Arguing that Ohio needs to go further in using tax breaks to help lower-income families, House Democrats on Wednesday proposed removing limitations on Ohio’s earned income tax credit.
Under a plan that would largely impact those making between $10,000 and $50,000, Reps. Erica Crawley, D-Columbus, and Michael Skindell, D-Lakewood, are proposing to make the tax credit refundable and remove the income caps. Based on an analysis of 2014 tax data, Skindell said the changes could assist more than 400,000 Ohioans at a cost of $250 million per year.
“We have the opportunity to lessen the financial burden on our vulnerable working families, especially our single-parent households,” Crawley said. “I want to stress that Ohioans eligible for the EITC are already working jobs to make ends meet. This is not a hand out. This is a hand up.”
Ohio created a state earned income tax credit in 2013 and expanded it in 2014. But, Skindell said, the Republican majority utilized caps and made it a “paltry” nonrefundable tax benefit. “It’s one of the weakest earned income tax credit in the nation.”
Democrats want to make the tax credit refundable, similar to how it works at the federal level. For example, under the current system, an Ohioan with a $500 tax liability but a $1,000 earned income tax credit would pay no tax. But under the proposed change, that Ohioan would pay no tax plus be eligible for a $500 state refund.
Policy Matters Ohio, a nonprofit liberal policy advocacy group, said Ohio’s earned income tax credit also limits how much a person can claim. An Ohioan with taxable income over $20,000 can claim half of their total tax liability, which, the group argues, creates a benefit cliff. Policy Matters also argues the value of the credit — 10 percent of the federal amount — is weak, meaning 95 percent of lowest-income Ohioans don’t benefit from it.
Kalitha Williams, project director for Policy Matters, said half a million Ohio children live in households below the poverty line, and the earned income tax credit “is the nation’s most effective anti-poverty program.”
“While Ohio has made progress in implementing a state EITC and also expanding the credit, it is still inadequate and does little to help the state’s poorest working families,” Williams said.
The credit expansion, Skindell said, largely could be covered by existing revenue, considering the state has routinely run a budget surplus at the end of each fiscal year. Gov. Mike DeWine will unveil his new two-year budget in mid-March. Meanwhile, Senate President Larry Obhof, R-Medina, has talked about making additional changes to Ohio’s income tax, such as further reducing tax brackets.
Some House Democrats have suggested that earned income tax credit changes be tied to their support of some version of DeWine’s proposed 18-cent-per-gallon gas tax increase. The idea is that a gas tax is regressive, impacting lower income Ohioans more than wealthier ones, so the state should help ease the pain by providing more relief to those taxpayers.
House Minority Leader Emilia Sykes, D-Akron, stressed that the tax credit expansion is a priority for her caucus. Sykes also stressed that Democrats want to see changes to Ohio’s business tax deduction, which allows pass-through business owners, including sole proprietors and investors, to pay no state income tax on up to $250,000 in income, and then get a 40-percent tax cut on income above $250,000. The deduction costs the state more than $1 billion a year.
Lawmakers should to determine if it’s really creating jobs, Sykes said. She and other Democrats — and even a few Republicans — question its impact.
“If we tout a tax credit or deduction as something that’s going to create jobs, and it doesn’t create jobs, we need to revisit it,” she said.
“Ohio has got to get out of the business of funding vacations for millionaires and billionaires and into the business of funding our future and building a strong economy that works for every single Ohioan.”