Ohio Officials Agree to Cancel Income Tax Cut

Ohio’s individual income tax—a ridiculous array of nine rates to the thousandths of a percent—could use some simplification. Instead, Ohio in 2005 adopted a complicated package whereby they would phase out the corporate income tax over five years, phase in an economically destructive gross receipts tax called the CAT, cut the sales tax by a half-point, hike cigarette taxes, phase out a distortive inventory tax, and phase in a 21% reduction in the individual income tax over five years.

Scratch that last one now:

The deal reached late Wednesday night resolved what had been increasingly tense negotiations between Gov. Ted Strickland and Democratic lawmakers on one side, and Republicans loath to suspend a tax cut on the other.

On Thursday, a small group of Republicans is expected to support Strickland’s plan to delay the final round of income tax cuts set in motion in 2005. In return, Democrats agreed to a pilot project to test proposed construction contracting changes they believe aren’t ready to be implemented on all public projects. The agreement secured enough votes to get the deal out of the House and Senate, and to the governor’s desk.

A Senate committee is expected to approve the plan Thursday, followed by votes on the House and Senate floors.

Funny how tax increases seem to happen immediately (even retroactively!) but tax cuts often get phased in and then delayed and eventually dropped altogether. In our rankings and measures, Ohio experts have pressured us to give their state full credit as if they had fully phased in all those reforms. We don’t, instead counting only what they have actually done for each year. And this is why!

There’s some debate about whether or not Strickland’s action is a “tax increase.” The tax was going to be lower and now it won’t be. I’d say it counts. But I guess that means President Obama’s estate tax plan is a tax cut (since otherwise it will be much higher in 2011 than he proposes)? Or perhaps people measure the future change against the status quo, even though it will change regardless.

Anyways, Ohio ranks 47th in our State Business Tax Climate Index. If they expect to improve their economy, it will take real tax reform that they can enact and stick with.