Taxes and the Impact on Education Funding

Public education funding is a shared responsibility of state government and local communities. The state establishes the funding formula and provides its contribution in the state budget. It also delineates the local responsibility. A variety of state revenue sources, including income taxes, are used to fund public education and all education options. Local property taxes fund the school district investment in their public schools.

When we look at the State’s Operations Budget, we see that individual income taxes and sales taxes are the largest revenue source.

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The income tax is the only tax that varies depending on ability to pay: Those who have higher incomes pay more in taxes, and those with lower incomes pay less. It’s the fairest way for taxes to work, but most aren’t set up that way. Instead, Ohio lawmakers have been changing the tax code to increasingly rely on taxes that require people with less money to pay a higher share of their income than people with more. Sales tax is the biggest example: Everyone pays the same sales tax rate, but affluent people, unlike many regular Ohioans, don’t spend most of their income just covering the basics of daily life, and more of what they spend isn’t covered by the sales tax.

Since 2005, Ohio’s lawmakers have made the GRF less reliant on the income tax and more reliant on the sales tax, as shown in the above figure. Those changes do even more to help the wealthy, at the expense the Ohio households with incomes under $65,000 who are, on average, paying more than they were 17 years ago.

The Big Picture:

• Income tax: 2.765 percent to 3.99 percent Ohio has four tax brackets, ranging from 2.765 percent to 3.99 percent. Residents of many Ohio cities and villages also pay local income tax on top of state tax.

• Property tax: 1.59 percent of a home’s assessed value (average) Real estate taxes are levied by localities and vary, with an average tax rate of 1.59 percent of a home’s assessed value in 2021, according to the Tax Foundation.

• Sales tax: 7.24 percent (average combined state and local) A state sales tax rate of 5.75 percent is levied on the sale of goods and services, along with an average local tax rate of 1.49 percent. That brings Ohio’s average sales tax up to 7.24 percent.

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​LWVO Position on Taxes Criteria (Adopted July 1989) LWVO supports the following tax principles as criteria to be used in evaluating individual taxes and the tax mix in Ohio. Taxes should: 1. Be fair and equitable; 2. Provide adequate resources for government programs while allowing flexibility for financing future program changes; 3. Be understandable to the taxpayer and encourage compliance; and 4. Be easy to administer. Income Tax (Adopted July 1989) LWVO supports a personal income tax as a source of state revenue because it meets fair and equitable tax principles. The state income tax rates should be graduated. Property Tax (Adopted March 1983) 1. LWVO supports real property tax relief, financed by the state, in the form of the Homestead Exemption based on age, income, and disability income. 2. LWVO supports the elimination of the real property tax rollbacks, both across-the-board and for owner- occupied homes. Tax Mix (Adopted July 1989; Revised December 2010) If an increase in state taxes is needed, LWVO prefers the income tax as a source of revenue because it tends to be progressive rather than regressive. Applying means testing to state property tax-relief programs would increase the revenue generated by the tax and make the system more equitable by not unduly burdening low-income individuals and families. Taxes on alcohol and tobacco are another revenue source if needed. An increase in sales tax, although less desirable, is another possible revenue source. If a decrease in state taxes is called for, LWVO supports reducing the sales tax because it is regressive and less equitable. Tax relief for those at the lower end of the income scale should be considered if there is an increase in state taxes.

​Focus on Advocacy A flat tax benefits the wealthy, and puts an unfair burden on middle class and low-income taxpayers. The revenue loss triggered by putting in a flat tax will make it harder for the state to pay for services like public education, that provide the quality of life that makes Ohio an attractive place for anyone to live. Increasing the property tax burden on agricultural and residential property owners is regressive, undermines public trust, and exacerbates the negative impact of property taxes on equal access to quality education. Learn more…

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