For over a decade, Republican lawmakers have been obsessed with continually lowering the state income tax rate. And with the signing of the state’s new two-year operating budget, Governor Kasich cemented his desire to continue this policy.
The new state budget reduces income tax rates by 10 percent over the next three years. The graphic below charts the top tax rate in Ohio since 2000. As you can see, starting in 2015, the highest state income tax rate will be 5.333 percent compared to a high of 7.5 percent in 2001-2003.
Granted, not everyone pays the top rate, but when it drops, so do rates for the lower income brackets.
As they cut income taxes in the newest budget, Governor Kasich and Republican lawmakers actually raised Ohio’s sales tax from 5.5 percent to 5.75 percent – a rate higher than the highest income tax rate. As a result, revenue from income taxes will decrease, while revenue from the state sales tax — Ohio’s most regressive tax — will increase significantly. In fact, the non-partisan Legislative Service Commission forecasts that starting in 2015, sales tax revenue will exceed income tax revenue as a source of funding state government for the first time since 1986.
Republican Lawmakers argue that lower income tax rates make Ohio more competitive and lead to economic gains. In reality though, these changes make the entire tax code in Ohio less progressive and harm middle class and poor Ohioans for a couple of reasons. First, the income tax cut mostly benefits the wealthiest individuals in Ohio and does not give much relief to middle class and poor tax filers. Second, whatever benefit these individuals do see will be wiped out because that they have to pay more in sales taxes than they did before.
While Republican lawmakers have spent the week taking a victory lap on the passage of this budget, Ohioans should be deeply concerned that policy makers passed legislation that makes the tax code more unfair and that there seems to be no end in sight of their desire to continue these types of policies.