Essentially, his bill would eliminate Ohio’s income tax in a decade Huffman believes the Laffer Curve, rainy day funding and stronger growth would provide any revenue needed.
Huffman argues that state income taxes have been slowly lowered since the administration of former Gov. John Kasich in 2010 — and yet the result has been steady revenue. Lowering the rate from about 6% to 4% has held revenue at about the $8.2 billion collected in 2010, he maintains.
“Even lowering it (the rate) by a third, we’re still collecting $8.2 billion,” Huffman said. “It’s something called ‘the Laffer Curve,’ where you give the money back and you actually collect about as much.”
Named after economist Arthur Laffer, his namesake “curve” posits an “optimum” tax rate that maximizes tax revenue.
In fiscal year 2020, Ohio personal income taxes generated nearly $8.3 billion, less than the state sales and use taxes, which generated $10.9 billion. Income taxes provide some 28% of Ohio’s total tax revenue, according to the state Department of Taxation.
The $8.3 billion collected in fiscal 2020 was 11% less than the $9.3 billion collected in fiscal 2019, the Department of Taxation said.
Effective in tax year 2019, all Ohio income tax rates were reduced by 4%, making the state’s top tax rate 4.797%, the state said.
Huffman acknowledges diminishing returns, with income tax revenue ending once the rate is lowered to zero. But he foresees strong economic growth unleashed by steadily lowered rates, coupled with “rainy day” fund savings, making up the difference.
“If it doesn’t (provide needed revenue), the General Assembly can decide how they want to fill it,” Huffman said in an interview Friday.
State Sen. Niraj Antani, R-Miamisburg, is a co-sponsor of Huffman’s bill, as are six other senators.
Credit: Jim Noelker
Credit: Jim Noelker
Antani said there is work to do to fully examine the idea. He said every state budget spends more than the previous budget. That needs to be curtailed, in his view. Cutting wasteful spending and special earmarks will help also.
“There will have to be choices made in cutting the growth of spending,” he said.
And Antani expects greater job creation with the return of money to the people.
“We’re not Texas or Florida, but if we want to be competitive with them, we have to get rid of the state income tax,” he said.
The idea is not a new one. In 2008, House Bill 534 called for phasing out the Ohio income tax, also over 10 years. Sidney Republican John Adams was the chief sponsor. It was introduced to the full House in April that year before it failed to gain traction.
In 2020, nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming — had no income taxes. Such states often rely on sales, property, local and gasoline taxes to fill the void.
Guillermo Bervejillo, a senior fellow and analyst for the left-leaning Policy Matters Ohio think tank, called the idea of state income tax elimination “an act of brinksmanship, an act of irresponsible policy-making.”
“The Laffer Curve is truly laughable,” Bervejillo said in an interview.
Without income taxes, the state will have turn to sales, use and excise taxes, all of which will fall heavily on lower-income Ohioans, he said.
Florida has massive income from tourism. People outside the state provide that revenue, Bervejillo said. “Obviously, Ohio does not have that kind of tourism.”
Texas has a heavy severance tax, far heavier than Ohio’s, he added. It’s a tax corporations pay to extract (or “sever”) natural resources from state territory, such as oil and fossil fuels. Ohio has a flat, minimal severance tax, Bervejillo said.
Pointing to a state arguably more like Ohio than either Florida or Texas, Bervejillo noted that Tennessee doesn’t have an income tax, but it does have high sales taxes.
“And it has terrible services,” he said. “We don’t want to reproduce Tennessee. It’s a bad idea.”
“The whole idea of using rainy day funding,” he added. “I mean, what happens when it rains?”
Rea Hederman, vice president of policy for the conservative-leaning Buckeye Institute, said Huffman’s proposal is at least the start of a needed discussion.
“Many other states have already completed tax reform by eliminating the income tax like Tennessee and New Hampshire or moving to a flat tax like Mississippi,” Hederman said in an email. “Ohio should be encouraged that the Ohio Senate is looking to foster economic growth in Ohio and wants tax reform.
But other steps will be needed, as Hederman sees it.
“These steps can include a mix of slowing the growth rate of spending, cutting unneeded government programs or closing tax loopholes. With a ten-year plan, Ohio has a great deal of time to discuss these steps and which ones are the best for the state,” he said.
About the Author
