John Kasich comes to Medina next week to deliver his State of the State address, and one likely topic will be a favorite of the governor: reducing the state income tax rate. He hardly has been quiet about the concept, recently telling the annual convention of the Ohio Newspaper Association that his goal is “to get this income tax down under 5 percent.”
Recall that lawmakers already have lowered income tax rates by 21 percent, a phased reduction that was completed in 2011. The current state budget includes an additional cut of 10 percent over three years. All told, the top rate, currently on income above $204,200, will have dropped from 7.5 percent a decade ago to 5.333 percent once the latest round takes full effect.
Bear in mind that when the governor talks about “under 5 percent,” he is referring to the top rate. That doesn’t mean that the wealthiest Ohioans pay at that rate on all of their income. The state has a graduated income tax, nine rates in all. So the effective rate paid by wealthier taxpayers is lower than the top rate.
To get below 5 percent would involve another 7 percent reduction. On Thursday, Policy Matters Ohio released an analysis looking at the impact of such a proposal, including the top rate lowered to 4.96 percent. Those with income above $1 million, or the top 1 percent, would receive an average tax cut of $2,515. Those in the next 4 percent would receive an average $427 via the tax reduction. The Cleveland-based think tank reported that the 60 percent of Ohioans with incomes below $54,000 a year would get $1 out of every $7 cut in taxes.
Those at the lowest income rungs, the bottom one-fifth, would receive an average $2. And those the next rung up, with incomes between $19,000 and $34,000? Eighteen dollars on average.
The governor argues the tax reductions are necessary to keep talent here and fuel stronger growth and job creation. Yet the recent record indicates the state has fallen short of such promise. An evaluation of job growth by the W.P. Carey School of Business at Arizona State University put Ohio at 45 among the states for the past year.
Consider the states with higher top income tax rates that performed better, California, 18; Hawaii, 21; Minnesota, 15; New York, 30; Oregon, 3; and South Carolina, 8.
To be sure, Florida, with no income tax, ranked second. More than anything, that suggests the many factors in defining a state economy, tax rates far from decisive, strong schools and public services indispensable. Recall the 1990s, the top federal income tax rate increased, along with the top state income tax rate, raised to 7.5 percent. Not only did the national economy soar, Ohio went from 4.8 million jobs in 1993 to more than 5.6 million jobs by the end of the decade.