Some Ohio lawmakers have proposed eliminating the state income tax, saying it would boost the economy. But most economists surveyed on the issue disagree.
Republican lawmakers in both chambers of the General Assembly have filed a bill that would abolish income tax and business tax by 2030, based on the assumption that this will stimulate the economy.
“Ohio is poised to reclaim its role as the economic engine of the Midwest,” state Rep. Adam Mathews, R-Lebanon, said in a January statement. “This move ensures that Ohio will be a place where businesses thrive and attract people who want to work and live here, raise families and truly thrive.”
Politicians — especially right-wingers — have long argued that tax cuts have a stimulating effect on the economy.
But some economists say that it’s not so straightforwardThe structure of the cuts is critical and they must be paid for with accompanying spending cuts, they say.
In addition, income tax cuts tend to be regressive, meaning they benefit the wealthy the most in a way that does not effectively affect lower-income families. The 2017 Trump tax cuts led to an enhance in the deficit, while mainly for the richest Americansaccording to many analyses.
In the state of Ohio it is already losing $1 billion a year in taxes on constrained liability companies in a way that mostly benefits the wealthy. It was sold on promises that the cut would spur economic growth.
However, the LLC tax cut has been in effect for a decade, and the Federal Reserve Bank of Cleveland reported in March that Ohio’s economic growth between the fourth quarter of 2021 and the third quarter of 2023 was fifth worst condition.
In a study released this week, a panel of 19 Ohio economists was mostly skeptical that eliminating Ohio’s income tax would assist the state’s economy. Asked whether they agreed that eliminating it would spur growth, 11 disagreed, three agreed and four said they were unsure. And all but one said eliminating Ohio’s income tax would make it harder to balance the state’s budget.
In the comments section of the survey, Jonathan Andreas of Bluffton University said that eliminating the income tax would reduce bureaucracy.
“While the federal income tax is a fairly efficient and very progressive way to generate revenue, state income taxes, such as Ohio’s, are relatively regressive, and the Ohio tax is particularly burdensome relative to a smaller amount of revenue, given that Ohio has three taxing authorities: state, county, and local!” he wrote. “That’s an absurd amount of red tape for a much smaller amount of tax revenue than the federal government receives. I would rather we paid just one income tax to the federal government, and the states generated revenue primarily through higher land taxes which are more efficient and about as progressive.”
But another economist, Will Georgic of Ohio Wesleyan University said the Ohio proposal resembles one that former Gov. Sam Brownback tried in Kansas in 2012 and 2013. It failed to deliver the promised growth and he almost bankrupted the country.
“I think Ohio is more like Kansas than its legislators like to admit (and certainly more like Kansas than Florida, Washington, Nevada, or Texas),” Georgic wrote, referring to states without an income tax. “This experiment did not go well for Kansas.”
