Ohio Income Tax: The Decline of the Buckeye State

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Of the 11 states that implemented a state income tax after 1960, Ohio, a one-time industrial giant, has been hit particularly hard. Between 1972, when the Ohio income tax was implemented, and 2012, the Buckeye State’s population decreased by a whopping 37 percent.

Ohio’s Growth Period

Ohio experienced rapid population growth beginning in the mid-19th century, when immigrants, mainly from Europe, began pouring into the state to work in its steel and oil industries.

The state’s population continued to grow for decades—until the income tax was implemented—boosting business growth. Major companies, such as the National Cash Register Co. (now NCR), Standard Oil (now BP), Goodyear, Goodrich, Procter & Gamble, and Play-Doh, have called Ohio home. Retail giants Kroger, Federated Department Stores, and Sherwin-Williams were all founded in Ohio. Even Superman hails from the Buckeye state—his creators were residents of Cleveland.

Ohio’s Decline

Even Superman can’t fix what’s happened to Ohio. In July 2014, Ohio led the nation in lost jobs: 12,400. Once a booming national industrial leader, Ohio today, particularly Cleveland, is a shell of what it once was. And the industries that are prospering are tax exempt: the Cleveland Clinic and Cleveland State University, according to “The Wealth of States” (p. 7).

Increased Poverty

One way to determine quality of life in a particular location is to measure the number of people living in poverty there. Sadly, the once-great state of Ohio saw an increase in its poverty rate by a significant 41 percent since it began charging state income tax in 1972—the highest increase out of all 11 states that implemented a state income tax after 1960 (p. 21).

Additionally in the 2009/2010 tax year, Ohio was ranked second to last of all 50 states plus Washington, D.C., for the number of federal tax returns moving into Ohio (p. 10). Violent crime increased by 4 percent between 1972 and 2012 (p. 19), and property crime increased by a whopping 24 percent (p. 20).

A Proposal to Lower the State Income Tax

In February 2015, Ohio Governor John Kasich proposed an action to turn things around: lowering the Ohio income tax by 23 percent and raising the sales tax. This idea is based on economic philosophies from Milton Friedman and Dr. Arthur Laffer, an Ohio native. Friedman and Laffer believe that income taxes hurt economic growth because they punish progress and financial success.

Some Improvements

Ohio has seen some improvements since the implementation of its income tax. Test scores for 4th grade reading went up 0.27 percent between 1992 and 2013, 4th grade math scores increased 1.75 percent during that time frame, and 8th grade math scores increased by 1.22 percent between 1990 and 2013 (p. 17). The number of health and hospital workers increased by 23.9 percent between 1972 and 2011, and the state highway system improved from its rank of 31 in 1984 to number 25 in 2009, when compared with other state highway systems (p. 18, 22).

Although Ohio has managed to make slight improvements in school test scores, hire more health care workers, and improve its highways, the bottom line is that people and businesses are rapidly moving to states with lower income taxes. While Ohio suffers, states with low or no state income tax benefit.