Income tax

New Ohio Bill Would Kill State Income Tax

Ohio House 80th District candidate Steve Huffman, 2014

Ohio House 80th District candidate Steve Huffman, 2014

Named after economist Arthur Laffer, its namesake “curve” postulates an “optimal” tax rate that maximizes tax revenue.

In fiscal 2020, Ohio’s personal income taxes generated nearly $8.3 billion, less than the state’s sales and use taxes, which generated $10. .9 billion dollars. Income taxes provide about 28% of Ohio’s total tax revenue, according to the state Department of Taxation.

The $8.3 billion collected in fiscal year 2020 was 11% lower than the $9.3 billion collected in fiscal year 2019, the tax department said.

Beginning with the 2019 tax year, all Ohio income tax rates have been reduced by 4%, bringing the highest tax rate in the state to 4.797%, said the state.

Huffman recognizes diminishing returns, with income tax revenues ending once the rate is lowered to zero. But he foresees strong economic growth triggered by a steady decline in rates, coupled with “rainy day” savings funds, which will make up the difference.

“If it doesn’t (provide the necessary revenue), the General Assembly can decide how they want to fill it,” Huffman said in an interview Friday.

State Senator Niraj Antani, R-Miamisburg, is a co-sponsor of Huffman’s bill, as are six other senators.

Ohio Senator Nirj Antani promotes Ohio sales tax exemption on back-to-school clothing and items. Antani and Retail Merchants Chairman and CEO Gordon Gough hold a press conference at Kohl’s in Austin Landing on Friday, August 6, 2021 JIM NOELKER/STAFF

Credit: Jim Noelker

Ohio Senator Nirj Antani promotes Ohio sales tax exemption on back-to-school clothing and items.  Antani and Retail Merchants Chairman and CEO Gordon Gough hold a press conference at Kohl's in Austin Landing on Friday, August 6, 2021 JIM NOELKER/STAFF

Credit: Jim Noelker

Ohio Senator Nirj Antani promotes Ohio sales tax exemption on back-to-school clothing and items. Antani and Retail Merchants Chairman and CEO Gordon Gough hold a press conference at Kohl’s in Austin Landing on Friday, August 6, 2021 JIM NOELKER/STAFF

Credit: Jim Noelker

Credit: Jim Noelker

Antani said there was work to be done to fully consider the idea. He said that each state budget spends more than the previous budget. This needs to be reduced, in his opinion. Reducing unnecessary expenses and earmarking will also help.

“Choices will have to be made to reduce spending growth,” he said.

And Antani expects more jobs to be created with money returning to the people.

“We’re not in Texas or Florida, but if we want to be competitive with them, we have to get rid of state income tax,” he said.

The idea is not new. In 2008, House Bill 534 called for the phasing out of Ohio’s income tax, also over 10 years. Sidney Republican John Adams was the main sponsor. It was presented to the full House in April of that year before failing to gain traction.

In 2020, nine states – Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming – had no income tax. These states often rely on sales, property, local taxes, and gasoline to fill the void.

Guillermo Bervejillo, a senior fellow and analyst for the left-leaning think tank Policy Matters Ohio, called the idea of ​​eliminating state income taxes “an act of risk, an act of elaboration. irresponsible policies”.

“The Laffer Curve is really laughable,” Bervejillo said in an interview.

Without income taxes, the state will have to turn to sales, use and excise taxes, which will weigh heavily on low-income Ohios, he said.

Florida derives massive revenue from tourism. People outside the state provide that revenue, Bervejillo said. “Obviously Ohio doesn’t have that kind of tourism.”

Texas has a hefty departure tax, much heavier than Ohio’s, he added. It is a tax that corporations pay to extract (or “cut”) natural resources from state territory, such as oil and fossil fuels. Ohio has a flat, minimal departure tax, Bervejillo said.

Pointing to a state arguably closer to Ohio than Florida or Texas, Bervejillo noted that Tennessee has no income tax, but does have high sales taxes.

“And he has terrible serves,” he said. “We don’t want to replicate Tennessee. It’s a bad idea.”

“The very idea of ​​using rainy day funding,” he added. “I mean, what happens when it rains?”

Rea Hederman, vice president of policy at the conservative-leaning Buckeye Institute, said Huffman’s proposal was at least the start of a needed discussion.

“Many other states have already completed tax reform by eliminating income tax like Tennessee and New Hampshire or moving to a flat tax like Mississippi,” Hederman said in an email. “Ohio should be encouraged that the Ohio Senate is seeking economic growth in Ohio and wants tax reform.

But more steps will be needed, according to Hederman.

“These measures can include a mixture of slowing the rate of growth of spending, cutting unnecessary government programs or closing tax loopholes. With a 10-year plan, Ohio has plenty of time to discuss these steps and which ones are best for the state,” he said.