As state budget shortfall looms, Senate GOP seeks to tie down income tax rates

Facing a $1 billion coronavirus-shaped budget hole, an Ohio Senate committee passed a bill Tuesday to amend the state constitution to require a supermajority of lawmakers to agree on an income tax increase instead of a simple majority.

Senate Joint Resolution 3, which itself would require supermajority votes in the House (66 of 99) and Senate (22 of 33) and approval from voters in November, would likely guide lawmakers away from income tax hikes and toward spending cuts or hikes on other taxes.

Ohio’s income tax is at its lowest rate since 1982. In 2018, the legislature raised the gas tax, three years after raising the cigarette tax.

Sen. Louis Blessing, R-Colerain Twp., voted with most Republicans in support of the proposal, despite his earlier concerns that increasing the lift required to raise income tax rates could harm Ohio’s bond ratings.

After the vote, he said the bonds remain a concern for him, as does making it harder for lawmakers to balance a budget if they can’t cut their way out of the deficit.

“That was my original concern, but I will say this: We’re not going to be — at least we’re going to try to avoid raising taxes as much as possible, especially as the economy is going into a downturn, that’s the last thing we want to do,” he said.

Analyzing the bill for lawmakers, the nonpartisan Legislative Service Commission found the “impairment” of legislative ability to enact increases in state funding could be a factor in the reduction of the state bond rating. This could increase borrowing costs on state projects.

In committee hearings, liberal policy groups have cited this concern as well.

Most Democrats on the Senate Ways and Means Committee were not present for the vote (Sen. Nickie Antonio, D-Lakewood, voted no).

However, Sen. Nathan Manning, R-North Ridgeville, broke from the caucus and voted against the bill, citing worries from the Chamber of Commerce about the resolution’s effects on the business climate and state analysts’ concerns about tanking bond rates.

“I just felt like there could be some unforeseen [consequences],” he said after the vote.

Tony Long, director of tax and economic policy for the Ohio Chamber of Commerce testified in March the resolution could yield “unintended consequences.”

Specifically, he said the change might compel lawmakers to look to different business taxes like the financial institutions tax, petroleum activity tax or insurance premium tax, which would harm the business climate. The sales tax could be another easy target.

“The General Assembly, absent a two-thirds supermajority vote on an income tax increase, will be forced to look to other taxes when it needs to find more revenue for spending projects,” he said.

Tuesday’s committee vote came one day after the National Bureau for Economic Research officially determined the U.S. economy has entered a recession.

Sen. Dave Burke, R-Marysville, spearheaded the proposal.

In a January interview, when most Ohioans had never heard of Wuhan, China or coronaviruses in general, Burke said the legislation is built to steer lawmakers in a sour economy away from workers’ paychecks.

“Should things turn the other direction, and someday they probably will, turning around and taking money back from hard working Ohioans should have a higher bar, and shouldn’t be easy,” he said. “Making tough choices on spending should come first.”

On Monday, the state Office of Management and Budget announced May revenue receipts came in $271 million (13%) below estimates. All told, receipts are $1.05 billion short of estimates for the fiscal year, which ends at the end of the month.

Ohio’s income tax rates have steadily declined since 2005. According to the Ohio Department of Taxation, income tax rates in 2018 hit their lowest levels since 1982.

The highest tier tax rate (annual incomes above $200,000 in 2005 or above $217,000 in 2019) dropped from 7.185% in 2005 to 4.797% in 2019, in addition to a flat fee.

Similarly, marginal rates for a person earning $35,000 annually dropped from 4.27% in 2005 to 2.85% in 2019.

People who earn less than about $21,750 per year do not pay state income taxes.