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Ohio's new flat tax puts schools, roads and other public goods at risk
The result was two decades in the making. Republicans in charge of the Statehouse ended the progressive, or graduated, income tax in Ohio. They did so in the most recent state budget bill, commencing in July.
That outcome may please many Ohioans, especially those who have applauded the Republican project, begun in 2005. The aim has been to reduce state income tax rates, shrinking both the percentage collected from individuals and the number of brackets. Not surprisingly, taxpayers, especially big campaign donors, like paying less.
Today, the state income tax features a single bracket, all those affected paying 2.75%. That is a long way from the nine brackets and top rate of 7.5% on income above $200,000 early in this century, or just before Republicans went to work.
The argument has been that such a reduction would prove an economic boon to the state. As it is, the data indicate nothing of the kind. The state still lags the country as a whole, its median income 41st among the states. Such trends inspire some Republicans to insist they haven't done enough. Many, including Vivek Ramaswamy, the party's leading candidate for governor, talk about eliminating the income tax.
Wouldn't that be swell?
Worth recalling is why Ohio adopted an income tax. The state found itself increasingly without the resources to invest adequately in public goods, from education to roads and health care. So, in 1971, the state legislature, pushed by Gov. John Gilligan, the Democratic governor, enacted the tax. When opponents challenged the measure, Ohio voters decisively rejected their view.
No doubt, Republicans often grumbled about the tax. At the same time, a bipartisan consensus formed. When recessions struck, or events otherwise triggered budget shortfalls, both parties looked to the income tax for help. Notably, the likes of George Voinovich and Bob Taft recognized the value in increased tax rates for those at the highest income rungs.
Why? Mike DeWine recently provided an answer. The governor took office six years ago expressing skepticism about the need for further income tax cuts. (His fellow Republicans went ahead, anyway.) He cited the state's 'unfinished business.' Most recently, as he vetoed ill-conceived moves by lawmakers to address the local property tax burden, he reminded: 'We need to fund our schools, we need to fund our mental health in the state.'
The income tax is a practical tool for addressing such priorities. It opens the way to progressivity, reflecting the ability to pay. Thus, it adds a worthy element of equity, in contrast to the regressive sales tax and property tax.
This is what Republicans have abandoned with their flat tax.
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Headed into this budget cycle, Republicans had whittled the number of tax brackets down to two, 2.75% on income between $26,050 and $100,000 and 3.5% on income above $100,000. By wiping out the higher rate, they have delivered a $1 billion tax cut to those Ohioans with higher incomes.
Two think tanks, Policy Matters Ohio and the Institute on Taxation and Economic Policy, have calculated further that the top 1% of earners, with an average annual income of $1.7 million, will receive 40% of the tax cut.
The bulk of the remainder flows to the next 15%.
Since Republicans began whacking the graduated income tax, the top 1% have enjoyed an average annual tax cut of $52,459. By contrast, those in the bottom 20% pay $80 more in all taxes.
The bottom 20% pay 12.7% of their income in state and local taxes while the top 1% pay just 6.3%. That inequity will deepen with the flat income tax.
Something else merits attention: The Republican income tax cutting means that for every tax dollar Ohio collected in 2004, it takes in 85 cents today.
That helps explain a conspicuous hole in the new state budget. It falls $2.86 billion short of the resources required under the Fair School Funding Plan. Nearly three-quarters of school districts receive less than what the funding plan says they need to provide an adequate education.
Recall the applause that greeted the unveiling of the plan, a bipartisan effort to tackle, finally, a problem that dates to 1997, when the Ohio Supreme Court declared the school funding formula unconstitutional. The plan even represents a path to addressing rising anger about local property taxes.
The state must step up to ensure the funding necessary to support public goods and services. Primary and secondary education are hardly alone in facing neglect. Higher rates for the wealthiest could be achieved while preserving part of their tax cut. The governor and lawmakers might tap the more than $11 billion in tax credits, exemptions, deductions and other breaks. What won't get the job done is abandoning the progressive income tax for a flat rate.
Douglas is a retired Beacon Journal editorial page editor. He can be reached at mddouglasmm@
This article originally appeared on Akron Beacon Journal: Ohio flat tax puts schools, roads, other public goods at risk| Opinion
