Gov. John Kasich is touting half a million dollars in tax cuts in his new budget proposal, but Ohio’s tax scheme could get more regressive if state lawmakers take up the proposed budget.
The budget proposal, released Feb. 2, would lower income taxes by 23 percent over the next two years. The budget would pay for this cut by raising sales taxes by .5 percent. All told, the proposal means $500 million less in taxes for Ohio residents.
Critics say lower-income residents will benefit least from the proposal. Kasich’s budget allows for a tax exemption increase for low-income workers. But that exemption would mean only an extra few dollars per paycheck for low-income families, according to some analyses.
Meanwhile, one part of Kasich’s proposal would effectively eliminate the state’s income tax for more than 900,000 people who own small businesses grossing less than $2 million a year.
Studies suggest that the bottom fifth of Ohio earners pay nearly 7 percent of their income in sales taxes, while the top fifth of Ohio earners pay less than 1 percent of their income. A study conducted by liberal-leaning think tank Institute for Taxation and Economic Policy found Ohio to have the 18th most regressive tax structure in the country. Regressive taxation refers to a tax structure that costs low-income people a larger percentage of their income than that which high-income people pay.
“The Ohio income tax is critical to a fair tax system and one that pays for education, health and other key services,” said Wendy Patton, a director at Policy Matters Ohio, in a January statement about the state’s tax structure. “Attempts to weaken it will either redistribute income from the poor and the middle class to the rich, or cut needed public services.”
When Kasich took office, the income tax rate was nearly 6 percent and Ohio’s sales tax was 5.5 percent, though state lawmakers boosted it to 5.75 percent in 2013. Under Kasich’s new budget proposal, income tax will be just over 4 percent and sales tax will be 6.25 percent.
In addition to the sales tax boost, low-income workers could also be affected by a proposal that would make recipients receiving Medicaid who make above the federal poverty level ($11,670 a year for a single person) pay premiums on Medicaid. That has caused some ire among progressives.
Conservatives have also criticized the budget. Critics on the right, including tea party-aligned state lawmakers, say most of the changes aren’t cuts, they’re “tax shifting” that doesn’t result in the state spending less money.
Kasich’s plan does call for some measures that could help lower-income residents, including raising the income level at which parents can qualify for subsidies on child care. Other parts of the budget progressives might find more amenable include an increase on taxes associated with fracking.