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New life for the Republican backed plan to make it more difficult to amend Ohio's Constitution before voters might decide on a reproductive rights amendment this fall and a deeper dive into the bill that could bring a lower income tax rate.

But half a billion dollars in losses for schools and local governments and a potential property tax hike of nearly $1,000,000,000 this week in the state of Ohio.

Welcome to the state of ohio.

I'm Karen Kasler.

Just days after republican ohio house Speaker Jason Stevens suggested an effort to revive the August special election to vote on an amendment to make it more difficult to pass future amendments was dead.

A new move was launched to keep it alive.

A group of House Republicans aligned with Stevens rival for Speaker Derick marin filed a petition to force a floor vote on that 60% voter approval resolution.

Though they're far short of the signatures they need to make it happen.

Stevens has not said he's opposed to the 60% resolution, but has shown no signs of fast tracking it.

Marin has said it's his top priority, and the law that eliminated all the special elections doesn't take effect until April 7th.

But Republican Representative Susan Manchester introduced a bill to recreate the August special election and appropriate $20 million for it.

The goal is to get a simple majority of Ohio voters to approve the 60% resolution three months before voters vote on an amendment on reproductive rights and abortion access.

This week, we go a little more in-depth on House Bill one, the top priority of Speaker Jason Stevens.

The bill would convert Ohio's four income tax brackets down to a flat income tax of two and three quarter percent.

It would remove the 10% state's property tax rollback that passed with the creation of the state income tax in 1983.

It would also drop the percentage that determines homeowners property taxes on the appraised value of their homes from 35% to 31 and a half percent.

It would also increase the homestead exemption for seniors and replace the two and a half percent rollback for Ohioans who live in the homes they own with a $125 flat rate.

The Legislative Service Commission, which does research for state lawmakers, estimates it will mean schools and local governments would lose $538 million, and homeowners and agricultural property owners could see property tax increases of $929 million.

I talked with four representatives of groups with different perspectives on House Bill one.

Greg Lawson is with the conservative think tank the Buckeye Institute, and testified on House Bill one as an interested party.

Though he said the bill makes a strong effort to improve Ohio's overall tax climate.

With that flat income tax that he said would be the lowest flat tax in the Midwest and the second lowest in the country.

But Lawson is not sure about the nearly $1 billion property tax increase that Lacy estimated.

But the truth is that we're not really sure what the aggregate impact is going to be on all of this, because there is a very complicated mix and we're talking about the way the property tax rollbacks work.

And these are essentially subsidies that the state is spending to local governments.

And I think that it's probably I'm sure there are some folks who know about this, but I suspect most people who have a home or whatever other property they might have aren't aware that the state has been subsidizing their local levies by 12 and a half percent for decades.

They think they are paying their property tax and they're actually getting, again, a subsidy, which means Columbus is paying in with general state dollars.

This is a really complicated issue.

We support flattening the income tax.

We think that's the right thing for a whole host of long term pro-growth reasons.

There's a lot of academic literature that's out there that talks about how lowering income taxes are not taxing as much on the income is better for long term growth of GDP.

We think that that is pretty clear.

But because of the way that they've decided to do the pay for it, in other words, to try to offset those costs, it has turned into a very kind of a it's a really just a very complicated labyrinth of things.

And we think that it's moving in the right direction.

But we recognize that there's going to have to be some changes in order to make that not be a problem.

Now, is it as bad or as significant as what LSC has said?

Unclear and how it's distributed, too, by the way?

Because there are some local tax or property taxpayers that might see a tax cut, and particularly commercial type property one.

Hundred $57 million.

Yes.

And so and that's all because of a whole host of different things.

That has a lot to do in this goes back decades.

And we don't have to go into all the details because it is one of the most complicated things.

There may only be ten people in the state if that that really understands each individual thing.

But here's the problem.

We are subsidizing local decisions at the state level, and we're spending close to $2 billion a year in general tax money that is coming out of the wallets of every Ohioan to pay for hyper local decisions.

And this is kind of goes back to when the income tax was first implemented in the seventies and then when there was a big income tax increase.

So what's interesting is when we're talking about trying to work on lowering the income tax rate, there is a direct link between the income tax and these property tax subsidies because that's how they came into existence.

And so we think that we need to slowly unwind that.

Whether we pull the rug out all at one time, I think there's a good conversation to be had, and that's probably not very prudent.

So we have some ideas on ways to make that not be so painful.

I want to talk about some of those ideas in just a minute.

But this idea that there could be economic increased economic activity and expansion of the income tax base if this happens.

LSC specifically referenced that in their fiscal note on this and basically said that these claims of lower income tax rates somehow expanding the income tax base.

The evidence shows that that is if it's likely to happen, it's likely to happen in very small increases in revenues.

So why go through all this if you're likely to only get, if at all, a small increase in revenue?

Well, because we're trying to make Ohio an attractive place overall.

And I think one of the things we have to understand when we look at the state income tax is that it's not in isolation.

So I always like to look at what is the overall tax burden of Ohio, which is obviously you can't talk about the federal stuff because that's a totally separate issue.

But here at the state, you've got the state income tax, but we also have local income taxes.

We've talked a lot about that over the years.

And so you have to look at what is the total effect, what is the kind of sort of layering effect or pancaking effect of all of these different sorts of taxes.

And that's where Ohio becomes less competitive is when you look at this aggregate aggregate effect of all of this.

I want to ask you about your friends and policy matters and Zach Schiller, specifically what they've said about what this income tax cut or this flattening of the income tax will do.

They say it will benefit the wealthiest Ohioans, people making over $200,000 a year in Ohio already have an effective tax rate, which is when you take the income tax and then you divide it by the federal adjusted gross income of 1.4%.

Now, policy matters.

Ohio says people making $50,000 a year under this flat tax proposal would get back about $3.

And people making over half a million dollars would get back around $5,000.

So is that fair?

Well, here's the thing.

What what we want to see if we want to see growth.

I think we get stuck in this sort of hamster wheel of talking about fairness.

And I'm not sure that that's the right conversation to have, because the right conversation to have is what is going to help small businesses in the long run.

I know we've had some tax reform for small businesses do, but there also ones who took it on the chin the most in the Great Recession and are the ones who took it on the chin the most and covered.

Those oftentimes are folks who are paying taxes, obviously through the income tax rate as opposed to other forms of taxes here in Ohio.

Those are people who don't get as often some of the big tax breaks that an intel gets or a big manufacturer gets when they come here for the big ribbon cutting ceremony, they.

Still get that's first to earn $50,000 of their income tax free.

And then it's a 3% flat above that.

And so this would be lowering that.

In theory, you could be you'd be lowering that to 2.75.

But here's the thing.

They they are also the when you look at overall growth of jobs, you see historically more total jobs in small business not spread out because they're all small businesses.

They're not the big guys who have a lot of people in one spot.

But when you look at what is it that's going to keep Ohio and keep individual communities doing very well, it's going to be small businesses.

I think this kind of tax reform is what helps smaller businesses as time goes on.

But here's the thing.

We get talked about what is the average person do?

This is all about looking at how do we create a framework of growth in Ohio to reverse what has been decades of decline.

Zach Shiller is the research director of the progressive think tank Policy Matters Ohio, which testified against House Bill one.

He called it a trifecta of bad policy.

There's this reduced aid to schools and local governments.

There's this property tax increase.

And then finally, this is a $1.8 billion reduction in taxes.

That is not by any means fully paid for, even though they're getting rid of the states, supporting local property taxes and getting some money back for the state for doing so.

It doesn't fully account for the cost of the bill.

So there are $780 million a year that where's the money going to come from?

I mean, you can argue that, oh, well, this is create some economic renaissance.

The lazy diplomatically states, no, that's not going to happen.

So, you know, given that this trifecta of higher property taxes, lower support for schools and local governments and unpaid for a tax cut is bad enough.

But to start with, this is a gigantic handout to the richest Ohioans that does nothing or practically nothing for lower and middle income people.

I mean, because of the way our income tax is structured, right now, if you make $30,000 a year and have one kid, you get zero from this flat tax.

There is no change.

If you make $50,000, you get $3.

$3 for a year.

Yes.

$3.

The the amount that you get, if you make half a million dollars is more like 5000.

So our partners who have a model of the state tax system, the Institute on Taxation and Economic Policy, ran this through their model.

They found that 89% of the tax cut would go to the top 20% of people by income, which is people making over $124,000 a year and 35% of it would go to the top 1%, making over $617,000 a year.

So this is more than most tax cuts that we've seen in Ohio, incredibly done for the richest people and really middle class people are going to see nothing or practically nothing out of this.

And given that our tax system is already weighted so that lower and middle income people pay more of their income in tax in state and local tax than affluent people do.

This is taking away the graduated income tax is kind of the one thing that counteracts that, that balances that out at least somewhat and basically says we're just going to give this giant handout to the wealthiest of Ohioans while raising property taxes on residential pay.

And then here's one final bonus.

There's a tax cut for business property owners.

So while residential and agriculture, all property owners will see this tax increase, businesses who own property will actually see a property tax cut.

So this is the worst of all possible worlds.

I know that the argument could be made that this brings some of the power back to local communities to enact tax levies if they want certain services.

But here you're saying that they're not going to see a whole lot from this income tax cut.

They're going to see their property taxes go up.

So if the schools come to them for a property tax increase through a levy, that seems to be problematic.

I don't see how this in any way adds to local power.

This is basically making it more difficult for local communities to fund their schools and mental health services, services for the aging children's services, fire departments in some instances that have property tax levies.

I mean, parks, community colleges, I mean, you name it.

Anything that has a property tax levy, particularly if it was first passed before 2013, could well find that they're going to see less money from their existing levy so far from increasing the power of locals, it's going to basically force them to scurry to figure out how do we fund the existing services that we have.

You know, if you think that we need better funded schools, if you think that we need to provide more mental health services, this is going to make it much, much more difficult for those services to be provided.

In the sponsored testimony, the first hearing on this bill, Representative Derek Marron, who also has a proposal to create a flat tax and then eliminate the income tax entirely, said this does lower income taxes for all taxpayers, which arguably it does.

But also there was a question about the tax rate on the second $250,000 and above.

There's this tax provision that allows for businesses to not pay income tax on the first $250,000 in income.

Well, that's still a 3% tax rate above that.

Any thoughts on that?

You've railed against that just as income deduction anywhere.

I need to correct something, which is this is not an income tax cut for all taxpayers.

People making less than $30,000 a year do not get a cut.

And those people, on average are paying more in state and local taxes than rich people in Ohio do.

And so people who go around talking about this is a tax cut for everyone.

No, it is not.

It is not a tax cut for everyone.

And that should be very clear when it comes to the business income deduction.

They've left that alone in this bill.

And we have said for a long time that that is a needless giveaway.

It's $1,000,000,000 that the state loses in revenue.

And as you say, it means that lawyers and lobbyists, for example, don't have to pay income tax up to their first $250,000 in income, and then they pay this lower rate than the current top rate on the rest.

And we think that that needs to be at the least limited but better yet, gotten rid of.

So that really is not dealt with in this bill.

So it leaves things in a kind of peculiar place because then that income, the tax on that income, over 250,000 is a bit higher, but it's not really been the subject of much of the bill so far.

Donovan O'Neill is the state director of the libertarian conservative group Americans for Prosperity.

He testified in favor of House Bill one, saying going to this flat tax will encourage significant private sector investment in Ohio and encourage Ohioans and their families to continue to call the state home instead of fleeing for greener pastures in states with friendlier economic climates.

But I asked him why it will work now when Ohio has been cutting income taxes since 2005.

I love my state, but I think one of the critiques I would have of it, and it's its policymakers is is we're very incremental in the changes we make.

And while we've done a good job of cutting brackets and lowering rates over the past two decades, what we need to do is we need some bold leadership and we need to make some structural changes to the way that Ohio operates, addressing the forms of revenue that were going to bring in getting to a flat tax on a and within and establishing a phase out to a 0% income tax, putting us in the same tier as many other highly competitive, economically competitive states is is what Ohio needs leaders need to do.

So we need that.

It's time for that bold leap forward and not just another incremental change.

Right now.

I don't I betcha most Ohioans aren't aware that the state subsidizes part of their property tax bill, that that creates a lack of confidence in the voters mind, I believe.

And what we need are highly, highly, highly educated, highly confident voters about what they're voting on, are more likely to, I think, pass tax levies and make those tough decisions on a local level.

On that issue, tax levies.

This is a tax shift.

I mean, it's argued that the income tax creating a flat income tax has been paid for by the cut to state and local governments and also by $929 million in property tax increases.

I think a lot of conservative groups look at the overall tax burden when ranking different states.

This creates a tax burden at the local level.

It just shifts that down to the local level, doesn't it?

Well, again, I think part of the conversation that this that House bill one has brought to the forefront is how entangled state and local funds are.

What I would what you know, we put out a study, AFP worked with the Buckeye Institute.

We put together a study that explored four different scenarios for setting Ohio on a path to a 0% income tax.

One of the ways you could begin to do that today would be with the with the revenues we have is you could probably accomplish that with with the budget ideas get us to a flat tax without raising disentangling the property taxes.

But I think the conversation is really important to have.

And if we're going to get where we need to be in the future as a state is beginning to disentangle that state and local dynamic.

I read that report that you did with Americans for Prosperity and Buckeye Institute and the four different recommendations, and one of them implies that the state could kind of pay for this with the money that it has.

Right now.

The state is flush with cash right now.

But how is this sustainable over time?

How is getting to a two and three quarter percent flat tax sustainable over time when Ohio doesn't or even going to know income tax like you want to see, when Ohio doesn't have an energy industry like Texas or a tourism industry like Florida?

Yeah, well, one thing we I've pointed to and we've asked that question by lawmakers, the all funds budget in in the state has increased by over $40 billion in the last decade.

We don't have a revenue generation problem here in the Buckeye State.

We have a spending problem.

And by the way, that's happened under conservative Republican leadership in this state.

What we think folks need to do here in Columbus is really prioritize their spending to the things that that matter.

Right.

We also have another way to look at this is the tax expenditure report.

$9 billion comes through tax credits and tax expenditures.

If we just got real about what we we need to raise money for and how we're going to spend that money instead of raising it over here and then cutting bits and pieces to favored interests over there, we could accomplish the same thing.

So you're talking about wholesale spending cuts at the state level.

Like Like what?

Well, I think it's a matter of restraint is a lot of it's it's restraint in how much we grow government year over year in the state.

We could also look at when I talk about tax expenditures, taking a look at the types of tax credits like the motion picture, tax credit.

I think, you know, we give 40 billion, $40 million in to the motion picture industry every every year.

That's money, right?

That could help pay for a tax cut here in the state of Ohio.

Brandon Kern is the senior director of state and national policy for the Ohio Farm Bureau Federation.

In his testimony against House Bill one.

Kern said agriculture in the state's overall economy has benefited from the continued and steady progress made over the last decade to lower Ohio's tax burden, which the Farm Bureau says provides real economic benefits for all Ohioans, but not House Bill one.

There's the income tax reduction, which is something from a Farm Bureau standpoint and from agriculture standpoint would be very supportive of a lot of farms across the state of Ohio organized as pass through entities, whether they're a limited liability corporation or whatnot.

And they benefit from reductions in the income tax.

However, the other component of the bill is an increase in property taxes, and that is the most impactful tax that agriculture and farmers pay.

And the increases on the property tax side is what lead us to have a lot of concern with where the House Bill one stands right now.

The fiscal note prepared by the legislative Service Commission on House Bill one suggests it could be a $929 million increase on homeowners and agricultural property owners.

So that's obviously a nonstarter for you.

It is.

It is.

You know, that's a that's a big, big number.

And for an industry, you have to think about.

Our number one production asset is not necessarily a lot of the equipment.

The equipment.

It's it's the land that we use to produce food.

And when you when you have a tax on that on that production asset, it directly impacts a farmers business operation.

And so for that tax shift to happen over to property taxes is just something that we cannot we can't really support from an agriculture standpoint.

It's interesting you use the word tax shift because a lot of people have been using that word.

And I'm wondering if you're concerned about the tax shift on to state and local governments or schools and local governments because of the $538 million estimated loss to them, that could mean more property taxes, couldn't it?

Absolutely.

I mean, I think, you know, in general, I think our members, members of the agriculture community, very much a part of their community.

They serve on local school boards.

They tend to be, you know, the township trustee.

They're very involved in their communities.

And from that standpoint, I think they're concerned, you know, potentially about the revenue loss that those entities could see as well.

But then, you know, if if those entities are going to lose revenue, they're going to turn around and have to seek, you know, potentially more property tax levies to help support their local operations, which could be, you know, more taxes on property taxes as well.

So it's kind of a little bit of a vicious cycle with you know, the changes they want to make in the property tax portion of the bill.

Now, you've said that you support tax reform and some of the changes that have been made to income taxes in Ohio.

Would you support legislation that would take Ohio to a flat tax but without all these property tax changes in it?

Yeah, I.

Think that we've been you know, if you look back over the last several cycles here, the legislature has continued to reduce income taxes.

We've been very supportive of that.

We think that that has led to a lot of economic growth in Ohio and we don't have a problem with that.

We could actually support that side of what this proposal is.

So if you take away the property tax changes, I think we'd probably be okay from an agriculture standpoint.

But if you take away the property tax changes, you potentially take away the way that this income tax change is being funded.

So how would you make that sustainable?

Are you concerned about that at all?

Well, I think that's up to the policymaker who's right.

We're not going to take the cop out there and leave that to the policymakers.

But from from an overall standpoint of of achieving greater economic growth in Ohio by reducing the income tax, that's that is something we can support.

This puts you on the side of some groups that are quite often against some of these bills that would make major tax changes like policy matters, Ohio.

And so it's kind of a strange bedfellows situation, isn't it?

Yeah, You know, I think, again, our our position is a little bit nuanced because I think there's there's portions here that we really can't get behind.

We just don't want to do it by increasing property taxes to fight that income tax.

I mean, just from an agricultural industry standpoint, that's very detrimental to our segment of the economy.

And it happens to be a big one.

You know, $124 billion of Ohio's GDP is generated from the agriculture and food production sector of the economy.

So I think we have you know, we have some standing here to weigh in on that.

Lawmakers are on spring break, so there are no committee hearings scheduled on House Bill one or any other legislation.

Even those who support House Bill one say they expect to see changes in the bill.

And finally, this week, we said goodbye to our colleague and dear friend, Andy Chao.

Andy had been with the bureau for ten years, taking over for the venerable Bill Cohen and making the job his own.

He covered budget battles, two elections for president, three for governor and four for U.S. Senate.

The House bill, six nuclear bailout law passing and the resulting corruption case.

Last year's redistricting saga and covered anchoring Governor Mike DeWine's live press conferences along with me.

For those long first few weeks, he broke stories, offered insightful reporting and commentary, analyze complex legislation and issues, moderated discussions, mentored students, spent long hours covering marathon hearings, and generally was a blast to have around.

He's now the press secretary for the Ohio Department of Natural Resources.

And while we're happy for him, we can't express how much will miss him.

And that's it for this week for my colleagues at the Statehouse News Bureau of Ohio Public Radio and Television.

Thanks for watching.

Please check out our Web site at state News dot org and follow us and the show on Facebook and Twitter.

And please join us again next time for the State of Ohio.

Support for the statewide broadcast of the state of Ohio comes from medical, mutual, providing more than 1.4 million Ohioans peace of mind with a selection of health insurance plans online at med mutual dot com slash Ohio by the law offices of Porter Wright, Morris and Arthur LLP.

Now with eight locations across the country, Porter Wright is a legal partner with a new perspective to the business community.

More at Porter right dot com.

And from the Ohio Education Association representing 124,000 members who work to inspire their students to think creatively and experience the joy of learning online at OHEA.org.