COLUMBUS, Ohio (CGE) - Ohio has 88 counties, most of them rural and many of them relatively poor. The report released Wednesday showing that most of Ohio's wealthiest taxpayers live in or close to just three key urban counties is not a great revelation in itself, although the author calling on them to pay more in taxes to help the state's economy out in these tough economic times, is.
One community solution: Ask wealthy to pay more towards cost of needed public services
Analyzing 2008 Ohio Department of Taxation data, The Center for Community Solutions made a statistical case for why public services, which have been "stretched to the breaking point by repeated budget cuts and increased needs," could do with a little help from Ohio's wealthiest, who have benefited greatly from reduced income tax rates, now at their lowest levels since the early 1980s.
The Director of Public Policy and Advocacy for The Center for Community Solutions, Jon Honeck, Ph.D., authored a 7-page report entitled "State Tax Cuts for Wealthy Households Disproportionately Benefit Urban Counties." He wrote In it that "restoring the top rate of the income tax to its 2004 level of 7.5 percent is one of the best options available to help maintain public services."
The current top rate of 5.925 percent, Honeck noted, applies to the portion of household income over $201,000, which affects only about 2 percent of 5.1 million resident tax returns in 2008, meaning there were over 1.1 million (or 12 times as many) households with taxable incomes under $10,000.
Because tax rates rise with income, the benefits of the tax cuts are highly uneven. Accordingly, Honeck found, "wealthy taxpayers have been the largest beneficiaries of these rate reductions."
Honeck, whose group's mission posted on its website is to provide strategic leadership and organizes community resources to improve health, social, and economic conditions through demographic research, nonpartisan policy analysis and advocacy, argues in his research paper that tax benefits to wealthiest Ohio households do not benefit the state’s economy. He says while it's impossible to know exactly how wealthy households used their increased disposable income from state tax reductions, they have, in general, saved a "larger proportion of their income than poor or middle-class households at a time when the economy needs increased consumption."
In 2004 former President George W. Bush explained at a campaign gathering in Hudson, Wisconsin, why taxing the rich is a bad idea. “You know what happens with this ‘tax the rich’ deal'...That’s why they’ve got accountants and lawyers, so the rich figure out how not to pay, and you get stuck with the tab.” In an echo of Bush's sage observation, Honeck notes that the financial sophistication of wealthy Ohioans likely advises them to invest outside of the state.
During last fall's election cycle, then Ohio Auditor Mary Taylor, a Certified Public Accountant by trade, said she advised her high net-worth clients to move to Florida, a state with no income tax, to avoid Ohio's income tax. Democrats jumped on her statement, hoping it would show she, and by extension her millionaire running mate, John Kasich, were more attuned to the bottom line of the rich instead of the top line of the state they wanted to be Governor and Lt. Governor of.
Whether they move to friendly tax climates like Florida or just use the Internet to bypass local retailers, thereby reducing potential job growth and sales taxes, wealthy Ohioans are benefiting while unwealthy Ohioans are bearing the brunt of hard times.
"We can be certain, on the other hand, that income tax cuts have reduced state funding for programs that are needed by Ohio’s low- and middle-income citizens, including child and adult protective services, community mental health treatment, and financial aid for low-income college students," Honeck said.
Community Solution view of State of the State
Watching Gov. Kasich's first State of the State address yesterday in Columbus, Honeck said it was encouraging to hear the Governor promise to move forward with some sensible ideas for programmatic reform, such as rebalancing long-term care for the elderly and criminal sentencing revisions. What was disappointing to Honeck was Kasich's refusal to raise taxes. "The budget crisis should be solved through a balanced approach rather than relying mostly on cuts," Honeck said.
Restoring the top rate while leaving other rates alone would yield between $450 and $500 million in 2012, and perhaps more if financial markets recover, the report concluded. "This move by itself will not solve Ohio’s budget problems, but it should be part of a balanced approach that includes increasing revenues."
Turning to tax increases, as Buckeye State political leaders have done before, especially in response to the recessions of the 1980s and 1990s after cuts failed to resolve budget gaps, has been done before.
The previous top rate of 7.5 percent was added during a budget crisis in the early 1990s, Honeck observed, noting that Ohio’s job growth averaged over 100,000 per year in each decade, a fact he says seems to have been forgotten in the midst of rhetoric about taxes harming the economy.
Given the The Great Recession Ohio and the nation are still trying to emerge from, the worst in depth and duration since the Great Recession of the 1930s, Honeck says "additional revenue should come from those most able to pay."
Gov. Kasich and his no new taxes pledge
While the report makes a case for Ohio's wealthiest paying a fist full of dollars more to keep a state from spinning further out of control, the immovable obstacle standing in the way of Honeck's thesis is the immovable wall that is Republican political ideology that believes cutting taxes leads to prosperity.
In the early days of his run for Governor, Kasich signed a pledge not to raise taxes of any kind at any time. In fact, Kasich said he wanted to eliminate the state's income tax so Ohio would be among the nine other states without one.
Kasich doubled down on this philosophy in his speech yesterday. "To my friends here, we cannot tax our way to prosperity. We're one of the highest taxed states in America, and we're not competitive," he said.
"We're going to preserve our income tax cut that we got in January because that's going to allow us to be more competitive. We will not be raising taxes in this state," he said to thunderous applause from 82 of the 132 Members of the Ohio General Assembly who are of his political party.
New polls show Americans not an anti-tax as Kasich, Ohio GOP
Recent polls on cutting the nation's deficit show Americans raising taxes on those who can afford to pay more taxes is within the relm of thought for many. Results from NYTimes/CBS News – March 1 and NBC/Wall Street Journal – March 3 and Quinnipiac – March 3 show raising taxes on the very wealthy is indeed not verboten. In the NBC/Wall Street Journal poll, 81 percent supported a surtax on millionaires. Sixty-four percent in the Quinnipiac poll support a tax increase on those earning over $200K as part of any budget deal.
According to Ohio Budget Watch, the U.S. electorate is clearly willing to accept targeted tax increases in combination with spending cuts to balance the federal budget. "We expect Ohioans’ views on the state’s budget dilemma are similar."
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