Top 1% of earners fare best in proposed Ohio tax plan, study says

Report: Middle-class Ohioans, who made between $33,000 and $51,000 last year, would get a net annual tax cut of $5.
MCT Regional News
Jun 26, 2013

A new analysis yesterday added fuel to criticism of a new tax plan that would decrease Ohioans’ income tax but increase the state sales and commercial activities taxes.

A study for Policy Matters Ohio by the Institute on Taxation and Economic Policy found that middle-class Ohioans, who made between $33,000 and $51,000 last year, would get a net annual tax cut of $5 if the plan as proposed is implemented. The bottom 40 percent of Ohioans, whose annual income is below $33,000, would see a net tax increase averaging $24 a year, the labor-backed group said.

The labor-backed group said that Ohio residents who make the top 1 percent of income, at least $335,000 in 2012, would reap an average annual tax cut of $6,083, the group said.

The analysis was based on the plan proposed last week. Some changes to the tax package approved yesterday could have some impact on low-income Ohioans, such as keeping the $20 personal credit for those earning less than $30,000.

“This is a balanced package that will help project this state to the forefront of telling businesses to come do business in Ohio,” said Sen. Scott Oelslager, R-Canton.

Rep. Mike Foley, D-Cleveland, called it a regressive tax package that puts more burden on lower-income Ohioans “to the benefit of those who are more wealthy in the state.”

The House and Senate will take final votes this week on the new two-year budget, which includes the package of tax changes that supporters say will net a $2.7 billion tax cut over the next two years.A look at the main components of the tax package:

Income taxes — everyone

Ohio has nine income-tax brackets, ranging from 0.6 percent for annual income under $5,200 to 5.9 percent for income earned beyond $208,500.

• How it works: Reduces all income-tax brackets by 8.5 percent this year, then 9 percent next year and 10 percent in 2015 and beyond. A 10 percent cut would bring the top rate to 5.3 percent. (Currently Ohioans earning up to $85,000 pay an effective rate of 3.4 percent or less.) Temporarily freezes tax brackets and personal exemptions so they no longer rise with inflation. Puts in place a nonrefundable earned-income tax credit.

• The impact: Across-the-board cut totals $968 million in 2015. Once fully phased in at 10 percent, most Ohioans would see a cut ranging from $30 to $300 — the more a person earns, the bigger the cut. Those making between $22,000 and $44,000 would see an average cut of $79, while those making $88,000 to $110,000 would average $383. Freezing the tax brackets and exemptions would cost taxpayers $124 million in 2015.

• Why it’s being done: Supporters say lower income-tax rates help make Ohio competitive with other states for attracting jobs and put more money in people’s pockets.

• Concerns raised: The cuts would benefit wealthier Ohioans — who also pay more in income taxes — much more than the poor and middle-class. Cuts would eliminate revenue, including more than $1.3 billion from the two-year budget that begins July 1, 2015, at a time when schools, local governments and human services are still recovering from recent budget cuts. The 21 percent income-tax cut phased in starting in 2005 did not produce robust job growth.

Income taxes — business

For business owners who operate as pass-through entities, profits are their income, which is taxed as other income in Ohio.

• How it works: Provides a 50 percent tax deduction on up to $250,000 worth of business income.

• The impact: Business owners would save up to a maximum $7,000 a year in income-tax payments. Data show that nine in 10 people who claim business income would save less than $1,000 a year. Total savings for owners would be $1.1 billion over two years.

• Why it’s being done: Small businesses are key to job growth in Ohio; the tax cut would provide extra money for those owners to hire, expand or upgrade equipment.

• Concerns raised: The tax is poorly targeted because about 80 percent of business owners employ no one beyond themselves, and most have little interest in doing so. The amount of the tax cut — most would get less than $400 — isn’t enough to help businesses hire, expand or make major purchases. The tax cut doesn’t require that business owners spend the money on their companies.

Commercial activities tax

Businesses pay a 0.26 percent tax on gross receipts. Currently, there is an exemption for the first $150,000 in gross receipts, and businesses pay a flat $150 fee on sales between $150,000 and $1 million.

• How it works: No longer provides a $2,450 credit on the first $1 million in sales for all businesses.

• The impact: For businesses with sales under $1 million, there is no change. Those with gross receipts between $1 million and $2 million pay an extra $650 more; it’s $1,950 more for those between $2 million and $4 million, and $2,450 more for those over $4 million. Total of $174 million in new revenue over two years.

• Why it’s being done: Raises money to help pay for the income-tax cut.

• Concerns raised: Makes the CAT, a generally simple tax, more complicated.

Property tax rollback

The state pays 12.5 percent of your local property-tax bill. This costs the state about $1.1 billion per year just for schools, which receive most of those taxes. The amount has grown as new levies have been approved.

• How it works: All current levies and those approved in August would not be affected, nor would renewals of current tax levies. But new levies, including replacement levies, would cost homeowners more than they would have under current law because they would pay 100 percent of the levy.

• The impact: For new levies, a homeowner would pay $4.38 per mill for every $100,000 in taxable property value. So a person with a $200,000 home would pay $44 a year more than he would pay under current law for a new 5-mill levy. Total cost for taxpayers: $96 million in fiscal year 2016, the first full year it is implemented.

• Why it’s being done: The cost of the rollback has doubled since 1997. Supporters call it “truth in taxation,” where the property owner pays the full amount, instead of having state taxpayers, some of whom do not own property, pick up part of the tab. Helps pay for the income-tax cuts.

• Concerns raised: Future levies would be harder to pass because they would cost homeowners more. Disproportionately hits farmers.

Homestead exemption

Seniors age 65 or older and Ohioans who are permanently disabled qualify for the homestead exemption, shielding $25,000 of the market value of their home from property taxation.

• How it works: Those who are not yet 65 and who earn more than $30,000 no longer would qualify for the homestead exemption. This was the threshold before eligibility was expanded in 2007.

• The impact: An estimated $34 million next year.

• Why it’s being done: Supporters say it takes the program back to its original intent — to help low-income seniors remain in their homes. The state shouldn’t subsidize property taxes for wealthy retirees, supporters say.

• Concerns raised: The threshold is too low, eliminating a number of seniors who struggle financially.

Sales tax

The state sales tax rate is 5.5 percent.

• How it works: Increases the rate to 5.75 percent, and eliminates exemptions for magazines and digital products such as downloaded books. Also, Ohio would become a full member of the multistate compact in which out-of-state companies volunteer to remit sales taxes on Internet purchases by Ohioans.

• The impact: Every $100 of taxable goods would cost an additional 25 cents. A $25,000 car would cost an additional $62.50. Would cost more for downloaded and online purchases. Tax-rate increase would generate about $420 million next year. Online/digital goods taxes would raise about $40 million per year.

• Why it’s being done: To raise money to help pay for an income-tax cut. Republicans say it is better for the economy to shift from income taxes to consumption taxes. Would eliminate exemptions that put brick-and-mortar retailers at a disadvantage to online businesses.

• Concerns raised: Sales tax is more regressive, so an increase has a greater impact on the poor and middle class.

———

By Jim Siegel - The Columbus Dispatch, Ohio (MCT)

©2013 The Columbus Dispatch (Columbus, Ohio)

Visit The Columbus Dispatch (Columbus, Ohio) at www.dispatch.com

Distributed by MCT Information Services

Comments

JudgeMeNot

The 1%ers win again.

Windy

The upper 1%ers are the business owners. When they do better, they can afford to hire more of the bottom 40%ers.

BrendanandBryce

The 1 percenters didnt get their by "winning" or handouts. They get there through hard work, special unique talents, and utilizing their education. The income tax cuts will be put back into the economy through sales taxes etc... hiring people.

Bluto

My boss got there because his dad owned the company , and is kept there by my hard work and the hard work of the others who work for him .

Miramar

Supply, demand, innovation, and consumer confidence/spending grow economies. Tax cuts do not grow economies. I'm tired of seeing this tired and stupid straw man idol continuously praised and worshiped by "conservatives." Businesses do not invest money to grow their business simply because they have more cash on hand. The heart of the American economy is middle class consumer spending. We need policies aimed at bolstering middle class consumer confidence and spending. For the past several election cycles, all we've seen is a stupid, ideological tug of war between Republicans pandering to the rich and Democrats pandering to the poor. None of them do anything of consequence for the middle class because they believe they can split us up based on some single issue like abortion, terrorism, China, immigration, clowns, government spending/size of government or reality TV.

People need to start considering their own interests pragmatically rather than continuing to serve as a giant, stupid echo chamber to champion ideologies they don't understand which ultimately lead to policies (or a lack of policies) that exacerbate our political and economic problems. Political ideologies are designed to confuse and control the masses in a way that ends up benefiting societal elites. It's true of virtually any ideology, regardless of it being "right" or "left" on the political spectrum.

luvblues2

Being "right" or "left" is like believing in Noah gathering two of each animal, insect, reptile, bird and what the ever on a boat and having them procreate after the boat found land. (evidently, fish got a free ride on that one :)

They both want one thing. To live with as much of the money as they can get their hands on.

KURTje

True Miramar. Look at ewg. org. That's our $$ in this county. Then factor the other 87counties + overall in the nation...whew billions! On top of that there is more for them. Bernie Madoff would be pleased.

Chef Julio

It's about time that the people paying 70% of ALL taxes get a little break and its about time that the people paying almost nothing are finally going to pay something.

The tax code in this country is totally screwed up and, as proven by the current CORRUPT administration, is strictly a tool to be used against political enemies. It should be scrapped and a flat tax needs to be instituted - so everyone is paying the same percentage.

Contango

Reads like a step in the right direction. Eventually OH should join the list of no income tax states.

Truism: What governments subsidizes they get more of, what they tax they get less of.

arnmcrmn

More money in peoples pocket overall = a good thing. The more you make, obviously you are going to get more back.

Also, great to see they are giving small business owners some relief. More money that business's have in their account = upgrading equipment and their facility or hiring a new person that they could not in the past.

This is all very good news. Ohio needs to be more competitive in the jobs market....just look at Ohio's unemployment.....its BAD compared to the national avg.

Some will find fault in this because they cannot stand it when the upper class gets a tax break, yet they fail to realize that the upper class pays most of the tax bill in this state and nation.

Miramar

Ohio's persistently high unemployment rate has NOTHING to do with taxes. It has to do with how much Ohio's economy relied on the manufacturing sector to provide jobs. Most of those jobs aren't coming back due to several factors brought on by the financial crisis (most notably the erosion of middle class wealth due to the bottoming out of home values and the associated drop in consumer confidence and spending - i.e. less demand) that caused businesses large or agile enough to make it through this period to engage in extreme cost-cutting behaviors which mostly affected lower and middle class unskilled labor as well as middle class mid-level managers. What business couldn't outsource to cheaper labor markets, they quickly learned that they could do more with less in this period of deflated consumer demand. Cutting taxes aren't going to bring these jobs back. Businesses operate and create jobs in Ohio to take advantage of Ohio's historically robust consumer market.

Needless to say, virtually none of this has anything to do with taxation. I don't see how putting more money in the pockets of rich people who would likely save it (and not spend it (i.e. put it back into the local or state economy)) does anything about Ohio's economic situation. Ohio should be focusing its jobs efforts on bolstering the economic situations of middle class families, enhancing Ohio's transportation infrastructure, and incentivizing businesses to reinvest their profits into their Ohio operations. This isn't rocket science.

This piece of legislation is a prime example of the sort of ideologically motivated legislation that will have the result of a very minimal tax cut and a reduction of purchasing power (through the increase in sales taxes) for lower and middle class families. This legislation will exacerbate the national problem of worsening income inequality and its corrosive effect on society.

This is nothing more than an ideologically driven piece of legislation that is a hand out to private citizen and corporate Republican party donors. There is no empirical evidence that this sort of legislation creates jobs. None. Lessened purchasing power of the working poor and middle classes at the expensive of initiatives that overwhelmingly benefit the wealthy will cost us jobs, slow economic growth, increase poverty and lead to more people being dependent upon government programs for subsistence.

arnmcrmn

miramar....facts are rich people spend more than poorer people. google would be your friend.

So what is your answer? More handouts to the poor who already do not pay taxes yet get refunds?

You have to make people learn how to fish instead of just handing it to them.

Miramar

Fact: Lower and middle class individuals spend a higher percentage of their income than the wealthy.

Fact: Lower and middle class individuals pay a higher percentage of their incomes in taxes when all taxes (income, property, sales, gas, etc) are factored in. The wealthiest in this country, who mostly derive their income from investments taxed at the capital gains rate of 15%, pay lower rates than many regular wage earners.

arnmcrmn

Blame the IRS, not the people who invest. That is the national tax code rate for everyone who invests.

Contango

Re: "...rich people who would likely save it (and not spend it (i.e. put it back into the local or state economy)"

And you KNOW this HOW? Where's YOUR "empirical evidence"?

How in the h*ll do you think a lot of those people got rich? Many lived below their means and didn't spend every last d*mn dime!

And when people SAVE and/or INVEST money, where do they put it?

Do you have retirement investments like in an IRA or a 401(k)? Why?

Familiar with the so-called Laffer Curve?

Contango

I'll give you ANOTHER lame brained liberal "soak-the-rich" idea:

The Luxury Tax.

Who buys expensive cars, jewelry and yachts?

RICH PEOPLE! Thought the stupid libs.

So they enacted a 10% luxury tax on those items.

What happened?

Hundreds of businesses closed and thousands of ORDINARY people LOST their jobs!

The Democrats quietly killed it one night on the floor of Congress.

http://www.nytimes.com/1993/10/0...

Too bad so many sm. business owners and common folk had to pay for the stupidity and greed of the central planning kleptocrats!

KURTje

Yeah...tax the vacation on working people, i.e. luxury tax. (Under Reagan)

JACKEL

Yea,lets dig him up,maybe he can help.He could send weapons to Syrian Rebels like Crazy Joe Wilson did to the Taliban and got all those weapons to come back and burn us in the aXX.That is what is what Bozo plans !

Miramar

Contango,

I don't even know where to begin. I'm not sure in your emotional response that you really got what I was saying. I'm not sure why you picked the one irrelevant thing that I said and then went off on an unrelated rant attacking your perceived political enemies. It doesn't matter if the top 1% save their money or throw it in a fire--my point was that they aren't going to re-invest it into the state's economy simply because they have it. It seems like you're in a little over your head when it comes to discussing political economy so I'll try to break it down a little.

First, I'm not sure why you brought up the Laffer curve. It doesn't support lower tax rates in the current climate. We're not talking about federal revenues/size of government, we're talking the effect of tax rates on market behavior specifically and on economic growth generally. If you want to talk about supply side economics generally, I think the W. Bush years pretty much submarined supply side credibility. Tax cuts + wonton deregulation (simply for the sake of deregulation) = crushing federal debt and a ruined economy with dim prospects for growth. Simply put, you don't run a super power like that.

The problem that business owners face now, outside of consumers who are anxious about spending due to economic uncertainty, is two fold. First, business owners and entrepreneurs cannot adequately plan for the future because they of an ever uncertain regulatory regime and little sense of what their tax burden will be in the future due to the ideological spitting match in Washington. On top of dealing with a labyrinth of regulations (some of which makes sense while others do not), all with special exemptions carved out by powerful lobbyists, business owners aren't sure what tax rate they are going to pay two, three, or four years from now given that we could see major reforms in the tax code, particularly related to what individuals and businesses can deduct from their taxes in a given year. Common sense reforms don't involve lowering tax rates when we already have record deficits. They involve giving the business community more certainly so all of those talented and energetic entrepreneurs out there can craft and action plans of attack to grow their businesses and create jobs. No one is willing to do this because the right wing of the Republican party and the left wing of the Democratic party decide that the middle of the worst American economic crisis since the Great Depression was the right time to have an extended and bloody debate over the size of government. It's stupid and counterproductive.

Even without prescribing what the top 1% will do with more disposable income, the one thing I do know is that they won't be rushing out to invest it into local or state economies if consumer demand isn't there. It's logical. The key to economic growth as far as the government is concerned is creating the best conditions to spur consumer demand, promote commerce by providing for a high quality infrastructure, and create incentives for individuals and business to innovate or engage in entrepreneurial activity.

As an aside, wealthy people don't become wealthy people by saving. Wealthy people become wealthy people by starting their own businesses. Wage earners do not become wealthy through their wages or their savings of said wages. My 401k or my IRAs are not going to make me wealthy. They are simply a means to try to secure my current standard of living through my retirement years. In terms of job creation and economic growth, the stock market is a terrible indicator of economic health and stock investment is not a reliable creator of jobs. The Dow closed at over 15,000 today. Where are the jobs? Again, demand creates jobs, not supply. Capital is sitting on the sidelines that could be creating jobs. It's not sitting on the sidelines because taxes are at historically low rates.

These tax cuts have very little do with job creation as they apply mostly to individual income. They are In fact, these tax cuts are actually raising costs on businesses and will prove to have a chilling effect on consumer spending as they make state business taxes more complex and artificially raise prices by raising sales taxes. The Republicans here are hurting businesses in order to pay for tax cuts that apply to the top 1% who overwhelmingly put their funds behind Republican candidates.

Again, fixing the economy is ALL about fixing the middle class and its collective confidence. If you are relying on a small group of wealthy and super wealthy to buy expensive automobiles, jewelry, and yachts (even without considering that most of best of those things are imported) to save our economy, I'm not sure it was a great use of my time to respond.

Contango

Re: " they aren't going to re-invest it into the state's economy simply because they have it."

Still absurd - you DON'T KNOW.

The wealthy have been getting wealthier and average worker income has declined under Pres. Obama.

Obviously your venom is misdirected.

arnmcrmn

Mir. Where is the biggest difference in spending between the wealthy and poor? Its investing in their retirement (stock market..etc) and education. Its not even close when you look at the numbers.

Investing in the stock market IS investing in companies that may or may not reside in this state. Nevertheless its investing in our economy. Without investors, there wouldn't be growth nationwide, nor would there be job openings. Investing in ones education is investing into the state if one goes to college in Ohio.

Most of the poor and their income goes toward housing, transportation, utilities and food. Nearly 70% of their income. Most do not save for the future nor invest in the state they live in.

Contango

Good points.

Re: "...invest in the state they live in."

IMO, if I buy something IN the STATE:

# 1. It helps keep someone employed.

#2. Paying sales tax helps keep the STATE solvent.

Maybe Miramar could answer the question:

Why do OH public employee retirement plans like SERS, et al. invest TENS OF BILLIONS of dollars worth of their assets overseas and in foreign cos.?

http://ohsers.org/investments-4

KURTje

Thought you espoused the Texas way of life? You reside in Ohio. Speaks volumes.

Miramar

So your response included:

-Not actually responding to anything I wrote
-Mindlessly attacking POTUS and public sector workers with angry, partisan passion
-Creating an alternative universe where a sales tax creates or encourages local economic activity
-Ignoring the fact that spending by the poor is a driver of local economic activity nearly 100% of the time (rent, utilities, food, clothes, gas, etc.)
-Creating the illusion that investing in the stock market or the fact that the stock market grows creates jobs. The Dow is over 15,000, again where are the jobs?
-Ignoring well establish empirical evidence that tax cuts that overwhelmingly benefit the wealthy exacerbate economic inequality (check out US Gini coefficient since Reagan) without evidence that tax cuts actually lead to broad-based economic growth.

For the record, I actually can say that the wealthy will not invest in the state they live in simply because they have extra money laying around. I can because most wealthy people got that way by being rational stewards of their assets. If there are no signs increasing demand for a product or service, I'm not going to expand my business to increase the supply of that product or service.

This tax cut is about giving a handout to the wealthy without any guarantee or incentive for them to use that handout to benefit the state at the expense of increasing taxes on the lower and middle classes in a way that will chill consumption by effectively raising prices we pay (though the sales tax). Taking an action that will almost certainly chill consumers (higher taxes/prices) and effectively hamper the most important driver of job creation and deficit reduction (increased consumer spending) all while increasing economic inequality and its associated corrosive effects on the economy and society at large.

Great idea.

I can see what this economic theory is doing for Huron County though. It's increased local involvement in the heroin trade. Too bad your sales tax won't capture that activity.

Cliff Cannon

Looks like, I've missed a great debate here. Rather than try to debate fine points this late in the debate. May I remind all of a very good Presidential candidate, we never had a chance to vote for ?


His name is William Simon and he was Nixon's treasury secretary. Coming through " Watergate " unscathed. Simon became a leading contender for the 1976 Republican Presidential nomination.


That is until he started pushing a " consumption tax " as a way to eliminate our terribly confusing, overly ridiculous, very unfair income tax laws.


Think about it. A " consumption tax " taxes the billionaire,the drug dealer, the family man or whomever you can name---equally. After all if you buy anything,you pay a tax, with out any " break " to anyone.


So of course, Simon being stupid enough to push such a thing, after so many, have spent so much, to get the tax code the way they wanted it. Committed political suicide. ( Which has left me a life long believer in the " consumption tax")


Bottom line, is that I personally see no reason to argue over tax cuts or subsidy's or what ever. THE fair way to collect every tax penny from every person in our country is known to all. So why don't we do it ?


Oh yeah, it would leave politicians with little or nothing to do. ( Which come to think of it, is a darn good thing to,isn't it ? )

arnmcrmn

The weathly getting back a bit more of THEIR earned money....hummmm seems fair considering they fork over more than their fair share in taxes both state and federally.