Cincinnati Enquirer: Will lower income tax bring jobs to Ohio?
media mentionKasich thinks so, but our taxes aren’t really so high
8:02 AM, Mar. 22, 2012
Written by Paul E. Kostyu
COLUMBUS — Lower Ohio’s burdensome personal income taxes.
Create jobs.
That’s what Gov. John Kasich proposed last week in an expansive plan to reform government and improve the state’s economy.
Kasich said Ohio’s income tax burden is among the highest in the country.
Actually, Ohio’s income taxes are about average, it turns out.
We don’t pay as much in state income tax as Kentuckians, but we pay more than our neighbors in Indiana, Pennsylvania and Michigan, according to the Washington-based Federation of Tax Administrators.
In fact, residents in 25 states and the District of Columbia pay higher income taxes than Ohioans; taxpayers in 24 states pay less, the group says.
Kasich maintains that a lower rate will make Ohio more competitive with other states, which means more jobs.
Kasich spokesman Rob Nichols told The Enquirer Wednesday that a lower income tax would have a “direct stimulus effect on businesses to hire more people, expand their operations, purchase new machinery.”
But the research on that connection is murky, at best.
Reducing taxes is not new for Kasich
When he announced almost two years ago in his hometown of Westerville that he was running for governor, Kasich’s platform included getting rid of the state’s income tax – all of it. That’s still his plan, said Rob Nichols, his spokesman.
“Phase out the income tax,” Kasich said during the campaign in 2009. “It’s punishing on individuals. It’s punishing on small business. To phase that out, it cannot be done in a day, but it’s absolutely essential that we improve the tax environment in this state so that we no longer are an obstacle for people to locate here and that we can create a reason for people to stay here.”
Now, 15 months after taking office, Kasich’s attempt to follow through with his campaign promise is being blocked by fellow Republicans who don’t like how he plans to fill the gap in state revenues created by lower income taxes.
The governor said he would rather see Ohioans with money in their pockets than in the pockets of oil and natural gas company investors in other states.
This week at a Chamber of Commerce meeting north of Akron, Kasich pulled two dimes out of his pocket to illustrate his point. Companies pay 20 cents on a $107 barrel of oil they suck from Ohio wells.
Kasich wants to assess higher taxes on high-volume, horizontal oil and natural gas wells, known as fracking wells because they use high-pressured, chemical-laced water to fracture, or break up, rocks to release trapped oil and gas. The wells are being drilled in the eastern half of the state. Kasich’s proposal assesses a 1.5 percent tax in the first year and 4 percent thereafter.
Republicans in the House and Senate, however, don’t want to go along because it would violate an Americans for Tax Reform pledge many of them signed not to raise taxes in any circumstance. Others say it could scare away companies offering a potential job boom.
Critics of Kasich’s policies say his cuts to the state budget over the past year mean local officials will have to raise taxes to keep the services their communities need, thus shifting the burden but not necessarily reducing what Ohioans pay.
Kasich often points to Texas and Florida as states that have experienced job and population growth because there are no income taxes in those states. Indeed, Texas added 258,200 jobs and Florida got 54,200 over the past 10 years, according to the federal Bureau of Labor Statistics.
But Ohio added 62,500 jobs, not only more than Florida but at a faster rate.
Over the 10 years, on average, Ohio’s jobs grew at 1.2 percent a year.
Among the seven states with no income tax, Texas (2.5 percent) and Washington (1.5 percent) added jobs at a faster clip than Ohio. But the others – South Dakota (0.4 percent), Florida (0.7 percent), Nevada (0.8 percent) and Wyoming (1.1 percent) – increased total jobs at a slower rate. And Alaska lost jobs.
Mark Robyn, an economist with the Tax Foundation, a non-partisan, nonprofit tax research group based in Washington, D.C., said income taxes by themselves cannot be isolated from other factors that influence why businesses or people locate in a particular state.
Robyn said other factors, such as the quality of the workforce, educational opportunities, infrastructure, proximity to suppliers, the concentration of the workforce and even climate can impact a state’s economy and, consequently, its job growth. Site Selection magazine said in a story this month that there is a logistics advantage for businesses that’s inherent in having a Midwest location.
However, a February report by the Institute on Taxation and Economic Policy, a nonprofit, non-partisan research organization in Washington, D.C., said “residents of ‘high rate’ income tax states are actually experiencing economic conditions at least as good as, if not better than, those living in states lacking a personal income tax.”
A 2011 report by an economics professor at the University of Connecticut said that state’s reliance on the income tax, 6.7 percent, did not hurt job growth. The analysis of data from all states over 50 years showed no difference in average annual job growth regardless of a state’s income tax.
Robyn cited an annual study by the politically conservative American Legislative Exchange Council showing that over the past 10 years, job growth was 7.8 percent in states without a personal income tax. The same study calculated job growth in states with the highest income taxes at .5 percent.
“Except for those states with no income tax, there’s not a lot of variation across states,” Robyn said. “So it’s hard to get at the economic effect.”