Ohio residents will benefit from GOP tax billDec 16, 2017
This opinion piece appeared in the Dayton Daily News.
Even with the hustle and bustle of holiday shopping, Congress is finding time for some last-minute business – the most sweeping tax reform bill in a generation. The centerpiece of the legislation is corporate tax reform, but people in Ohio and Dayton will benefit from lower rates and a simpler tax code.
Tax reform is always difficult, as it forces us to think through our priorities. The best tax code has low rates and only a few exemptions and deductions as each one creates new opportunities for tax accountants and lobbyists to game the system and reduce the amount of tax their clients pay. When that happens, the rest of us pay more.
The most immediate impact for people will be changes at the individual level. According to the IRS, four out of five tax filers living in Dayton-area zip codes file their taxes using the standard deduction rather than itemizing. Doubling the standard deduction is good news.
For a typical Dayton married couple, the new standard deduction would be worth $24,000, which is 40 percent of the typical married family’s income. This will put more money in the pocket of the typical family. Even better, some tax filers who now itemize and have to keep track of tax receipts in preparation of filing will now see benefit in using the standard deduction.
The tax bill does eliminate some provisions that families have enjoyed. For example, local residents would only be allowed to claim up to $10,000 in deductions to offset state and local taxes paid. This cap should cover most middle class returns, and with these deductions reduced, state and local officials will need to make wiser decisions.
The tax bill will also place new limits on deductions for home mortgage interest. The bill reportedly allows deductibility for interest on a mortgage up to $750,000, an amount many times the value of the average home in the Dayton area. Capping this deduction means that the tax code will no longer subsidize mortgages on expensive houses.
The bill will also improve America’s competitiveness. Reducing the corporate tax from a high in the industrial world of 35 percent to a rate of 21 percent will help American businesses compete with international companies. And lest you think this is a simple talking point, European countries have continually lowered their corporate tax rates over the last 20 years in an effort to create jobs. Even high-tax France has a lower corporate tax rate than the U.S., and is going to reduce that even more.
As a result of our high rates, America is losing out on billions in tax revenues. For example, in 2014, Burger King bought Tim Horton’s and moved its headquarters to Canada to avoid America’s high corporate rate. The current tax bill’s rate reduction would make it less attractive for companies to move abroad and encourage investment here in Ohio.
While the bill is not perfect, and we will still face tough choices in paying for our priorities, the new tax system will create more jobs and prosperity. Economic analysis by government agencies and think tanks have found the bill will increase economic growth. One estimate found that’s about 35,000 more jobs in Ohio, and for families, an extra $2,000 to make Christmas wishes come true.
Rea S. Hederman Jr. is executive director of the Economic Research Center at The Buckeye Institute.