Democrats and Republicans have a fundamental disagreement over the impact of income-tax cuts on job creation, and that disparity is on full display in Ohio’s race for governor.
Re-electing Gov. John Kasich means cutting the state income tax would remain a priority.
“The income tax has got to be much lower, because we’re losing too much money to people moving out of state,” Kasich said. “We should have a tax system that encourages risk-taking and economic growth.”
While Democratic challenger Ed FitzGerald says he has no plans to reverse Kasich’s tax cuts if he’s elected, additional reductions would be pushed well down his priority list.
“Ohio keeps trying this philosophy of cutting income taxes while shifting taxes around. It doesn’t work,” he said. “We’ve been underperforming the rest of the country at the same time we’ve been cutting income taxes.”
Kasich was forced to deal with a multibillion-dollar shortfall in his first two-year budget, passed in 2011. But an economic turnaround that began in late 2010 pumped increased revenue into state accounts and allowed him to push for income-tax cuts.
Under Kasich, Ohio’s income tax has been cut by 10 percent. The state’s top income-tax rate, paid on income above $208,500, has dropped from 5.93 percent in 2012 to 5.33 percent. The rate on income between $41,700 and $83,350 dropped from 4.11 percent to 3.7 percent.
Some of Kasich’s tax changes have focused on middle- and lower-income Ohioans. He has created a nonrefundable Earned Income Tax Credit and has increased personal exemptions for those earning less than $80,000.
But most of the tax-cut value comes from a 10 percent across-the-board cut and a 75 percent deduction for business owners who make as much as $250,000. The deduction drops back to 50 percent next year unless Kasich and lawmakers make it permanent.
Kasich and GOP leaders say the tax deduction will allow business owners to put more money into their companies, potentially creating jobs. The state Tax Department says that through mid-September, 348,622 filers claimed the
50 percent business deduction allowed in 2013, with an average savings of $726.
Ohio has a progressive income-tax system, in which higher earnings are taxed at higher rates. So under an across-the-board tax cut, higher earners get larger benefits.
An analysis by the Institute on Taxation and Economic Policy and Policy Matters Ohio, a labor-backed research group, found that when accounting for nearly all tax changes approved in the past two budget bills, about 70 percent of Ohioans will save less than $100 this year. The study found that those with the lowest incomes — $19,000 or less — will pay slightly higher taxes, largely because of a 0.25 percent sales-tax increase.
Ohio taxpayers in the middle, making $34,000 to $54,000, will save an average of $59 in 2014, the study said. The top 1 percent of Ohio earners, those making more than $360,000, will pay $8,262 less on average.
“The income-tax cuts that have been put in place have overwhelmingly benefited the wealthiest folks in the state,” FitzGerald said.
“I think we have a number of pressing needs in this state, from education to local-government funds to infrastructure,” he added. “If there are future tax cuts, it’s my preference those would be focused on working families. The wealthy in the state have gotten break after break after break, and I don’t see any need to give them additional breaks.”
Highlighting figures from a book, How Money Walks by Travis H. Brown, a strategist and fundraiser for the Republican Governors Association, Kasich says that since 1995, $12 billion in income has left Ohio for states with lower income taxes.
Source: The Columbus Dispatch