The Ohio legislation would like to phase out state income taxes, a measure that has some critics questioning the math.
To make Ohio more business-friendly and reduce the tax burden on the highest income earners, the Ohio House and Senate have proposed different tracks toward reducing the state income tax to zero by 2030. The concept behind the move has been put into practice in other states like Texas and Florida.
The revenue deficit projected to result from the elimination of state income taxes is estimated at $13 billion. Typically, a loss of state revenue of that size requires tradeoffs including reduced government services, like state programs and maintenance of infrastructure. Lawmakers suggest the shortfall can be addressed by raising sales taxes, reducing spending, and letting the economy balance itself out in the long run.
The motivation for cutting state income taxes is the philosophy that reducing income taxes will result in a storm of business activity that will fuel a robust economy. That said, in these scenarios, middle-class taxpayers often feel the crunch as they pay more in taxes to balance taxes that higher wealth earners no longer contribute.
State Senator George Lang lauds the aim of “making Ohio the most business-friendly state in the nation and to financially dominate the rest of the country.” Lang firmly supports the initiative noting, “This will not be a burden on those people today that are lower income earnings, but it will be a blessing to those people that are the ones that are driving our economy.”
According to economist Dr. David Brasington at the Carl H. Linder College of Business, “If you look at the states that don’t have an income tax, they tend to have higher property taxes and sales taxes to try to make up for it.” Dr. Brasington also notes that recent immigration to states such as Tennessee, Texas, and Florida may also have a warmer climate component—an advantage that Ohio cannot offer.
As the potential legislation was rolled out to constituents in local Town Hall meetings, while some were enthused, others expressed a measure of caution after finding there was no solid plan for replacing the revenue once generated by an income tax. After listening to the State Representative Adam Mathews talk up the legislation, one audience member remarked, that there “was no meat behind it and no real plan. It’s exciting but they have to do more homework.”
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