Editorial: Ohio lawmakers should resist urge to score political points by cutting income tax

As Ohio’s budget-writing General Assembly nears it June 30 deadline, legislators should apply common sense, not political dogma, if they prune the state income tax.

Since the mid-1980s, the General Assembly has seldom passed a state budget without the headline bait of a tax cut. Soon forgotten is whether tax cuts add any pep to Ohio’s sluggish economy.

Meanwhile, state taxes in Ohio – repeat, state taxes – are relatively reasonable. Ohio Taxation Department data for 2017-18, the latest posted, indicates Ohio ranks 29th among the 50 states and the District of Columbia in total taxes per capita ($4,640).

Ohio’s rank would be even lower (that is, closer to 51st), but for this paradox: Ohio ranks 37th overall, but in terms of local taxes per capita, Ohio ranks 19th.

Obviously, real estate taxes levied locally, much of which support schools the state won’t fairly fund, are part of the reason. And Ohio cities and villages were early adopters of the municipal income tax.

Meanwhile, rather than amply fund local governments, the state instead lets them to impose an array of local “piggyback” taxes, pushing up communities’ local tax burden.

And Ohio’s manufacturing economy has been stuttering because of foreign trade policies pushed by multinational corporations and politicians of both parties. Median household income in Ohio is $56,602; nationally, it’s $62,843.

Ohio’s state income tax, passed in 1971 by a Republican-run General Assembly, took effect for 1972. In 1983, to make up falling tax collections in a deep recession, the General Assembly’s Democrats boosted Ohio’s income tax by 90%.

Republicans gained control of the state Senate in November 1984 by promising to cut the income tax. They have controlled the Senate ever since.

And Republicans in both chambers have convinced themselves that income tax cuts, rather than, say, gerrymandered districts and fat cat campaign contributors, are what keeps them in power. Cuts were approved in 1985, 1986, 1996, 2005 (for a five-year series of cuts), 2013, 2014, 2015, 2017, 2018 and 2019 — and another could follow yet this month.

And beginning in 2016, the first $250,000 of an Ohioans’ business income – as a sole proprietor, or via partnerships, S corporations or limited liability companies – is 100% deductible. The business income deduction will deprive the state treasury an estimated $1.35 billion in revenue over the next two fiscal year, according to official estimates.

Despite all those cuts, Ohio’s economy hasn’t taken off. In 1985 the state’s poverty rate was 13%, while the national rate was 14%. In 2017-18, 32 years into Ohio’s income-tax-cut politicking, Ohio’s poverty rate was 13.9% while the national rate was 13.1%, the Development Services Agency reported.

Earlier this year, citing pre-pandemic data, U.S. News & World Report ranked Ohio 39th in job growth among the states.

Evidently, the promises of flush times flowing from income tax cuts were just that: Promises.

The truth is most Ohio taxpayers see little benefit from the tax cuts. A 2% cut across the board proposed in the Ohio House budget in April would reduce annual tax collections by about $148 million. But the savings for a typical filer with $60,000 in taxable income would amount to just $29 a year, cleveland.com found.

On the state level, Ohio doesn’t have a tax problem.

It abolished its tax on business equipment and inventories. It repealed its estate tax. It abolished its “intangibles” tax on financial instruments. According to the Tax Foundation, Ohio’s statewide sales tax rate, 5.75%, is 27th among the states.

But taking into account Ohio’s county piggyback sales taxes – hot potatoes the legislature tosses to county officials – Ohio ranks 20th in sales tax rates. It’s highest in Cuyahoga County at 8%.

The state government has an investment problem, not a tax problem. It underinvests in K-12 schools. It underinvests in children’s services. And the state underinvests in such quality-of-life topics as strongly policed care for older people, especially important since the proportion of older residents is rising.

That’s the issue with tax cuts for the sake of headlines: Politics triumph over policy. It’s gone on for too long in Ohio’s budget debates. And such beside-the-point budgeting needs to end.

— Cleveland Plain Dealer, June 27