In a state where citizens can pay income taxes to as many as five entities, an Ohio State Senator is leading an effort to eliminate one of them over the next 10 years.
State Sen. Steve Huffman (R), who sponsored the bill with seven co-sponsors, introduced Senate Bill 327 just before the May 3 primary election.
It is expected to be forwarded to the Senate’s Ways and Means Committee, which discusses tax issues, later this month.
The seven-member committee consists of five Republicans and two Democrats.
SB 327 would reduce state income tax by 10 percent in each of its five tax brackets every year or so over the next decade until it’s gone.
Ohio residents have been paying state income tax for 50 years since voters passed the measure on the ballot in 1972.
Voters rejected a ballot measure that would have repealed it and the state has been reducing taxes in one form or other since the mid-1980s.
Huffman brings the issue back after about 10 years, as it started gaining traction under former Gov. John Kasich (R) who took office in 2011.
He approved dropping the state income tax from 5.99 percent to 3.99 percent—the top rate last year, Huffman said.
There were nine levels of tax brackets then, but now only five remain.
This comes after Ohio continues to drop in population.
State leaders are looking for ways to retain and attract people, offering student loan forgiveness, putting up billboards to recruit new talent to the state, and touting its low cost of living and housing.
Now the newly-introduced bill is aimed at keeping the rustbelt state competitive.
Huffman serves the Senate’s 5th District, which covers all of Miami and Preble counties north of Dayton, and parts of Montgomery and Darke counties.
The region’s anchor industries mostly are healthcare and the Wright Patterson Air Force Base. The area is looking to diversify and improve its economy.
“It is to get the money back into the people’s hands and to get the economy going forward too,” Huffman told The Epoch Times. “People would have more money to spend, and some of the money they pay in taxes would go back in their pocket.”
If fully enacted by 2032, Huffman’s bill would save taxpayers nearly $830 million each year, based on information from the Ohio Department of Taxation.
Income tax accounts for about 28 percent of the state’s income revenue.
The state collected $8.3 billion in 2020, or $1 billion less than the $9.3 billion collected in fiscal 2019, according to the department.
“Even lowering the rate by a third, we’re still collecting $8.2 billion,” Huffman said. “It’s called the Laffer Curve, where you give the money back and you collect about as much.”
The bill would eliminate Ohio’s income tax, but the Laffer Curve, the rainy day fund, and stronger economic growth would provide the revenue to pay for needs in the state budget.
The Laffer Curve is based on the economic idea that people will adjust their behavior in the face of the incentives created by income tax rates.
The curve is used to illustrate the argument that sometimes cutting tax rates can result in increased total tax revenue.
In the case of Ohio, it is projected cutting tax rates will both stimulate economic incentives and increase revenue.
Residents pay federal, state income, and city income tax (where they live and work).
In Lorain County west of Cleveland, residents also pay taxes to RITA (the Regional Income Tax Agency).
The co-sponsors of the bill are GOP lawmakers Niraj Antani, Jerry Cirino, George Lang, Nathan Manning, Kristina Roegner, Mark Romanchuk, and Steve Wilson.
Huffman also said the economic growth created by the tax cuts will pay for the revenue losses they incur, noting Ohio’s economy has strengthened over the past decade.
Mike DeWine and his predecessor Kasich signed gradual income tax reductions.
Huffman said he has no plans to increase taxes elsewhere—such as sales tax—but the decision would be up to future lawmakers.
“I believe that the hole will be filled with economic development,” Huffman said.
Earlier this year, DeWine’s office and Intel announced plans for a $20 billion project in New Albany near Columbus for two microchip plants. Although the company was given a major tax break and incentive package, the project is expected to spur other major development in the area and attract other businesses that complement Intel.
With those taxes, and the taxes Intel will be paying, that will be part of another revenue stream.
Huffman predicts that legislators will be able to fill that hole 10 years from now, possibly with a combination of higher revenues from other tax sources—such as sales taxes—and cutting back on spending.
“If we become competitive and continue to bring businesses like Intel here, we probably won’t have to make any cuts,” Huffman said.
Currently, there are nine states without an income tax—Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.
People also are moving out of higher-tax states like California, New Jersey, and New York.
The two states with the highest state income taxes are California at 13 percent and New Jersey at 10.75 percent.
It also helps states such as Florida or Tennessee prioritize their spending and stay on track with providing services.
Democrats, who oppose the bill eliminating the state income tax, believe it’s fewer taxes on the rich and want more taxes.
“I think the wealthiest Ohioans would win the most and benefit the most,” said State Sen. Nickie Antonio (D), who represents the large west Cleveland suburb of Lakewood, a Democratic stronghold. “The lowest-income folks in this state would end up paying more in the long run.”
A taxpayer’s annual salary determines his income tax rate. Under current Ohio law, people making less than about $22,000 don’t pay the tax. People who make about $217,000 or more pay 4.8 percent. Middle-income earners pay somewhere in between.
“It just doesn’t seem to me like a way towards prosperity for the state to look at cutting income tax as a way forward,” Antonio said.
Huffman said that the income tax in Ohio has been reduced in some way or another since 2010.
Kasich had overestimated or overfunded Medicaid when he was in office and some of those funds later were re-appropriated into the rainy day fund, Huffman said.
Last year, DeWine also signed a state budget bill that cut state income taxes by 3 percent for everyone, removing the state’s top income-tax bracket. That cut gave taxpayers in the higher bracket a cut of about 17 percent.
State Sen. Louis Blessing (R), chairman of the Senate’s Ways and Means Committee, could not be reached for comment.
Plus, there’s sales tax revenue in Ohio. Other states such as Arizona that do not have an income tax, rely on sales tax.
When considering the state sales tax rate of 5.75 percent and county rates as high as 2.25 percent, the average total sales tax rate in Ohio is about 7.17 percent. That amount ranks in the top half of the United States.
Individual taxpayers whose Ohio taxable annual income is less than or equal to $10,000 are effectively exempt from the tax since they receive full credit against the amount due.
Another tax-saving measure under Kasich was eliminating the estate tax when a levy had been imposed on estates worth more than $338,000.
Democrats believe it’s fewer taxes on the rich, and want more taxes.
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