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No People do not move because of taxes.
Governor Kasich spoke to the Ohio Chamber of Commerce (Click for the video of his comments) on tax policy and his desire to lower income taxes. He made many claims including the idea that ‘high’ income taxes will cause people to leave a state and low taxes will draw people in. However, research does not support this claim.
The Center on Budget and Policy Priorities released a report that shows that only 1.7% of Americans moved between states and that most people move for new jobs, cheaper housing, or a better climate. The study highlights that in the mid 2000′s people moved away from Florida as housing prices began to spike and that people did not flee New Jersey in 2004 as a result of tax increases in that state.
A study by Policy Matters Ohio identifies that people are likely to move to for jobs, family, better salaries, and affordable housing. They found no correlation between tax rates and interstate migration.
The Economic Policy Institute’s research finds that a well trained workforce is key to attracting and building a state’s economy.
Income tax cuts have not worked in Ohio: Proponents for tax cuts claim that they will create jobs. However, it just simply has not happened. Since 2005′s 21% income tax cut we are fourth to last for job creation among the states. Florida and Nevada – two states with no income tax – have also performed very poorly. There is no correlation between job creation and tax rates. Ohio needs a new approach, because tax cuts just aren’t working.
No, state income tax cuts will not help small businesses – and in fact may hurt them.
This myth continues to circulate despite a large amount of research from the Small Business Administration, Center of Budget and Policy Priorities, and even the conservative CATO institute disproving it. Academic literature and history point out that there is little to no link between state income tax cuts and small business job growth.
Most small businesses pay little to no money in state income taxes. 87% of all small businesses have annual profits of less than $50,000, and 40% of all small businesses operate at a loss each year. Ohio’s income tax only applies to business owners who claim business income on their personal income tax returns. The only amount that is assessed a tax is the profits (gross receipts minus expenses). Cutting income tax rates will generate little additional revenue for these groups.
Not all small businesses create jobs. In the United States less than 14% of all tax filers are active small business owners and less than 3% have any employees. Small business income tax cuts will benefit attorneys, accountants and other independent contractors who will not hire additional employees regardless of tax cuts.
Business expands as a result of demand, not tax cuts. A business will not expand or hire new employees out of charity. Instead businesses need consumers to place a demand for their products. The best way to stimulate and encourage small business growth is to provide a strong middle class of consumers who will want their products, a society that will support trial and error of new business enterprises, and foster partnerships with research and development programs.
No, Ohio’s income tax is not too darn high.
Compared to other states, Ohio’s income tax is average. Over 70% of Ohioans pay less than 3.4% compared to Michigan 4.33%, Illinois 5.0%, Colorado 4.63% and Pennsylvania 3.7% where all residents pay a higher rate on all of their income. It is misleading to discuss only the top tax rate in Ohio of 5.33% on incomes over $208,000
We have cut the rate, and it has not worked. Ohio cut the top income tax rate from 7.5% in 2004 down to 5.3% beginning in 2015. Despite this, Ohio has a net job loss of 3.8% while the nation has positive job growth of 1.8%.
Income tax cuts shift the tax load. Cutting the income tax leads to cuts in services and a shift in taxes onto property and sales taxes. To finance the income tax cut in HB 59 (the 2014-15 budget) Ohio saw an increase in the sales tax from 5.5% to 5.75% and an elimination of the property tax rollback. This will increase property taxes on future levies by 12.5%. These changes shift the tax responsibility from high wage earners onto the low and middle income Ohioans. When looking at the total tax load of Ohioans, the poorest 20% pay 11.6% of their income towards taxes while the top 1% pay only 6.3%
We should not be in a race to the bottom. Cutting vital services is not the solution. School districts in in Ohio have eliminated positions that lead to larger class sizes, fewer course offerings and fewer tutors. If we want all third graders to read, we need to invest in our schools. If we believe that all children deserve a loving home, we need to invest in programs and services that will help them. We should not be in a race to the bottom, but a race to have the best quality of life for all Ohioans. Tax cuts lead to cuts in services and a lower quality of life for everyone.
No, tax rates do not make a state more or less competitive.
All rankings are not equal. Tax rankings can be easily skewed to promote the ideology of organization publishing the rankings. We need to be cautious on what the rankings are actually measuring. Ohio should identify ways to increase our rankings on items that impact the lives of Ohioans everyday - healthcare, financial security, education, and job growth.
Tax cuts have not made Ohio more competitive. The theory has been tested and the results show us that state tax policy has little to no impact on decisions about where people decide to live, go to school, or set up a business. In 2005, Ohio passed a 21% income tax cut, and since that time Ohio has had a slow population growth rate and has lost numerous jobs.
We need to compete to be the best. Ohio and other states should compete for high wage jobs, less poverty, safe neighborhoods and other tangible goals. Investing in our communities will improve the lives of everyone, tax cuts have not lived up to that promise.
No, Ohio needs a diverse revenue system to guarantee stability.
The Governor proposed shifting the tax burden in Ohio from the income tax to the sales tax. Ohio has a slightly less regressive tax structure than most states right now, because our income tax produces 44% of our state general revenues. Many anti-tax organizations and individuals, in an effort to shrink government, are now claiming that income taxes are too ‘volatile’ during an economic recession. The truth is that all taxes are vulnerable to economic downturns and changes in the economy. Ohio can address economic volatility by increasing our rainy day fund maximum and proper planning. Cutting a revenue source will not help guard against economic downturns.
We need to protect a strong income tax in Ohio because it is the only tax levied based on a person’s ability pay. Sales and property taxes are levied on all residents regardless of income. In Ohio, the poorest 20% of people pay about 5% more of their income towards state and local taxes than the top 1% do. The income tax helps to balance out the inequities within state and local taxation. Without the income tax, the difference could potentially double.
It is true that revenue from an income tax may decrease during a recession, but so do all taxes. Depending on the type of economic downturn revenue from property or sales taxes may fall faster and farther than income tax revenues. Research shows that state sales tax revenues fall during an economic downturn but are less responsive when the economy starts to emerge from the recession. Revenues from an income tax will grow quicker during a recovery because of the graduated nature of the income tax. Public investments into infrastructure, education, and public safety can be vital in creating a strong economic recovery. Cutting income taxes now denies Ohio the opportunity to collect revenues that can restore delayed projects, enhance our public investments, and shore up budgets for the future.
We cannot be overly reliant on one source of revenue, either. Ohio’s schools are a prime example of what happens when you are over-reliant on one source of funding. During the last recession, Ohio property values fell dramatically, and the local tax collections fell too. This was particularly hard on our public schools that are over-reliant on property taxes. Local districts did receive some federal support to meet their budgets during the recession. However, the state was unable to help, primarily due to the 2005 income-tax cut that was still being phased in. Ohio now has additional revenue at the state level because of the quick rebound in the income tax collections, but local communities and schools that rely on sales and property taxes continue to struggle. With the cuts to revenue sharing, the economic recovery is not felt by local governments and schools.
All tax revenues are volatile during a recession, like the one we just experienced. Replacing an income-tax with a sales tax will only decrease revenue and not volatility. We cannot allow anti-tax organizations to latch into a new argument for dismantling the Ohio income tax. We need a strong and progressive income tax, a state sales tax, and local property taxes to have a balanced approach to generating revenues for great public services that lead to stronger communities. The Ohio House of Representatives will begin looking at long-term tax reform in early May 2013, and they need to understand that volatility is not a substantial argument for cutting the Ohio income tax.
