However, Republicans and anti-tax activists say the proposals in House Bill 1 would make Ohio’s tax structure simpler, fairer, and more attractive to out-of-state businesses.
HB1, introduced Wednesday by state Rep. Adam Mathews, a Cincinnati-area Republican, create a flat state income tax rate of 2.75 percent, though Ohioans making less than $26,050 per year would continue to pay no income tax.
Right now, state income tax rates range from 2.765 percent for the portion of income from $26,051 to $46,100, to 3.99 percent for the portion of income Ohioans make above $115,300.
Setting a flat rate of 2.75 percent, then, would mean a tax cut of 0.015 percent for the lowest income-tax bracket that is charged money, while the highest tax bracket would have their income-tax rate cut by 1.24 percent.
In other words, an Ohio taxpayer making $75,000 per year in federal adjusted income would pay $140 less in annual state income tax, according to an analysis by The Plain Dealer/cleveland.com. Those making $150,000 a year would save $870, and residents making $500,000 annually would pay $5,209 less.
HB1 would make up for the lost income-tax revenue by ending $1.2 billion per year in state property tax rollbacks. That is state money given to local governments, such as school districts, cities, libraries, park districts, counties, to backfill their losses from tax exemptions, such as those given to older Ohioans and military veterans.
HB1 states it is the “intent of the General Assembly” to appropriate funds during the next two fiscal years to help local governments hurt by this change, though it remains to be seen where that money would come from.
“This is going to do nothing for poor people. It’s going to do very little for middle income people. And the only people who benefit significantly will be high-income Ohioans,” Zach Schiller, research director for Policy Matters Ohio, a left-leaning think tank. “So what is the rationale for that? I mean, why is it that we want to cut taxes for rich people?”
The answer, according to those who support HB1, is that reducing income taxes is good both for ideological reasons – that Ohioans deserve to keep more of their money – and pragmatic reasons, including that lowering taxes will goose the state’s economy and lure more people and businesses to a state that has seen much more modest population gains in recent decades than states like Texas and Florida, which have no state income tax.
In fact, they see HB1 as only the first step toward getting rid of Ohio’s state income tax entirely within a few years.
“We see a lot of other states trending towards cutting (income taxes),” said Donovan O’Neil, director of Americans for Prosperity’s Ohio chapter. “And if we want to remain competitive with those other states, ...we’ve got to get there. But we’ve got to get there faster, or we’ve never going to capture that population as they’re moving around and looking for the place they can call home.”
State Sen. George Lang, a Butler County Republican seen as a potential successor to Senate President Matt Huffman in two years, said Wednesday he would like to eliminate Ohio’s income tax within four to six years. Lang and about a third of Ohio senators co-sponsored a bill last session to phase out the income tax by 2032, though it died in committee.
“Every time we increase taxes, GDP shrinks, and Americans suffer,” Lang said, though he didn’t offer data in support of his claim. “Every time we lower taxes, GDP explodes (and) Americans flourish and prosper.”
Schiller shot back by noting that the Ohio legislature’s previous tax cuts in recent years haven’t led to a mass influx of new businesses and people. He also said Ohio’s overall state and local tax levels are slightly below those of the national average.
“Ohio taxes are not high,” Schiller said. “And people who claim that they are high are lying.”
Even though HB1 is a priority bill of Ohio House Speaker Jason Stephens, a Lawrence County Republican, it’s still unclear whether the legislation will pass the Ohio General Assembly, and if so, what changes will be made.
Senate GOP spokesman John Fortney said Thursday it’s “too soon to know at this point” whether Huffman will support HB1.
Gov. Mike DeWine hasn’t said whether he would sign legislation to cut income taxes, though in 2019 he signed a state income-tax cut into law.
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