Thousands Of Wealthier Ohioans Are Using A Tax Break Meant For Low Income Wage Earners

Nov 26, 2018

This story was updated with new information at 11:30 p.m., Monday, November 26, 2018

Tax reforms in the state in recent years have resulted in some big tax breaks for small businesses owners. But a new study shows tens of thousands of them might also be taking advantage of tax breaks that were meant to help the state’s poorest residents. 

Wendy Patton with the progressive group Policy Matters says Ohioans who have LLC’s or pass through accounts for small businesses can earn up to $250,000 tax free. And that’s allowing them to qualify for tax breaks that were meant for low income citizens.

“What this is is a loophole within a loophole, an unintended consequence of a tax credit that hasn’t been properly examined," Patton says.

Patton estimates the state could be losing about $5 million through this loophole. One state senator says he’s not surprised. Democrat Joe Schiavoni made targeted tax breaks part of his platform when he ran in the primary for governor last winter. 

“I’m talking about when a business hires somebody, they should get a tax break. When they buy the property across the street so they can grow the footprint of their company, they should get a tax break. When they redo the lighting inside and they move all of the lighting into LED lighting and cost effective, energy efficient lighting and infrastructure within, you can give them a tax break for that. Upgrading their technology – yea, that sounds good. All of those dollars when they invest in something rather than giving them all of the money back with no incentive to do what you want them to do which is all of those things I just talked about," Schiavoni says.

Schiavoni says attorneys and other higher income professionals have been able to set their businesses up in a way where they have a very low tax burden, especially when compared with most Ohioans who pay taxes on money earned through employers. 

Republican state Representative Mike Henne is not quick to jump on any type of reform that would make small businesses pay more. He’s an insurance agent and he says new tax reforms have helped small business owners in his industry  take risks and make ends meet.

"The small business guy is the last one to get paid. Sometimes, that means he gets a lot of money. Sometimes that means he doesn’t get any money. I know when I first got my agency, I was taking cuts because it was tight but as we grew the business, things are a little better now," Henne says.

But Henne says if small business owners are taking advantage of tax breaks meant for low income Ohioans, he’d be willing to take a look at proposals to fix that specific issue. Republican Senate leader President Larry Obhof says he’s also willing to check into that. 

Is there potential for us to revise that from time to time? I would say there probably is. Are we ever going to get rid of the small business tax cut? Absolutely not," Obhof says.

But lawmakers are unlikely to do anything on this in this lame duck session of the Legislature. They could next year when tackling the new two-year budget, and Patton with Policy Matters hopes they will.  She says there is a problem with tax equality in Ohio - that lower income residents pay more of their income proportionately than their richer counterparts.