Here’s how your vote in November could impact state, federal tax policy

This news outlet spoke with tax experts at the right-leaning Buckeye Institute and left-leaning Policy Matters Ohio, two influential state-level think tanks, to break down the changes that could be coming and how your vote could impact taxes.

State income tax

Republicans will likely retain their dominance over the Ohio legislature this November, where all Ohio House reps and over half of the Ohio Senate is up for reelection. Under Republican control, the Ohio General Assembly has drastically reduced Ohio’s income tax rates over the past two decades and did so again in the most recent budget.

In the 2024-2025 operating budget, Ohio Republicans moved to cut state income taxes down to just two brackets and a top rate of 3.5%. The legislature cut commercial activity taxes on businesses; expanded the sales tax holiday to all products for an entire week; and provided tax exemptions on various goods.

The state felt empowered to do this based off of its robust rainy day fund and record surplus tax revenues, but the fiscal health of the state had also been buoyed by billions of federal American Rescue Plan Act dollars that had been funneled into the state.

Now that ARPA is no more, “Will the tax relief from the previous budget remain intact?” asks Rea Hederman, Jr., executive director of the Economic Research Center at the Buckeye Institute.

“Because there was so much liquidity in the system, a state like Ohio in 2023 was able to increase government spending and have a large tax cut. So now what’s going to happen is policymakers are going to have to make big decisions,” Hederman said.

The need to make “big decisions” in the 2025-2026 budget, one of the first legislative priorities on the next general assembly’s docket, will be present with the income tax rate as it is today.

That doesn’t take into consideration the growing appetite among GOP lawmakers and candidates to do away with the state income tax entirely, with the belief that the benefits (attracting more businesses, more residents, incentivizing more spending) would outweigh the cons (a significant loss of tax revenue). It’s a proposition that Hederman said would require even more difficult spending decisions be made.

“You can eliminate the income tax, but it has to be paired with spending restraint and spending cuts,” Hederman said.

The sheer scale of spending cuts that would be necessary to maintain a balanced budget, as Ohio’s constitution requires, is high, reasons Bailey Williams, tax policy researcher with Policy Matters Ohio.

“In the last fiscal year, we brought in about $26 billion in state tax revenue,” Williams told this news outlet. “Of that, the state income tax is about $10 billion of it. So, we’re going to throw away over a third of our revenue? That’s not sound tax policy.”

Property taxes

Following a drastic rise in many Ohioans’ property taxes resulting from a rise in valuations, property tax reform has been one of the most attempted pieces of legislation in the current General Assembly. However, not much reform has come.

“A lot of people could be paying almost as much in local taxes as they do at state level taxes, and we’re seeing a growing desire for property tax reform,” said Hederman. “A lot of people are concerned and feeling that they’re not getting the value of services for the property tax and the property tax is simply too high.”

As a result, cities, counties, libraries, parks, schools, fire departments and police have all faced a tough crowd when asking voters to extend or raise their own property taxes.

Williams linked much of this back to the state’s drastic cuts to the state’s income tax since 2005, which Policy Matters estimates has removed $13 billion from the amount of taxes Ohio brings in every year. A small portion of the state’s gross revenue — 1.7% each — goes into both a public libraries fund and a local government fund, providing a windfall for local government entities across the state.

A result of these two facts, Williams said, is that state revenue to local governments and libraries have suffered from a decrease in state funding.

“They lose that revenue directly, they get less on a year-to-year basis, and that’s not even taking into account the decrease in value they get from inflation,” Williams said. “These governments have to go with less and less aid from the state, and then they have to go to voters on the local level to increase property tax levies to make up the revenue to provide their essential services.”

Federal tariffs

Tax policy experts agree this November’s presidential election between Vice President Kamala Harris and former President Donald Trump is a big one when it comes to taxes. And one area that has gotten a lot of airtime is tariffs.

Tariffs are taxes on products imported from foreign countries. “What it can kind of be thought of as is essentially another sales tax slapped on the price of a good,” said Williams.

Tariffs are a common tax tool, and there are various ways to wield them. They’ve long been used to punish foreign adversaries in the trade market and to ensure a counterweight in the free market that allows American-made goods to compete with goods made with cheaper labor overseas.

Tariffs have become a central part of the presidential election due to a promise Trump has made to impose a new, baseline tariff of 10% or more on all imports and a whopping 60% tariff on Chinese imports. Meanwhile, Harris has shied away from promising tariff increases, despite the Biden administration’s decision to both extend and expand Trump-era tariffs on China.

Trump likened his baseline 10% tariff proposal to “a ring around our country,” in an April interview with Time Magazine, and in the most recent presidential debate argued that a tariff on all imported goods would help America chisel down its trade deficits with allies and adversaries alike.

Here’s how the general logic behind tariffs goes, according to Williams: By driving up the cost of foreign-produced goods, the government disincentivizes the purchase of foreign goods and, in turn, incentivizes the production and sales of domestically-produced goods.

“But, it’s often short-sighted because other countries can slap tariffs on goods we export to those countries,” Williams said, “and that’s the making of an escalation of a trade war.”

Williams pointed out other pitfalls. In the short term, market-wide tariffs can significantly increase the price of goods for American households; and, some imported products don’t have American-made alternatives and might not lower in price over time. Additionally, Williams pointed out that tariffs are a “regressive” tax, meaning they take a bigger chunk of out of lower-earning Americans’ paycheck than that of the higher earners.

To Time, Trump said he doesn’t believe his baseline tariff would raise costs. “A lot of people say, ‘Oh, that’s gonna be a tax on us.’ I don’t believe that. I think it’s a tax on the country that’s (trading with America).”

In the Tax Foundation’s review of Trump’s various tax proposals, the conservative think tank estimated that “Trump’s proposed tariffs threaten to offset the economic benefits of his proposed tax policy changes, while falling short of offsetting the tax revenue losses. Trump’s combination of policies could therefore shrink economic output and grow the national debt.”

Compared to Trump, Harris has stayed relatively mum on any tariff proposals. She did, however, counter the former president at the debate by equating his baseline tariff plan to the creation of a federal sales tax, arguing that the tariff will ultimately be passed on to the consumer.

The talk of tariffs has caused concern with the Dayton Area Chamber of Commerce.

“Dayton area businesses are operating across the globe, importing and exporting goods, parts and products,” Chamber Vice President Stephanie Keinath wrote in a statement to this news outlet. “We are concerned with any proposed policies that make it more difficult or costly for Dayton area businesses to operate and compete in a global economy.”

“Bottom line, tariffs are taxes,” Keinath said. “In our hyper-global economy even tariffs that may be levied by our government to ‘protect’ domestic goods and industries can end up negatively impacting the cost of doing business for American businesses and raising costs for American consumers.”

Federal taxes: cuts, child tax credits, gratuity exemptions

According to Hederman, the most important tax policy question looms just beyond the November election: Trump’s 2017 Tax Cuts and Jobs Act, a tax cut of nearly $4 trillion which is scheduled to expire at the end of 2025.

“The 2017 tax cut reduced taxes on all Ohioans, so a big question for people to ask, then, is: What do we think each candidate is going to do to address the expiration of the 2017 tax cuts, and what else are they trying to do on tax policy?” Hederman said.

The tax cuts saved the vast majority of U.S. households money on their federal tax bills, but an extension of the cuts, according to the Congressional Budget Office, would add an estimated $4.6 trillion to the national debt over the next decade.

Hederman said that, while Trump has signaled he’d push for Congress to extend his 2017 cuts, Harris has laid out a plan that includes increasing the corporate tax and capital gains tax rates while layering in tax exclusions for small businesses that would ultimately pair higher tax revenues with a slight reduction in GDP growth.

Despite these differences, Trump and Harris have found common ground on programs to help families and tipped workers.

“Both campaigns have looked at the idea of expanding the child tax credit, both of them have talked about trying to help out families, but some of those policy ideas have not been fully fleshed out for economists to look at, to model and to evaluate,” Hederman said.

Trump’s Tax Cuts and Jobs Act and the Biden-Harris administration’s American Rescue Plan Act have enacted federal child tax credits over the past decade. Recent bipartisan efforts to extend and expand the credit have stalled in the U.S. Senate after passing the House.

“Making sure that parents have a little extra money in their pockets, make ends meet, take care of child care expenses, that’s been a big one — and that’s a great policy proposal,” Williams said.

Harris has joined Trump on a novel idea of eliminating the income tax on gratuities.

Hederman expressed apprehension on this point. “I think it’s always good, you know, to be able to reduce taxes on labor income... The trade-off is, it could create a moral hazard where all of a sudden people might prefer to work for tips.”

Under such a plan, Hederman envisions businesses or contractors opting to charge smaller rates up front with a wink-wink understanding that they’d accept larger tips, thus reducing their taxable income. He called the no-tax-on-tips idea complex and suggested the tax code is better off as simple as possible.

“A better policy is to reduce the tax for all workers, looking at reducing the federal tax rate,” Hederman said.

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Avery Kreemer can be reached at 614-981-1422, on X, via email, or you can drop him a comment/tip with the survey below.