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The tax plan recently proposed by Ohio Gov. John Kasich would be a massive tax shift away from well-off taxpayers to the middle-class and working poor, according to a new report released by Policy Matters Ohio that incorporates ITEP data. His plan follows similar tax shift proposals from Maine and South Carolina and shows that plenty of governors around the country are doubling down on regressive tax “reform,” despite arguments to the contrary.
Taking into account the governor’s proposed changes to income and consumption taxes, the top one percent of Ohio taxpayers will receive an average tax break of $12,010, while the bottom 40 percent of taxpayers will actually see their taxes go up by about $50. Gov. Kasich has touted his plan as a measure to boost small businesses, but in reality his policy will benefit the wealthy and leave working families in Ohio further behind.
Gov. Kasich has proposed slashing income taxes for the second time in his administration. His new plan would cut rates by 23 percent over two years, with an immediate 15 percent cut in 2015. These cuts would cost an estimated $4.6 billion in revenue over the biennium. Kasich also wants to eliminate the income tax for business owners with $2 million or less in annual receipts at a two-year cost of $700 million dollars, and increase the personal exemption allowed for those with $80,000 or less in annual income. The benefits of the governor’s income tax proposals would put, on average, $13,000 back into the pockets of the top one percent of Ohio taxpayers annually, while those at the bottom would see an average $16 tax cut. Those in the middle would see a $219 tax cut on average.
Worse than the lopsided benefits that would accrue to the rich are the regressive tax increases Gov. Kasich proposes to pay for his cuts. The governor wants to increase the sales tax rate from 5.75 to 6.25 percent and broaden the sales tax base to include a number of additional services. He also wants to increase excise taxes on cigarettes and other tobacco products. These measures hit low-income households the hardest and explain why overall tax rates will increase for the bottom 40 percent. While wealthier households will pay a higher dollar amount under the sales tax increase, low-income households will have to pay a larger percentage of their income. Similarly, the cigarette and tobacco tax increase will have a larger impact on low-income households. ITEP’s recent Who Pays report shows that states that rely disproportionately on consumption taxes rather than income taxes are less fair and more unequal in the distribution of tax obligations.
Kasich’s proposal also includes other measures meant to help pay for his tax cuts or reduce taxes for businesses. He would means test three tax provisions geared toward income earned by senior citizens, raise the rate of the Commercial Activity Tax while reducing the minimum paid by some companies, and increase the severance tax on oil and gas.
A number of legislators have balked at the governor’s plan. Rep. Kevin Boyce argued that the increase in the income tax personal exemption for lower-income taxpayers would be negated by the increase in sales taxes, while Rep. Denise Driehaus questioned whether the measures for business owners would be enough to spur job growth.
The governor could actually help working Ohioans by expanding the state’s Earned Income Tax Credit (EITC). While Gov. Kasich often highlights his expansion of the EITC from 5 to 10 percent, this is not nearly enough to truly make a difference for low-income families – as Policy Matters Ohio and ITEP have previously argued. The bottom 20 percent of tax filers receive an average of just $5 in savings from the EITC, while the next 20 percent receive an average $60 in savings. These meager savings would be wiped out by the governor’s proposed sales tax increases. A truly progressive tax proposal would increase the EITC further and make the credit refundable so that working families would receive the full benefit.
What Ohio needs is a tax policy that will help low-income and working families get a leg up, not reward the well-off with lower taxes. We hope the governor will make fairness a part of his economic agenda.