NCPA - National Center for Policy Analysis

Gov. Kasich's Tax Reform Proposal Can Boost Growth in Ohio

May 22, 2015

Ohio Governor John Kasich has already eliminated Ohio's estate tax and cut income tax rates, and now he was proposed a tax reform plan that will put Ohio onto a new trajectory of strong economic growth.

The plan includes across-the-board income tax rate cuts of 23 percent, tax cuts for small businesses and an increase in the state's sales tax rate.

Income taxes are problematic for a number of reasons.

  • First, they are levied on the base of taxable income, which becomes narrower and narrower as you travel up the income scale and through the various rates of Ohio's progressive income tax schedule.
  • Second, since state and local income taxes are levied on top of federal income taxes, state and local income taxes provide great incentive to evade, avoid or otherwise not report taxable income.
  • Third, income taxes reduce the marginal incentive to work and produce.

Comparing the average of the nine states with the highest state and local marginal personal income tax rates to the average of the nine states without earned income taxes over the 2002-2012 decade, the zero income tax states crush the high income tax rate states in population growth (14.6 percent to 6.3 percent), employment growth (8.9 percent to 1.7 percent), personal income growth (58.7 percent to 46.4 percent), gross state product growth (62.0 percent to 46.4 percent) and even state and local tax revenue growth (82.0 percent to 52.2 percent).

Consumption taxes are preferable to income taxes because sales taxes are broad-based by default and do far less harm to incentives to work and produce. Additionally, because sales taxes are less dependent on the gyrations of the business cycle and the stock market, they can provide revenues necessary to fund government in a very stable manner.

Source: Arthur B. Laffer and Nicholas C. Drinkwater, "Gov. Kasich's Winning Proposal For Ohio: Lowering Income Taxes," Forbes, May 18, 2015.


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