Cash Photo Source: TFP File Photo

Ohio Taxpayers Lose $663 Million Due To Suspended Inflation Indexing: REPORT

Cash Photo Source: TFP File Photo
Cash Photo Source: TFP File Photo

A new policy memo from The Buckeye Institute reveals that Ohio taxpayers lost $663 million in the 2023-2024 period due to the state’s suspension of inflation-indexed tax brackets. This decision, according to the institute, effectively pushed many wage earners into higher tax brackets despite rising inflation.

“Ohio lawmakers should reinstate the practice of indexing personal income tax brackets to inflation and resist the temptation to suspend indexing going forward,” said Zachary D. Cady, associate economist at The Buckeye Institute.

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Inflation indexing adjusts income tax brackets annually to account for rising prices. Without it, individuals may see their tax burdens increase even if their pay raises only match inflation, a phenomenon known as “bracket creep.”

Cady explained how indexing protects taxpayers: “If inflation is three percent, the minimum threshold for the two percent tax rate will automatically rise to $51,500, so that income between $50,000 and $51,500 will still be taxed at one percent.” This allows workers to pursue raises without facing a higher tax rate.

Ohio was previously one of 24 states with indexed income tax brackets. The Buckeye Institute argues that suspending this practice unfairly burdened Ohio workers, especially during a period of significant inflation.

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“Suspending the indexing of Ohio’s income tax brackets increased state revenue, but only by increasing the tax burden on working Ohioans during a time of historically high inflation,” the memo states.

The institute used data from the U.S. Census Bureau and federal GDP deflator metrics to estimate the financial impact of suspending indexation. They concluded that reinstating inflation indexing is crucial to protect Ohio taxpayers from unfair tax increases and maintain their purchasing power in the face of rising costs.

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