6 billion tax cut proposed by Mr. Kasich. It would reduce personal income tax rates by 10 percent by 2015, and cut taxes in half for small businesses on the first $250,000 a year in net income.
The threshold question is whether state government needs to enact a tax cut of this size while it has yet to restore the deep slashes in aid to school districts, local communities, and essential state services it has made in the current budget. It doesn’t. But the tax plan’s details are equally objectionable.
The plan would reduce the state’s reliance on its most progressive tax, the graduated income tax, which imposes higher rates on larger incomes. At the same time, it would raise from 5.5 percent to 5.75 percent the flat rate of the state sales tax, which falls most heavily on lower-income households.
Combined with local taxes, the sales tax rate would rise to 7 percent in Lucas and Ottawa counties, 6.75 percent in Wood County, and 7.25 percent in Fulton County. The plan does not include Governor Kasich’s proposal to broaden the sales tax base to include a wide range of services that are not now taxed.
The proposal would begin to limit homestead property tax exemptions to senior households that earn less than $30,000 a year, although current recipients would not be affected. While a degree of means testing is desirable, the GOP plan could deny relief to large numbers of struggling elderly taxpayers.
The plan also purports to end a “shell game” in Ohio tax policy, under which the state subsidizes a portion of homeowners’ property taxes (the change would not affect current levies). Tax transparency and simplification are desirable, but not at the expense of placing even more pressure on local levies.
The plan has a few positive features. It broadens the state commercial activities tax levied on businesses’ gross receipts. It would create a state earned income tax credit, albeit limited, for low- and middle-income families.
It would make tax treatment of goods bought online, some tobacco products, and magazines more uniform. Taxpayers no longer would have to subsidize gamblers’ losses. But these provisions don’t compensate for the proposal’s larger failings.
Proponents insist the state tax cut will stimulate job creation and economic growth and competitiveness. Even if that were true— economists are divided on the question — the Kasich administration proclaims that Ohio already leads the nation in new jobs (at least, it did last month). So the compelling need for the cut remains asserted more than proven.
GOP leaders introduced the plan just days before lawmakers must approve the two-year budget bill and send it to the governor. But they insist they don’t have time to do something that really would help Ohio: expanding the state’s Medicaid program to provide health insurance quickly to 275,000 working-poor Ohioans, 18,000 of them in Lucas County.
Mr. Kasich proposed the Medicaid expansion back in February, along with a modest increase in the state severance tax on oil and natural-gas extraction that lawmakers also continue to ignore.
The regressive, unbalanced tax plan is the latest fallout from voters’ decision in 2010 to give Republicans virtually absolute control of state government. If nothing else, it may cause Ohioans to resolve to use next year’s elections to restore a degree of partisan balance to Columbus — assuming the Ohio Democratic Party can figure out by then how to make itself more competitive.