Tax-bracket reform proposed
Dayton Business Journal - by J. Kenneth Blackwell
A recent Time magazine article reports that most tax lapses go undetected, and unaudited, thanks to the IRS' woefully outdated computer systems. This is in no way meant to encourage tax evasion, but facts are facts. Time reports that even if you cheated on your taxes last year, the chances of being caught were about 17 in a million.
On the flip side of the coin, the odds are much greater that anyone paying Ohio's income tax has been quietly, if inadvertently, cheated. Since 1972, when the tax man first came calling on Ohioans, inflation has gradually pushed many taxpayers into higher income brackets. Unlike the federal system, Ohio's tax brackets do not adjust for inflation. The result is that, as incomes rise just to keep pace with prices, the state of Ohio takes a bigger bite out of your take-home pay. Even if your buying power hasn't increased, your tax bill has.
Since 1972, Ohio's tax brackets have been set in increments of $5,000. Ohioans are taxed 0.5 percent on the first $5,000 they make, 1 percent on the next $5,000, and so on until $20,000. After $20,000, the brackets are larger: increasing in $20,000, $40,000 and $100,000 increments.
Inflationary growth particularly impacts people of lower income. Since the brackets are closer together at lower incomes, taxpayers at that level get pushed into higher brackets more rapidly than those with higher incomes. Also, the personal exemption has not been adjusted for inflation since 1972.
Unfortunately, 1997 dollars are worth considerably less than 1972 dollars. In 1972, $5,000 bought a brand-new Oldsmobile Delta `88 or Ford LTD -- or practically any full-size sedan, short of luxury models. Today, the same price buys a very nice mountain bike.
Ohio's Buckeye Institute crunched some numbers and calculated what tax brackets would be in 1997 dollars if they had been indexed for inflation since 1972. The results are astounding. The 0.5 percent tax on Ohioans' first $5,000 would extend to your first $19,305 of income. The second bracket would tax only 1 percent of income from about $20,000 to $38,000. But since our tax code is not indexed for inflation, the state actually taxes three times that amount -- 3 percent on income between $20,000 and $40,000.
So between 1972 and 1997, some Ohioans' income taxes have just about tripled -- mainly because tax laws, unlike taxpayers, don't deal with inflation.
It is time the people that serve Ohio taxpayers and make Ohio tax laws begin to deal with it. In 1980, President Reagan spearheaded the effort to index the federal income tax. Of the 42 states that have an income tax, 17 index for inflation in one way or another. Here in Ohio, Reps. Bill Schuck, R-Columbus, and Jim Jordan, R-West Liberty, have introduced legislation to add our state to the list. Every member in the General Assembly should support this bill. Every taxpayer in Ohio should demand it.
The alternative is to keep raising taxes on Ohioans for no specific pupose, with no debate, no authority and no vote. There is absolutely no reason to continue allowing the invisible hand of inflation to shove Ohio taxpayers into the next bracket, only to pick their pockets once they get there.
Oliver Wendell Holmes said, "Taxes are what we pay for a civilized society." They are the negotiated price tag of the social contract. But take out the negoatiation -- take out the process of voter-approved legislation -- and the tax man changes from bill collector to thief.
As taxpayers, if government wants a larger share of our income, we want a reason. We deserve a debate and a chance to speak. Our representatives should tell us why the proposed increase merits their votes. That way, we are kept informed, and they are held accountable. That's how the system works.
Let's hope it continues to work. Call your representative, and voice your support of House Bill 281 to index Ohio's personal income tax for inflation. We need to make the odds a little longer on the next unvoted tax increase in Ohio.
Blackwell is treasurer for the state of Ohio.
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