Ohio Tax Burden

State and Local tax burden is a topic that doesn’t receive much attention in the debate on how to stop the economic decay in the Cleveland/Ohio region.  If you know a little bit about economics, you know that taxes are not good for economic development and growth.  I believe a sensible tax regime is the basic building block on which local and state economies rest.  In other words, we can have a million organizations and initiatives to promote this area, but if taxes are overly burdensome, and remain that way, then we’re spinning our wheels.  It seems that is the case….

I took a couple hours and did some research on state and local tax environments, and found that Ohio’s tax burden has become increasingly heavier over the past 25 years (big surprise right!).  I found the information charted below at this website.     

So the amount of taxes we pay has risen quite a bit vs. the amount we’re taking home from work.  You have less money to invest in productive ideas, businesses, education than in years past and relative to the rest of the country on average.  Furthermore, consumer related businesses will have limited success compared to businesses that operate elsewhere because residents have less money to spend.  This analysis and data pertains to personal tax burden….. and now corporate tax burden…

The same organization that provides the personal tax burden data, also maintains an index that ranks each state by corporate tax climate.  The index takes into account several factors including the personal tax data described above.  Here is the ranking over the past few years (or here in excel format).    Ohio ranks in the bottom 3!!! Here is further detail on Ohio tax regime.  This document explains how the index is formulated. 

So there are two parts to the equation above- taxes and income.  Question- have taxes in Ohio driven down income not only by taxing the consumer heavily (which indirectly leads to less revenue for local business), but also by creating an environment that is tax-unfriendly to businesses (by directly taxing them at a higher rate) causing these businesses to pull up stakes and move to other states/countries and/or by preventing them from moving here in the first place.  Or is our current situation described in the chart above simply caused by people/businesses in the area leaving or shutting down, and the old tax regime has remained in place.  Economics says the answer is #1 (high tax burden is helping cause the economic decay), but even if that is not the case, the tax regime here is still inappropriate…. it hasn’t been reduced while incomes have declined… that creates an inhospitable environment for economic growth and development, and it means that Ohio taxes put local businesses at a competitive disadvantage.  Income per capita is not going to magically rise to get this ratio back into place relative to the rest of the country.  First things first, we need to reverse course by putting in place a more appropriate tax system here in Ohio.  It seems simple to me…. but it means shrinking taxes, which means shrinking government, which means it is going to be extremely difficult to do.

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