Economists: Ohio flat-tax would worsen inequality
An overwhelming majority of a panel of Ohio economists believes that a flat-tax proposal pending in the Ohio House would worsen economic inequality, according to a survey that was published Monday.
Most of the 22 who responded also didn’t think that the proposal would spur economic growth.
Inequality is a serious problem in the Buckeye State, where 30% of the population is covered by Medicaid, the federal-state health program for the poor, and where 40% of all births are also covered by the program.
Meanwhile, Republican members of the state House of Representatives are pushing a measure that would require everyone to pay state income tax at the same rate regardless of their income. It’s more fair, the pitch goes, because people making more money would pay proportionately more in income taxes than those making less.
But critics point out that taxes on income are far from the only way people pay to support state and local government. And other taxes — such as those on sales and gasoline — are charged without regard to whether an Ohioan makes $2.7 million a year or $27,000.
When one takes all of those taxes into consideration, poorer Ohioans pay out nearly twice as much of their income in state and local taxes as the richest, the Institute on Taxation and Economic Policy reported.
In 2018, the poorest 20% paid 12.3% of their income in such taxes as the richest 1%, who paid just 6.5%, the institute reported.
The economists surveyed by Scioto Analysis agreed with that assessment. Adamantly.
Eighteen of the 22 who responded said that the 2.5% flat income tax proposed in House Bill 1 would exacerbate inequality. Only one disagreed and the other three were uncertain.
“A flat tax is a regressive tax in which low-income taxpayers carry a disproportionate share of the tax burden,” independent economist Kay Strong wrote in the comments section of the survey. “Further squeezing those least able to cover daily living expenses qualifies as truly draconian.”
To some, the matter was self-evident.
“This will so obviously increase inequality that it’s not even worth debating,” wrote Paul Holmes of Ashland University.
A few other economists resorted to snark.
“Giving $11,000 to high-income earners and $3 to low-income earners is an efficient way to increase inequality,” wrote Michael Myler of the University of Mount Union.
In addition to falling more heavily on poorer Ohioans, an analysis by Policy Matters Ohio indicated that HB 1 would punch big holes in funding for local government, libraries, and schools. The loss of such services will also worsen economic inequality, some of the economists said.
“The benefits will flow to higher income individuals but the spending cuts will hurt lower income individuals,” Bob Gitter of Ohio Wesleyan University said.
There was less certainty about whether the flat tax would help grow the economy, but 12 of the 22 economists said it wouldn’t. Eight were uncertain and just two said they believed it would help expand the state economy.
“Public services and goods are an important part of the necessary infrastructure to grow an economy,” Rachel Wilson of Wittenberg University said. “Cutting state income taxes will reduce the public infrastructure. Our current tax rate is very competitive with other states and doesn’t need to be reduced.”
Conversely, David Brasington of the University of Cincinnati said the flat tax would force local governments to be more efficient and thus spur economic growth.
“It will make local public services rely more on local taxation, and attract people and new businesses to the best-run municipalities,” he said.
This story was republished from the Ohio Capital Journal under a Creative Commons license.