COLUMBUS — Ohio State House Rep. Thom Collier has co-sponsored a bill that would abolish the state’s personal income tax by 2019. He and Republican Rep. John Adams, the other co-sponser of House Bill 534, unveiled the measure in April.
Adams presented the bill during a meeting of the House Ways and Means Committee in May. He and Collier are awaiting further hearings to convince other House members of the bill’s upside.
“Even though the bill likely won’t be picked up until the next general assembly, we want to start the debate,” Collier said. “We want to get the conversation started about phasing out the personal income tax.”
The bill proposes to reduce the current personal income tax rate by 10 percent each year for 10 years, beginning in 2010. By 2019, Ohioans would pay no personal income tax to the state.
The bill would have no effect on taxes levied by local municipalities.
Collier said he drafted the bill after analyzing the results of the tax cuts passed by the Ohio General Assembly in 2005. Collier believes the tax cuts are responsible for an increase in revenue collected through the income tax.
According to the Ohio Legislative Service Commission, revenue collected from the income tax during the first 10 months of fiscal year 2008 are up 14.5 percent over revenue collected during the same period in fiscal year 2007. The OLSC attributes part of the increase to a more efficient tax-filing process.
Collier acknolwedges this may be the case, but he also believes the tax cuts played a central role in increasing revenue collected through the income tax.
The 2005 tax legislation lowered the personal income tax by 21 percent over four years, eliminated the corporate franchise tax in favor of a commercial activity tax, and eliminated the tangible personal property tax.
“With a decreasing population in the state and with no one reporting significant pay raises, I think the income tax reduction helped increase the revenue, whether it was 14 percent or 3 percent,” Collier said.
Collier said Ohio’s high tax rate causes many residents to seek relief in other states.
“Ohioans leave for states that don’t have a personal income tax. That hurts our tax revenue, our donor basis, and our communities. We lose citizens and community leaders,” he said.
The Federation of Tax Administrators ranked Ohio 38th among all states in terms of total tax burden per capita in 2007. That represents an improvement over 2005, when the FTA said Ohio ranked 27th.
Ohio instituted the personal income tax in 1972. According to the Ohio Department of Taxation, revenue raised last year through the income tax totaled roughly $8.8 billion, constituting 43.5 percent of the state’s general fund. The general fund is used to help pay for primary and secondary education, Medicaid and a bevy of other programs and services.
Critics of Collier’s bill argue that the income tax is essential for funding state programs, and that eliminating it could result in drastic cuts in programs like Medicaid, which could adversely affect millions of Ohioans.
“The bill proposes that we phase out the income tax over 10 years, which gives us time to adjust the budget. We’ll see the money that people aren’t spending on taxes put back into the economy in other ways,” Collier said.
Collier thinks revenue from the sales tax and other state taxes would drastically increase once the income tax was phased out, and that the extra revenue would make up for the loss created by the absence of the income tax.
“My goal is to increase the tax base and lower the rate, which is what this bill would do,” he said.
Collier admits that House Bill 534 will garner little, if any, support among House Democrats, which means Republicans will have to maintain their majority in the House during the November elections if the bill is to have any chance of passing.
Even if Republicans are successful this fall, however, that’s still no guarantee the bill will make it past the planning stages. Either way, Collier won’t be present — this is the last year of his fourth and final term as a House representative.
“I think we can realistically phase out the income tax, but I don’t think it’s likely, at least not until after this fall’s elections,” Collier said. “Even if we only get five years into a plan like this and stop, that’s OK. At least we would have progressed.”
