Can a new kind of credit reduce property tax burdens in Ohio?

By Rob Moore
Ohio Capital Journal

Last week, an innovative piece of bipartisan legislation was quietly proposed in the Ohio House.

House Bill 465 is a bill to create a tax credit for homeowners and renters whose property taxes or rent exceed a certain threshold in relation to income. This means that if you have high property taxes or rent in relation to your burden that you could be eligible for a new state tax credit.

Tax credits are among the most important anti-poverty programs in the United States today. The federal earned income tax credit pulls more working-age people out of poverty than any government program. The child tax credit expansion in 2021 led to the largest reduction in poverty on record in the United States and its expiration in 2022 led to its largest increase in poverty.

House Bill 465 provides resources for households in a new way, contingent on cost of housing. This is a new kind of credit for me–I haven’t seen a tax credit that focuses specifically on easing the burden of people who face housing costs. But there are a few elements of this proposed policy that make it an effective anti-poverty program.

First, it is generous and targets low-income households. The credit is worth $1,000 for households with resources of $60,000 or less, which comprises a little less than half of the households in the state. This then steps down $200 for every additional $10,000 a household makes before completely phasing out at $100,000 of household income. While this stepwise phaseout will create some work incentive problems on the margin, they are concentrated in middle-income households that don’t have as many “benefit cliff” problems as low-income households.

Second, it is refundable. This means that households could claim the credit even if it exceeds their state tax burden. This is especially important because the households that are most in need of this credit are most likely to not have large state income tax burdens since they are low-income in the first place. Making this credit refundable makes it certain households with the most need will be eligible for the credit.

Third, it applies to renters as well as homeowners. Believe it or not, property taxes are actually regressive taxes. This is because even renters have to pay property taxes since property owners can pass these taxes on to them. Since low-income people tend to spend a larger proportion of their income on housing than upper-income people, low-income people spend a larger proportion of their income on property taxes than upper-income people. The bill includes renters by allowing taxpayers paying 15% of their rent in excess of 5% of their income to also be eligible for the credit. 

By also allowing renters who pay toward property taxes for property owners to collect the credit, as House Bill 465 does, the burden of property taxes is relieved for people who need it relieved the most.

With 28 sponsors and cosponsors from both sides of the aisle, it looks like legislators in the Ohio House are taking this proposal seriously. Maybe the burden of property taxes is the encouragement the state needs to fund a significant program for poverty alleviation in Ohio.

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