Candidates cautious on value of proposed state income tax cut
By Mike Barajas
June 30, 2008
Though Ohio’s income tax accounts for 43.5 percent of the state’s revenue, some Ohio lawmakers have introduced legislation that would completely do away with it.
The bill is a group of lawmakers’ attempt to increase Ohio’s long-term economic growth, encourage more business startup, and create more jobs, state Rep. John Adams, R-Sidney, said in his sponsor testimony for the bill. According to Adams, “Eliminating the income tax is the best way to spur our economy and our state’s prosperity.”
Starting 2010, the proposed House Bill 534 would lower the current personal income-tax rate by 10 percent for 10 straight years until residents no longer pay state income taxes. A small group of states go without an income tax, though in most cases they have other revenue streams that make up for it.
In his sponsoring testimony, Adams stated that Ohio’s personal income tax is punitive to those who generate wealth and capital in Ohio. According to him, rather than leaving the state, high wage-earners will remain in Ohio, benefiting the state’s economy.
State Rep. Jimmy Stewart, R-Athens, said that he is always willing to look at policy that lowers the state’s tax burden. “I’m supportive of the general concept of phasing out the income tax,” Stewart said. However, the real question is how the state would make up for that lost revenue. “It’s a big number,” said Stewart, who is running for a seat in the Ohio Senate. “Income tax is a large component of state tax revenue.”
As of now, it’s difficult to see what exactly would replace the $9.1 billion generated annually by Ohio’s income tax. However, supply-sider proponents for the bill say that if the tax were to vanish, the state’s economy would grow fast enough to offset the losses in state revenue. In a Columbus Dispatch article on June 25, Adams was quoted as saying, “Where I come from, you don’t replace a tax with another tax,” while arguing that Ohio could do away with the income tax without replacing the revenue it brings in.
Stewart said he has yet to decide where he stands on this bill, explaining that he still needs to weigh the costs and benefits. If Ohio’s income tax were to be eliminated, “it’s difficult to look at what would or wouldn’t happen,” Stewart said. “When looking at the bill on its surface, it would be difficult to come up with those dollars.”
Considering how much the income tax adds to the state’s budget, if the dollars weren’t replaced, more cuts would have to be made to the state’s budget. However, 78 percent of the state’s tax money goes toward kindergarten through 12th-grade education, higher education, and health and human services such as Medicaid.
If the state is going to continue to invest that large of an amount in those services, “It’s difficult to replace those revenues,” Stewart said. He added that in Athens County, higher education serves as the biggest employer with Hocking College and Ohio University providing jobs for thousands of people.
With Stewart running for State Senate this year, Jill Thompson, the current Athens County auditor, is the Republican candidate running for his vacant 92nd District House seat. Thompson said she finds the concept of eliminating the state income tax intriguing, but has yet to decide whether she supports the bill that would accomplish that end. However, the candidate noted, “It is always a positive initiative to look for ways to give money back to the citizens of Ohio so they can choose how those funds should be spent.”
Thompson said that cuts can undoubtedly be made, but she’s not sure whether eliminating the income tax is the right route.
Thompson acknowledged that the state income tax goes to fund important programs, such as education and Medicaid. “We need to make sure any cuts in revenue are not at too high a cost to the services state government provides,” she said.
Athens City Council member Debbie Phillips, the Democrat who’s running against Thompson for Stewart’s House seat, said she hasn’t seen much commitment to the bill. It doesn’t even seem like supporters have tried to push it since its introduction in April, she added. Phillips declined to state a position on the bill because she said too much of it remains unclear.
It’s difficult to gauge how serious lawmakers are about scrapping the income tax, she said, when they haven’t even provided information on how they would make up for the lost revenue. “I haven’t seen any information regarding what they propose to replace the money with,” she said.
With 78 percent of the state’s budget going toward education and health and human services, it’s hard to see how a 43.5 percent cut in state revenue wouldn’t affect those services, unless, as proponents have said, the tax cuts stimulate enough economic growth to help pay for those programs.
The argument made by Adams and other supporters of the bill is that Ohio’s income tax puts it at a competitive disadvantage. According to supporters, the elimination of state income taxes would provide an incentive for businesses to set up shop in Ohio, providing the state’s economy with a much-needed shot in the arm.
Critics of the proposal note that Ohio has lost thousands of jobs since the last time the state Legislature cut the state income tax.
Both sides can cite studies backing up their respective positions on this issue. Meanwhile, most Statehouse watchers don’t believe cutting the state income tax has a serious chance of passing anytime soon.
The bill’s other primary sponsor, Rep. Thom Collier, R-Mount Vernon, was quoted in the June 3 Mount Vernon News saying that residents leave Ohio for states that don’t have an income tax. That in turn ends up hurting Ohio’s tax revenue, while at the same time the state loses citizens and community leaders, Collier said.
As of now, the bill remains only in the planning stages. Nothing more has happened with the bill since it was introduced to the Ways and Means Committee April 4. Rep. Matthew J. Dolan, R-Novelty, one of the bill’s co-sponsors, was even quoted in the June 25 Columbus Dispatch admitting it’s probably not possible to eliminate the state income tax.
Stewart said that he’s interested in the debate among his constituents, and continues to weigh the pros and cons of the bill proposed by Adams, Collier and the 18 other Republican co-sponsors. Before he can make a definite decision, Stewart said, “I’d like to hear from the people on this bill,” adding that he’d like to see more debate among Ohioans regarding the feasibility of this proposed income tax cut.
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