July 19, 2006

Ohio Legislators Propose Tax Breaks for Wealthy

Rep. Charles Calvert has introduced a bill into the Ohio general assembly that would reduce the tax rate on capital gains from the current 6.55% to 3%. A new study released by the Institute on Taxation and Economic Policy shows that the proposal would benefit only a tiny fraction of Ohio's wealthiest, while depriving the state coffers of revenue.

The study shows that lowest-income 40% of Ohio’s population would receive nothing under the cut. The next 20% would receive an average of $1 over three years. The top 1% of Ohio’s population, however, with an average 2007 income of $812,000, would receive an average of $7,124. In fact, the study found that three-quarters of the total tax cuts over three years would go to the top one percent, and 92 percent would go to the top five percent.

Republicans who sponsored the bill, are arguing that these tax cuts will boost Ohio’s economy. Capital gains are profits made from the selling of investments, typically the stocks and bonds of large companies. It is likely that most of the money saved under lower capital gains taxes would simply be reinvested in the stock market, instead of benefiting Ohio’s economy. Tim Fogarty, an economics professor at Case Western Reserve University who was contacted by the Akron Beacon Journal to comment on the bill said"if the state wants to encourage spending in Ohio, it would be better to cut taxes for the poor because they spend locally, and they do it immediately".

Not only is it unlikely the bill would increase investment significantly in Ohio, it also deprives the state coffers of needed revenue, while sending more money in taxes to the federal government. In fact, according to the ITEP study, in the first three years alone, $97 million of the tax cuts will be sent to Washington, D.C., in the form of higher federal income taxes. When a taxpayer itemizes instead of taking the standard deduction, the taxpayer can deduct the amount spent on state taxes from their federal income taxes. The lower state capital gains tax means that the deduction will also be lower, so much of the “saved” money will simply be sent to the government in Washington instead of the one in Ohio.

The G.O.P. in Ohio has championed this bill as a way to boost Ohio's economy. However, since much of the money would end up reinvested nationally, the bill simply redirects money from the state coffers to out-of-state stock markets and the federal government. The vast majority of taxpayers would receive little or nothing. This bill is a blatant attempt to help the richest one percent of Ohioans at the expense of everyone else.


At 6:01 PM, Blogger Bob said...

The capital tax rate is already low enough that reducing it further will not increase more investment. It will only lower state coffers and place pressure on the state to increase taxes in other ways.

At 5:38 PM, Blogger Ange2682 said...

Kudos on a fair and accuate evaluation. Republicans harp on the "cut taxes" mantra every election season because they don't think voters will question the plan. Discussions like this are important to educate voters, not manipulate them.


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