Nearly a decade ago, Ohio placed a fateful bet: that big tax cuts, especially for the state’s richest people and corporations, would generate strong job creation, economic growth, and revenue increases. That mostly hasn’t happened.
Columbus’ tax-cut scheme — which costs about $3 billion a year — has forced huge reductions in state spending on essential public services and in aid to local schools and governments. Now a new study, just in time for this year’s elections, shows how the failed tax strategy also has widened economic inequality in Ohio, forcing lower-income taxpayers to subsidize the wealthiest ones.
The progressive advocacy group Policy Matters Ohio commissioned the study by the Institute on Taxation and Economic Policy, a nonpartisan research organization in Washington. The analysis concludes that the wealthiest 1 percent of Ohio taxpayers — whose average annual income exceeds $1 million — typically get a tax-cut windfall of more than $20,000 a year because of changes enacted by state government since 2005. The tax cut as a percentage of their income is greater than for any other income group.
At the same time, the study notes, the bottom 60 percent of Ohioans — who make $54,000 a year or less — are paying more in state taxes today than they would have without the changes. In fact, the typical tax relief for the 1 percent is greater than the average yearly income — less than $19,000 — of the bottom 20 percent of taxpayers.
How have the tax cuts paid off? Since they started taking effect in 2005, Ohio has lost, not gained, jobs, even after the Great Recession ended. Last month, Ohio led the nation in non-farm job losses.
The state’s tax changes include big cuts in the personal income tax in 2005 and last year. State officials eliminated Ohio’s estate tax, which applied only to estates worth more than $338,000.
They created the Commercial Activity Tax, part of which is passed on to consumers, to replace the corporate-income and tangible-property taxes, which they repealed. They enacted a new tax deduction for business income.
To help offset the cost of the tax cuts, the state has raised its regressive sales and cigarette taxes. Although the state created an earned income tax credit and then increased it, many of the poorest Ohioans cannot take advantage of it because they do not pay enough in taxes.
Governors and state lawmakers of both parties have pursued the tax-cut strategy. But Gov. John Kasich and the Republican-controlled General Assembly have expanded it with gusto, making tax relief a plank of their re-election campaigns.
Ohioans needs a new tax policy that works for everyone, not just the wealthiest. It needs a tax system that is fairly based on ability to pay, not one that favors the already favored.
It needs a budget that makes necessary public investments, rather than starving essential services — basic and higher education, aid to local communities, other programs that serve the most vulnerable citizens — while forcing the Ohioans who benefit most from these services to pay more in taxes.
Taxpayers aren’t likely to get such changes from this governor and legislature. The large majority of Ohioans who aren’t benefiting from the state’s big tax shift might consider that when they vote this November.