How to Reform Ohio’s Tax System

March 27, 2014

In response to Ohio Governor Kasich’s call for tax reform in his 2014 State of the State address, we have released an analysis of his proposals and a menu of possible options for improving the state’s corporate, individual income, and sales tax structures.

Key findings include:

  • Governor Kasich’s 2014 tax proposal decreases individual income taxes, but pays for those tax decreases with hikes in taxes on tobacco, energy, and businesses.
  • Overall, tax policy in Ohio over the last several years has been a mixed bag, but there are many ways to move Ohio down a path to fundamental reform.
  • Ways policymakers should consider to improve corporate taxes would be to repeal the Commercial Activities Tax, eliminate special credits for businesses, and bring down the overall rate.
  • Ways policymakers should consider to improve individual income taxes would be to overhaul Ohio’s local income tax system, repeal last year’s pass-through business carve out, consolidate income tax brackets, and eliminate the marriage penalty.
  • Ways policymakers should consider to improve sales taxes would be to eliminate taxes on business inputs, while expanding the sales tax base to services.

According to the report, instead of addressing the core problems in the tax code, the Governor’s proposals are a somewhat disjointed attempt at tax reform that lacks principle or a unifying theme. Although Kasich’s goal of enacting income tax cuts with revenue offsets is possible, relying on tax gimmicks to close the revenue gap is not sensible tax policy.

Nevertheless, Ohio is in a good position to make positive changes to its tax code. There appears to be a strong appetite for tax reform in Ohio, and that’s why we’ve provided this list of possible alternatives. The proposals presented in our report, or any elements of them, would start Ohio down a path to fundamental reforms to the state’s tax structure instead of tinkering at the edges.

Report: Ohio Tax Reform in 2014: Framing the Conversation

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