Ohio GOP tax bill that primarily benefits the wealthy could jeopardize public services such as parks, libraries and schools
CLEVELAND, Ohio -- State Republicans are considering a bill that would cut income and property taxes at the expense of funding for schools, libraries and parks, potentially undermining institutions that local voters have overwhelmingly supported through levy approvals.
House Bill 1 would create a flat income tax rate -- setting the state’s income tax rate at 2.75% for all earners, except those who make less than $26,050 -- reduce from 35% to 31.5% the amount of a property that can be taxed, and freeze the amount people pay in property taxes, even when the value of their homes increases.
HB1 says it would pay for the tax reductions by no longer sending $1.2 billion in “rollbacks” to local agencies, such as local governments, schools, libraries, parks and more. Under the rollbacks system, the state government has paid 10% of property tax collections to local government. If the bill passes, local libraries, schools, parks and other agencies say they would likely have to pass their own levies or cut services to compensate for the lost funding.
Locally, that would include Cuyahoga Community College, the county library system and the Cleveland Metroparks -- which 77% of voters recently supported by approving a 2.7 mill levy in November 2022, Steen said.
The bill’s sponsor, Rep. Adam Mathews, a Republican from Lebanon, has supported using state dollars to reinforce local governments’ coffers, while they adjust to the proposed change, but it’s unclear how that would be funded.
Bill proponents pitch the bill as a way to lower taxes, simplify the system and increase consumer spending by putting money back in taxpayers’ pockets, Mathews said. The disproportionate benefit to wealthy families is part of a strategy to encourage upper middle class and wealthy families to live, work and pay taxes in Ohio, Mathews said.
“Higher income families are increasingly mobile,” Mathews said. “We want those with the ability to pick up and move to stay in Ohio.”
Opponents, however, have noted the bill disproportionately benefits the state’s highest earners and would result in either more local taxes or cuts to local government services. By one estimate, 89% of the value of tax relief under HB1 would go to households that make more than $124,000 per year, according to the left-leaning Institute for Taxation and Economic Policy.
“I just don’t understand why we’re doing this,” Rep. Daniel Troy, a Democrat from Willowick, said during a recent Ways and Means Committee hearing on HB1. “This isn’t really tax relief, but tax handouts to the people who need it the least.”
Rep. Sean Brennan, a Parma Democrat, spoke against the legislation, saying the cuts to local government services would overshadow the amount of money people keep because of the tax cut.
“It’s going to be cuts to senior citizens to use the senior center in Parma, as well as our libraries,” Brennan said during the Ways and Means Committee hearing. “We’re defunding our families.”
The bill
If approved, the 2.75% income tax rate would be the smallest percentage of income that Ohio’s top bracket of earners have paid in the history of the state’s income tax system, according to data from the Ohio Department of Taxation.
The tax rate would also be lower than nearby states. Pennsylvania has a flat tax of 3.07%; Indiana’s flat tax rate is 3.23%; Michigan’s flat tax rate is 4.25% and Kentucky’s flat tax rate is 5%, according to state government websites.
Currently, Ohio’s income tax rate ranges from 2.765% for the portion of income people make between $26,051 and $46,100, up to 3.99% for the portion of their incomes above $115,300 per year, according to the Ohio Department of Taxation.
HB1 still has a long way to go before approval. As of March 2, the bill is in a house committee with no equivalent bill introduced in the Senate.
Ohio’s income tax was at its highest in 1984, when the top tax rate was 9.5% and began with taxpayers who made more than $100,000, according to the tax department.
Under HB1, a taxpayer who reports $75,000 per year in income would save $140 per year, while someone who makes $150,000 per year would save $870, and someone who makes $500,000 per year would save $5,209, cleveland.com reported previously.
Government entities throughout Cuyahoga County received $183.6 million through the rollback program in 2022, according to the Ohio Department of Taxation. Large governments, such as Cuyahoga County, received just under $20 million, while small governments such as the village of Linndale, received under $200.
Public services
Many local government agencies would suffer a one-two punch from HB1, as it both reduces property tax revenue and eliminates the rollback program. Agencies are still tallying up the potential fiscal impact, but all agreed it would be significant.
The bill, as written, could cost Cleveland Metroparks between $90 million to $100 million over the next 10 years, Wade Steen, the parks’ chief financial officer, told cleveland.com.
“This is going to have a dramatic impact” if passed, Steen said.
Asked whether the parks system would have to seek an additional local tax increase to offset the potential loss in state revenue, Steen said it is too early to say.
“There would have to be reductions. What those are, we’re not sure,” Steen said.
The tax reform bill would compromise work the park promised to do when seeking approval for a 10-year replacement levy. Without the levy dollars, it would be harder for the park to embark on more ambitious projects, such as potentially taking over Forest Hill Park in East Cleveland or building a corridor along I-77 between Slavic Village and Downtown Cleveland, cleveland.com reported previously.
“People, I think, really want what we told them we were going to do with the lakefront and parks,” Steen said.
The Cuyahoga County Public Library would be in a similar position, spokeswoman Hallie Rich told cleveland.com.
If HB1 passes as written, the library system would receive $8.3 million less than it is currently receiving – equal to a 9% reduction in the library’s budget. For comparison, $8.3 million is roughly the same size as the library system’s entire budget for purchasing materials, such as reading materials and audiobooks, Rich said.
If the bill were to pass, it would result in either “significant diminishment in services or going back to the voters” to pass a levy, Rich said
Cuyahoga Community College said it would be effected by HB1, and officials there are still adding up how much the impact from the bill would be, spokesman Anthony Moujaes said in an email. Tri-C received $5.9 million from the rollback program in 2022, according to tax records.
Cleveland Metropolitan School District is “understandably concerned” about HB1′s potential affects to the school district’s budget, spokeswoman Roseann Canfora said in an email. CMSD projects it could lose up to $24 million per year from HB1, Canford said.
“All of these are potentially negative impacts, and could significantly impact CMSD,” Canfora said.
A larger effort
With the exception of West Virginia, every state that borders Ohio has a flat tax rate, according to the Institute for Taxation and Economic Policy.
An analysis from the taxation institute, a left-leaning think tank, found middle-class taxpayers tended to pay more in taxes under flat-tax systems overall, even when their income tax rates decrease. The reason is because governments often use other types of tax, such as sales tax, to make up for the revenue lost from offering income tax breaks, the group said.
Conservative groups have argued essentially the opposite, saying flat taxes increase consumer spending, entice people to move to Ohio and “treat everyone equally in the eyes of the law,” Mathews said.
Mathews argued that decreasing taxes will help entice people to move to (and stay in) Ohio. But the state has been cutting income taxes for 20 years to historically low rates, and yet, with the exception of the Columbus metro area, Ohio saw its population decline from 2000 to 2020, according to a report from the Greater Ohio Policy Center.
Flat taxes are not exclusive to conservative states. Liberal strongholds like Illinois and Colorado have flat tax systems, as do conservative strongholds, such as Utah, and purple states like Michigan, according to the Tax Foundation.
One of the groups pushing for a flat tax has been the conservative American Legislative Exchange Council, or ALEC, which has suggested draft legislation for a proposal posted on its website.
While Ohio’s legislation is significantly more nuanced than ALEC’s boilerplate bill, the conservative group has its foot in the door on Ohio tax reform. ALEC’s Ohio chapter chair, Rep. Scott Wiggam, R-Wayne County, is a member of the Ways and Means committee where HB1 was introduced. During the recent HB1 hearing, Wiggam spoke in favor of tax reform, saying Ohio needs to modernize its tax code and shrink the overall size of government.