Ohio lawmakers are considering a measure that would restructure the state’s tax code. And, if passed, it could mean less money in the coffers of local governments and less money in the pockets of lower income earners.
HB1, introduced Feb. 15 by Rep. Adam Mathews (R-Lebanon), would create a flat income tax rate of 2.75% for all four tax brackets. The highest income tax rate in Ohio is now 3.99%.
To offset the lost income tax revenue, HB1 would eliminate the state’s 12.5% property tax rollbacks, which have nothing to do with the property taxes people are accustomed to paying every six months. That money stays in Portage County and is allocated to the recipients of approved taxpayer levies.
Instead, the rollbacks refer to income tax revenue the state has been kicking back to each county every year: 2.5% for owner-occupied homes and 10% for non-business (residential) homes, County Treasurer Brad Cromes explained.
Those reimbursements total $1.2 billion annually and are funneled to each county’s city, village, and township governments; schools, seniors, libraries, health and park districts; developmental disability agencies; and other entities that ensure communities’ quality of life.
There’s also Ohio’s Local Government Fund (LGF), created in the 1930s to support local jurisdictions when revenues were down during the Great Depression.
Historically, sales tax revenue was funneled to the Local Government Fund, which helped county governments keep property taxes down. It was one way to keep people from losing their property during the Great Depression, Cromes said.
However, HB1 proposes to reduce the Local Government Fund as well.
But local governments still rely on the LGF, and “services cost what they cost,” Cromes said. “What we’re doing is arguing over which pocket we pull the money out of and who ends up paying.”
With its double-barreled approach, HB1 “shifts the burden from folks who would be paying in income tax, so your higher earners, and puts that burden either on sales taxes, which are disproportionately paid by lower income folks because lower income folks spend more of their income, or on property taxes,” he said.
Raising property taxes disproportionately affects seniors, he noted.
The bill was referred to committee where it has come up against strong opposition from farmers, school districts, townships, parks and libraries. Among its few supporters are conservative lobbying groups.
Cromes, a Democrat, said he is wary “of anything that shifts the burden away from higher earners who have a stronger capacity to pay and toward lower earners and seniors.”
County governments would be faced with increasing and redirecting property taxes or slashing services and amenities people have grown to expect. The proposed bill would create a nightmare for those responsible for appraisals, increases and levies, said Janet Esposito, a Republican and Portage County’s recently retired county auditor.
“They would have to change their budgets to assist in some manner to decrease the money in some way. There’d be no continuation of what they currently have, and they’d have to make adjustments to account for the differences in some manner,” Esposito said.
HB1 would affect levies passed after 2009, but levies passed from 2004 through 2009 would receive rollback payments on a declining scale, from 90% for those passed in 2004 to 16% in 2009.
Seeing decreased revenue from those levies would force government leaders to recalibrate, accounting for money they expected but would now not receive. They would also be looking at significant hits moving forward.
“I think it’s the craziest thing I ever heard,” Esposito said. “I can’t believe this. I think they’re making a mess. I think they’re playing a gambling game with the citizens of Ohio. I think they’re treading dangerously.”
“I’m with Janet,” said Mike Tinlin, Portage County’s newest county commissioner and also a Republican. “I think it’s going to create a problem.”
Tinlin said he would raise the issue during an upcoming commissioners’ meeting, and, once all three county leaders reach a consensus, would communicate those concerns to state lawmakers.
Atwater Township Trustee John Kovacich believes HB1 is part of an ongoing effort by the state government to eliminate township governments and the close rapport trustees have with their constituents. If HB1 or some version of it is signed into law, it would affect Atwater’s ability to maintain its park and hire workers, including first responders and summer road crew workers, he said.
“You hate to go to the people for more,” he said. “You can’t facilitate these taxes on the backs of the lower and middle income anymore. The rich are getting richer, and the poor are getting poorer.”
State legislators are “no dummies,” he said, noting that they know most levies stipulate five-year terms.
“They know that every levy that’s been passed in the last decade will be attached to [HB1]. They’re trying to keep the revenue for themselves instead of passing it along to the local governments,” he said. “Anything that hurts our revenue is going to be devastating in a smaller township. They did away with the estate tax years ago, which hurt us immensely. This would be even worse.”
John Vennetti, superintendent of Portage County’s Board of Developmental Disabilities, said HB1 would devastate local agencies.
“They would actually take the 12.5% tax that the state pays and put that all on the local counties. That means the local community taxpayers would be paying 9% more for levies, which is ridiculous that they’re even proposing that, in my mind,” he said.
Residents would see higher tax bills, “and when levies come up, people would probably be less likely to vote because even if it’s a renewal, they’re still going to be charged more because they’re taking that 12.5% away from the state,” he said.
Vennetti said he is trying to determine if HB1 has stand-alone traction or if it will get folded into some other measure Ohio lawmakers are trying to pass.
The proposed measure came out of “left field,” surprising local community leaders and potentially forcing them to float new and more expensive levy bids, Vennetti said.
“We don’t want to do new levies in the future,” he said. “We want to keep using the current levies we have, which have that 12.5% from the state.”
The proposed measure is especially ironic considering that when Ohio lawmakers first enacted a state income tax in 1971, it was because they were concerned property taxes were too high, Cromes said.
In his March 1 testimony before the Ohio House Ways & Means Committee, Mathews said his goal is to lower state income taxes to a 2.75% flat tax, to “disentangle our property taxes from our income taxes” to protect homeowners from tax increases now and later, and to “ensure our local communities receive the quality services they expect.”
Democrats, though, say the bill will effectively defund police and firefighters, K-12 schools, services for children and families, programs for senior citizens, and libraries.
Mathews said he “would hope that most of our cities would not use the first 10% of cuts on police and fire.”
Mathews, who cited his motivation as wanting to attract people to Ohio, admits that the amount of cut is still in flux because of a state provision that freezes property taxes and keeps school tax collection flat.
“I can’t imagine he’s making a lot of friends by trying to get this through,” Vennetti said. “Maybe at the state level, but I can’t imagine at the local level he’s making a lot of friends.”
The state’s nonpartisan Legislative Service Commission reported that the bill would cut taxes significantly more for high earners than for middle-income earners.
Policy Matters Ohio, a left-leaning think tank, calculated that families making $50,000 or less would see a tax cut of $3 or less while those making a half-million a year could see tax cuts of more than $5,000. The richest 1% of Ohioans would see a tax break of more than $11,000, the group said.
Some Republican lawmakers see HB1 as step one toward repealing Ohio’s income tax altogether.
State Sen. George Lang (R-Butler County) said he would like to eliminate Ohio’s income tax within four to six years. Lang and about a third of Ohio senators co-sponsored a bill last session to phase out the income tax by 2032, though it died in committee.
Gov. Mike DeWine has not weighed in on HB1, but in 2019 he signed a state income tax cut into law.
The proposed measure has the approval of Speaker of the Ohio House Jason Stephens (R-Kitts Hill), who calls it one of his top priorities.
Even if HB1 in its current form should pass, Ohioans earning less than $26,050 a year would continue to pay no income tax.