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Government and Politics

Do income tax cuts produce jobs in Ohio?
Economic experts debate the role of tax cuts in job creation

Karen Kasler
Ohio Senate President Keith Faber
Courtesy of Ohio Senate
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One of the most fundamental debates over the Ohio state budget has been about income tax cuts and whether they create jobs. Republicans have long claimed they do. Democrats have long said they don’t.

Statehouse Correspondent Karen Kasler sat down with two economic experts to try to find an answer.

Hear Kasler on whether or not income tax cuts produce jobs

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Jon Honeck is the director of public policy and advocacy with at the Center for Community Solutions, a progressive-leaning think tank in Cleveland. And he’s not sure if income tax cuts create jobs. 

“I think it’s very difficult to answer,” Honeck said.” I would say in some cases they might, but in other cases they don’t.”

Richard Vedder is a professor of economics at Ohio University and testified in favor of Gov. John Kasich’s budget, which featured a 20 percent income tax cut across the board and a 50 percent income tax cut for small businesses. He has a much stronger opinion on whether income tax cuts create jobs. 

“I think the answer is yes,” Vedder said. "I do agree, however, that this is a complex issue.”

Size matters, and shifting burdens
The House version of the budget slashed Kasich’s income tax cut from 20 percent to 7 percent. Vedder says any cut helps, but it’s not enough. 

“For poor people, $11 is not inconsequential,” Vedder said. ”For rich people, $1,800 is not inconsequential. ... I have argued that they ought to be larger, I think they ought to be roughly three times as large ultimately.”

Honeck says it’s almost too small a cut to matter,especially if it comes with cuts to schools and local governments that result in higher local taxes. 

“We’re really talking about a small amount of money in relation to the overall economy,” Honeck said. "Many of these local taxes that people have decided to impose on themselves – in some cases because they feel the state is not doing enough for local safety forces or local school districts – (have) created an unfortunate sort of patchwork quilt.”

Senate takes the next step
Senate President Keith Faber has suggested that he’d rather see the 50 percent income tax cut for small businesses in place of the House's 7 percent across the board cut. 

But Honeck’s Center for Community Solutions testified before a House committee that ,for the overwhelming number of businesses in Ohio, the smaller cut would not be enough to create even one job. 

So “it creates unfairness  in terms of one group getting basically 50 percent of its income sheltered versus the average wage-earner paying on 100 percent of his or her income,” Honeck said.

Vedder agrees that a tax cut only for small businesses rather than a cut for everyone is not a great idea. 

“I think it is probably inappropriate policy in a democracy to give a tax cut to one group of people and ignore the rest of the population,” Vedder said. “It smacks of favoritism, and there are some economic issues associated with giving one group of people a different tax status than another group of people.”

Now that it’s passed the Ohio House, the budget goes to the Senate, which will make its own changes and vote on it sometime in late spring.

Listener Comments:

So if you want to talk about what is fair, why isn't there consideration being given to reducing property taxes for senior citizens on fixed incomes? As a group a reduction in their state income tax probably would be minimal and help them little.

Why isn't there a better balance between income and property taxes to pay for local school levies? A family with three children in school, living in $350,000 house but with two bread winners making $150-300,000 or more a year are paying half what a retired couple or widow is paying on a more expensive house that was saved for their entire lives, but with an income half what the younger couple has. Thus, the younger couple could be making $300,000 or more and paying $6-8,000 yearly in property tax whereas the widow could have an income of $100,000 or less and be paying $14-17,000. Where is the fairness in that? Governor Strickland is the only one who acknowledged this problem. He apparently had some memory of the DeRolfe decision.

Posted by: Pat Smith on April 22, 2013 1:04AM
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