Many Ohioans have said they are fed up with soaring property taxes, and an effort to put an amendment to abolish property taxes before voters next year continues.
But changing property taxes is playing a complicated game of Jenga—one change to reduce property taxes can cause a possible collapse somewhere else.
Analysts have looked at what would happen if the state got rid of property taxes, which fund public schools, police, fire, libraries and other local services. That includes a senior fellow at the Tax Foundation, who used Ohio's situation as a test case to look into the effect of replacing property taxes with an alternative tax.
“The property tax raises about $21 billion a year, so any replacement will have to be quite large," said Jared Walczak, whose analysis is titled "Replacing the Irreplaceable". “So we are talking 14½% sales tax rate, maybe a 10¼ percent flat income tax rate to replace the property tax."
The state’s current sales tax rate is 5.75%, so Walczak said it would have to more than double, with local sales taxes added on top of that. As for income taxes, state lawmakers have been cutting income taxes since 2004, and Republicans have said they want to eliminate the state income tax entirely. Ohio has a flat 2.75% income tax rate now, so more than tripling the current income tax rate is quite unlikely.
But if property taxes were eliminated, the money for those services they pay for would have to come from somewhere. Walczak went a step further to examine how the loss of property taxes would affect different parts of Ohio.
“Basically any way you run this, because urban areas, larger cities, are going to have higher property taxes now, if you replace revenue, you are subsidizing them. The replacement tax will fall on everyone, but the revenues will go more toward those already higher-taxed areas," Walczak said. "The rural areas and the smaller suburban areas get significant tax increases on net because everyone is paying more in income or sales tax. They are paying more in income or sales tax, and they are getting less of it back to their community; more of it is going to other jurisdictions.”
Walczak's conclusions were in a paper he wrote for the Lincoln Institute of Land Policy, a think tank that researches issues involving use of land, including affordable housing, climate and environmental concerns and taxation.
The progressive leaning think tank Policy Matters Ohio came up with a similar finding. Senior Research Director Zach Schiller said getting rid of the current property tax structure could have unintended consequences for Ohioans who live in suburbs.
“The districts that are most dependent on the property tax are often the suburban districts," said Schiller. "And of the 50 districts where the property tax pays for the largest share of expenses—which in this case is over 74%—42 of those 50 districts are suburban districts.”
With lawmakers unwilling to raise income taxes to provide property tax relief, there’s another option, Schiller said, that might work.
“The best solution as we see it is to give those folks who are paying more than a certain share of their income in property tax, to basically pay them by the state and have the state, which has far more in the way of financial resources and tax revenue, to give those folks a break," Schiller said. "This is called the circuit breaker, and it’s in place in 29 states throughout the country.”
A circuit breaker was one of 21 recommendations made by a bipartisan committee that studied tax reform. Only a few of those recommendations have passed as legislation. A bipartisan bill introduced last year would creates a circuit breaker at 5% of a homeowner’s income, but it hasn't had a hearing. Meanwhile, the all-volunteer Committee to Abolish Property Taxes continues to collect signatures to put their amendment on next year’s ballot, after failing to get the required numbers of signatures for this year. But Sen. Andrew Brenner (R-Delaware) said lawmakers need to take the issue seriously.
“If things aren’t done to improve the property tax situation, it will be on the ballot and it will pass," Brenner said.
But a coalition of over 65 groups of local elected officials, libraries, businesses and trade groups, and unions representing first responders and teachers have already united to start messaging against the amendment. And that would be just the beginning of a massive effort that voters would see if the group backing the amendment gets it to voters.
A report completed last year by a leader of the Ohio Education Policy Institute and a former Ohio budget director under the late Gov. George Voinovich showed Ohio has the eighth-highest property tax rate in the nation. The report said that’s because home prices have escalated and the economy has grown slowly, and because state lawmakers have lowered funding to local governments.
