Open Ohio for Business: Reform the Municipal Income Tax Now

The Buckeye Institute’s recent Columbus Dispatch op-ed by our Statehouse Liaison and Policy Analyst, Greg R. Lawson, asks of Ohio policymakers:

“is a state really open for business when its local governments require some businesses to file not one, not two, but between 30 and 40 W-2 tax forms for their employees? Or how about a state with local governments collecting income taxes on as little as $5 earned? Or a state with more than 15,000 pages of local ordinances defining hundreds of different local taxes?”

Ohio’s municipal income tax system, according to the non-partisan Tax Foundation, is “the most complicated, absurd and punitive system of municipal taxation in the nation.”  It can even tax you twice if you live and work in different cities!

The Buckeye Institute has been working with a broad coalition to mitigate the economic drag and unfairness of this uniquely bad system of taxation.

We testified before the Ohio House Ways and Means Committee during hearings on municipal income tax reform and authored a joint opinion piece with the Tax Foundation that ran in Forbes also calling for reform.

The time is ripe for reform.

We have only recently begun climbing out of the economic pit Ohio fell into when it lost more private sector jobs than any state in the nation besides Michigan.

The Buckeye Institute is leading the charge on implementing pro-growth economic policies, but we cannot do it without your help.

Streamlining and simplifying Ohio’s dysfunctional municipal income tax system is a surefire way to spur Ohio’s economic growth.  Please help us make “open for business” a reality in Ohio.

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The Real Crisis Is Youth Unemployment, Not the Minimum Wage

Over the past year, grave warnings of an ongoing crisis have been issued from politically Left-leaning think tanks like Policy Matters Ohio all the way up to the President of the United States. This relentless drumbeat of doom, the specter of which demanded our federal executive to act without Congressional action, would have Americans believe that without a minimum wage increase, countless millions of people will fall into oblivion.  Yet their wailing ignores the plight of the needy—the young, unskilled, and unemployed, who are far less likely to find a job if liberals succeed in raising wages such that entry-level jobs are eliminated, or are priced out of their reach.

As recently highlighted by the Bureau of Labor Statistics, only 4.3 percent of hourly paid workers earned the federal minimum wage or less in 2013. Young people from the ages of 16 to 24 made up 50.4 percent of workers making at or below minimum wage. Only 2.7 percent of hourly workers 25 or older made at or below the federal minimum wage. The East North Central census division, comprised of Ohio, Illinois, Indiana, Michigan, and Wisconsin, saw 4.3 percent of all hourly workers paid at or below the federal minimum wage. This outcome is reflective of the nation as a whole and well below the 5.7 percent seen in the South region, which stretches from Delaware to Texas.

While it is important not to trivialize those who do earn a living in a career at the minimum wage, it is also important to keep the issue in the proper context. A vast majority of workers do not earn an income at or below the federal minimum wage and those that do are more likely to be younger and to grow into higher earnings as their careers progress.

And that it is in the area of employment levels for youth where the wailing is deserved.  As America has crawled out of the hole created by the great recession, young workers continue to struggle to find work.  For African Americans, the youth unemployment rate is even worse, a whopping 36.1 percent in March.  As multiple studies, such as the Cato Institute and even the Congressional Budget Office, show, hiking the minimum wage is likely to be a job killer, especially for those seeking to start on the ladder of economic success.  To deny them a chance to climb that ladder is what should truly be considered a drumbeat of doom.

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Ohio’s “Student Accountability Act” Provides Cold Comfort to Student Data Privacy Concerns According to New Buckeye Institute Report

A new report, released Wednesday, April 9, by The Buckeye Institute for Public Policy Solutions finds that opponents of the federal government’s Common Core Standards rightly worry that the Obama Administration has found a backdoor into a “national, student-level” database that will house sensitive information about our students.

Concern over the State Longitudinal Database System (SLDS)-a state-led record-keeping system-includes the potential for misuse of sensitive student data by federal agencies, researchers, and data mining companies that may access such information through data sharing and research agreements.

Ohio’s House of Representatives deserves credit for passing the “Student Data Accountability Act” (H.B. 181) in December 2013 in order to address these fears; however, several broad exceptions and caveats may ultimately undermine the effort.

Historically, states, their agencies, and local boards of education have proven to be all-too-susceptible to federal and other financial incentives.  Often, board approval for the sharing of such sensitive personal student data may be only another federal grant away.

Further, it may surprise many Ohioans that federal law already recognizes that states, via their public schools, can collect psychological and psychiatric information about their students through individual and group activity or testing “that is not directly related to academic instruction and that is designed to elicit information about attitudes, habits, traits, opinions, beliefs, or feelings.”

The Buckeye Institute’s president, Robert Alt, emphasized that “Ohio has an obligation to ensure that students’ privacy is respected.  To date, Ohio’s efforts to safeguard student privacy haven’t made the grade.”Given a recent U.S. Department of Education report that suggests that education officials have a growing appetite for highly personal data, more robust measures are needed to protect this information than those included in H.B 181.

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BLS Revisions Improve Ohio’s Private Sector Job Creation Ranking

The February 2014 Ohio By the Numbers report (now available on The Buckeye Institute website) is the to incorporate the Bureau of Labor Statistics’ (BLS) new annual benchmarks.  Using the new benchmarks that showed higher job creation numbers since 2010 than initially reported, Ohio’s national private sector job ranking since improved from December’s rank of 34 to 25 in February.

After several months of mirroring, or coming in above, the nation’s unemployment rate, Ohio dropped below the national level in February (6.5 percent vs. 6.7 percent).  Despite the unemployment rate drop, Ohio shed 600 private sector and 4,000 government jobs in February according to preliminary BLS numbers.

Ohio’s labor force increased by 1,855 individuals in February.  This marks the second straight month of labor force growth in the state.  Overall, the labor force in Ohio has shrunk by slightly over 200,000 workers from its peak of 5.97 million people in December 2006.  It has gained nearly 7,000 workers since the beginning of 2014.

Despite the BLS benchmark-based upward revision for job growth in recent years, Ohio continues to lag the private-sector growth rates of most other states when considering the longer time span of the past two decades.  Ohio continues to rank as only the 47th best state since 1990.

For a full Labor Force update, click here.

Overall highlights from the report:

  • Ohio lost 600 private sector and 4,000 government jobs in February;
  • Ohio ranked 25th nationally in private sector job growth since January 2010, growing at a 7.2 percent rate;
  • Ohio currently ranks 47th nationally for private sector job growth since January of 1990, growing at 9.7 percent (top-ranked Nevada grew 96.4 percent over the same time span).

Within individual industry sectors, Professional and Business Services, Education and Health Services, and Leisure and Hospitality continue to employ more people today than in either 1990 or 2000.  Meanwhile, Mining and Logging, Construction, Manufacturing, and Information sectors have fewer jobs today than in 1990 or 2000.

The report shows that Forced Union states (which include Ohio and several of its neighbors — with the exceptions of Indiana, which became a Worker Freedom state in February of 2012, and Michigan, whose recent Worker Freedom law became effective at the end of March 2013) had a private sector growth rate far below Worker Freedom states.

Between 1990 and January 2012, Worker Freedom states’ private sector jobs grew at a 38 percent rate vs. only 14 percent for Forced Union states (11.8 million vs. 8 million).  Since Indiana became a Worker Freedom state in February 2012, Worker Freedom states’ private sector jobs grew at a rate of 4.6 percent vs. 3.6 percent for Forced Union states.

For the full report, please click here.

 

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States With No Income Tax Booming Economically While Ohio Plays Catch-Up

Taxes are as inevitable as death.  Yet, in nine states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming), residents are not paying a dime in income taxes on their wages.  And, contrary to the howls of big government advocates, it seems to be working for those states’ economies by creating a better business climate.  As we prepare for the release of the Mid-Biennial Review bill, it is expected that Gov. Kasich will take a step along the path toward elimination of Ohio’s income tax, which will be a good thing for Ohio if done in the appropriate way.

A look at “Rich States, Poor States,” the annual report compiled by economists Arthur Laffer, Stephen Moore, and Jonathan Williams, shows not only which states are performing the best economically, but projects their economic performance out into the future by analyzing public policy on a state-by-state basis.

The empirical evidence presented in the report shows that, in the case of state income taxation, less accomplishes more.  The nine states without an income tax on wages (two of the nine tax certain non-wage income) were rated economically on a scale from 1-50, with 1 being the best, as follows:

  • Texas: 1
  • Nevada: 2
  • Wyoming: 4
  • Alaska: 8
  • Washington: 10
  • Florida: 14
  • South Dakota: 16
  • Tennessee: 23
  • New Hampshire: 32

Of the nine states with no income tax, only one of them was ranked below 25, and five of them were ranked in the top ten.  Ohio, on the other hand, fared much worse than any of them with a score of 49.

While rankings shift over time, they do raise legitimate questions about wider and more general trends.  Why would people move to Ohio if they could choose to move to one of nine states where they would not pay income tax on their wages?

Higher income-tax states, like Ohio, which also has the additional burden of municipal income taxes, are hemorrhaging residents, and non-income tax states are experiencing population booms and the affiliated positive economic benefits that correspond thereto.  The states without an income tax are simply more competitive and gaining more residents and, ultimately, jobs as a result.

The abolition or decrease of income tax can actually produce tax revenue growth.  In fact, according to Arthur Laffer, the states without an income tax actually have higher levels of tax revenue growth than the average of the highest income tax states.

Richard Rahn of the Cato Institute contends that moving away from the income tax is a step that can move a state toward a less intrusive, more economically friendly tax system that will help a state’s relative competitiveness.

“Income taxes, as contrasted with consumption (i.e., sales) taxes and modest property tax rates, are far more costly to administer and do far more economic damage (by discouraging work, saving and investment) and are far more intrusive on individual liberty.”

While other factors besides income taxes play a role in determining a state’s overall economic climate, it is clear that once the burden associated with income taxes is lifted, history has shown that the economy benefits.  Ultimately, this economic growth benefits taxpayers as well.  If nine other states can do it successfully, it is time for Ohio to make itself number ten, and reap the resulting economic rewards (job growth, businesses relocating here, and an influx of residents) that we desperately need to climb up from our current position.

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Talking Tax Cuts on the Eve of the Mid-Biennial Review

Our Statehouse Liaison and Policy Analyst, Greg R. Lawson, was on the State of Ohio with Karen Kasler this past Friday along with Jon Honeck from the Center for Community Solutions.  They discussed the upcoming Mid-Biennial review bill to be proposed by Governor John Kasich including anticipated tax cuts, drop out recovery for students and workforce development.

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Stop Being Obsessed With “Income Inequality” and Get Obsessed With Creating Jobs

Recently, there has been a lot of talk about the issue of income inequality.  In a Gallup poll released on February 17, 23% of Americans listed “Unemployment/Jobs” as the number one problem facing the country.  Despite insistence by the Obama administration that an increasing gap between the richest and poorest Americans is the issue that deserves top priority, Americans do not agree.

The reason for this disconnect is in part a reflection of disparities in methodologies commonly used in income inequality studies.  As the Cato Institute has found, methodologies based on IRS tax returns do not take into account the changes in U.S. tax rules since the 1970s that have encouraged individuals to report greater income for the purpose of tax collecting.  As The Heritage Foundation points out, another common methodology uses Census data, which counts households rather than individuals, underestimates existing wealth transfer policy, and does not use equal quintiles.

As the Hoover Institute argues, a better measure of inequality would focus more on consumption.  This methodology would better take into account the impact of taxes and existing wealth transfer policies.

For a picture of the impact of income redistribution through the use of the Federal tax code, consider these recent findings from the Tax Foundation,

  • American’s lowest-income families receive $5.28 worth of government spending (federal, state, and local) for every $1 they pay in total taxes.  Middle-income families receive $1.48 in total spending per tax dollar, while America’s highest-income families receive $0.25 cents in spending for every dollar of taxes paid.
  • As a group, the bottom 60 percent of American families receive more back in total government spending than they pay in total taxes.
  • Government tax and spending policies combine to redistribute more than $2 trillion from the top 40 percent of families to the bottom 60 percent.
  • The total amount of redistribution has increased slightly over the past 12 years. Middle-income and working lower-income families were the biggest beneficiaries.

It is notable that the fabled “1 Percent” currently pays collectively almost as much in income tax as the bottom 95 percent combined.  You can read more on that here and be sure to note the below chart.

Ultimately, the talk of income inequality obscures something that Ohioans and Americans know too well: since the Great Recession, not enough jobs are being created.  The labor force participation rate is at historic lows.  As the CBO recently identified, new disincentives for work associated with Obamacare are set to pressure labor participation even further downward.  Instead of offering additional disincentives for work and using redistributionist tax policies to divvy up a stagnantly growing economic pie, we need to find ways to increase opportunity, promote business growth, and encourage people to work so that all workers, across all income levels, can share in the fruits of a larger economic pie.

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