Most Ohioans would save an average of $139 a year or less under the current version of a tax plan working its way through the state legislature.
The 7 percent lawmakers are debating is significantly less than the 20 percent income tax cut proposed by Gov. John Kasich earlier this year.
Households making between $20,900 and $41,700 would save an average of $51 a year, while households making between $41,700 and $83,350 would save an average of $139, according to an analysis by the Ohio Department of Taxation. These two income ranges represented roughly 2.4 million households in 2011, almost as much as all other tax brackets combined.
The cuts would save Ohioans $1.5 billion in taxes over the next two years, and would be paid for with a combination of money left over in Ohio’s rainy day fund and projected future growth in state tax receipts.
House Republican spokesman Mike Dittoe said the 7 percent cut is just a starting point, but on its own would help stimulate the economy and create jobs.
“We’re talking serious money here, and that’s something that we can have some tangible impact to so many Ohioans,” Dittoe said.
But the 7 percent tax cut plan has drawn criticism, both from those who say it doesn’t go far enough, and from those who oppose income tax cuts on principle.
Richard Vedder, an Ohio University economist, said he is underwhelmed by the plan, calling it “boring” and “minor.” Vedder previously backed Kasich’s plan, which offered a 20 percent across-the-board income tax cut, plus a 50 percent tax cut on business income up to $750,000, in exchange for an expansion of sales taxes and tax hikes on oil and gas drillers.
The House’s plan will have some impact, but Ohio’s income tax rate needs to be cut further to really move the economic needle and make the state more competitive, Vedder said.
“It’s a politically low-hassle way to go, but it’s not the bold approach that the governor proposed, which I thought was more appropriate,” he said.
Meanwhile, Policy Matters Ohio, a left-leaning think tank, said income tax cuts don’t help Ohio’s economy and disproportionately benefit the rich while taking away money that could be used to restore state cuts to local government.
The top 1 percent of Ohio income earners — those making $335,000 a year or more — would receive an average tax cut of $2,717 a year, a greater relative cut than Ohio’s middle and lower-income earners, according to a Policy Matters analysis released earlier this week. The disparity is due to Ohio’s progressive income tax system — since richer Ohioans pay a higher tax rate, the across-the-board cut would impact them more.
The House budget is now before the Ohio Senate. Senate President Keith Faber, R-Celina, told reporters this week senators will continue working on tax reform, including possibly restoring some of Kasich’s tax cut for businesses.
Meanwhile, House Democrats have proposed a 10 percent income tax cut targeted at households that make less than $105,000 a year. That plan would help the economy by putting extra money in people’s pockets while providing an additional $118 million for schools compared to the Republican plan, Democrats said.
“Our state is only as strong as our local communities, and this plan works to reinvest in the people we know will be immediately reinvesting back in our local economies, and that is our hardworking middle-class families,” State Rep. Mike Foley, D-Cleveland said earlier this week.
Kasich spokesman Rob Nichols said the governor will continue to work with the House and Senate on tax proposals as talks continue.
“Obviously, our preference is our plan, but we’ll continue to talk with them and get as significant and impactful of a tax plan as we possibly can,” Nichols said.
How much would Ohioans save each year under proposed 7% income tax cut?
Tax bracket… Average savings
$208,500 and above…$1,874
source: Ohio Department of Taxation
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