This piece is part of a series of briefs looking at specific state proposals for family tax benefit reforms based on a larger Niskanen report, The State of our Families: Child and Dependent Tax Benefits in the States. You can find other state briefs here.
In announcing his Bold Beginnings Initiative last fall, Governor Mike DeWine declared his intention to make Ohio the “best place in the nation to have a baby and raise a family.” His new budget makes a down payment on this promise with a series of investments in schools, mental health services, and other family policies. Most importantly, it includes a new $2,500 child tax exemption to support families with the cost of raising children.
It’s a step in the right direction. Still, as currently designed, it would exclude a substantial share of working-class families. Governor DeWine can fix this by taking a cue from someone he knows well – his 1997 self, U.S. Senator DeWine – and shifting his focus to a child tax credit (CTC).
The exclusion stems from Ohio’s personal income tax system structure. Because personal exemptions and a zero-rate bracket effectively wipe out a household’s income tax liability, it would reduce the value of a new child tax exemption to $0 for families earning as much as $30,000.
This logic makes sense at first glance – the child tax exemption limits tax relief to taxpayers – but it takes a particularly narrow view of what constitutes a taxpayer. Ohio also levies a sales tax on the items families purchase every day. With inflation pushing up the cost of these items, it has increased the tax burden on families struggling to make ends meet. These families need and deserve tax relief as well.
The federal child tax credit’s history points to a simple path forward. Back in 1997, then-Senator DeWine was an early co-sponsor of the Family Tax Fairness Act of 1997, which proposed a new $500 child tax credit. The bill was folded into a larger budget package and passed later that year. Subsequent reforms, which DeWine supported, expanded the credit’s reach to include more working families by making it partially refundable to help offset other taxes on working-class families.
Under President Trump, Congressional Republicans further expanded and simplified this credit by consolidating it with the federal exemption for children and dependents into a single streamlined and more generous child tax credit as part of the Tax Cuts and Jobs Act of 2017.
The child tax credit’s trajectory from DeWine to Trump provides a blueprint for family tax reform in Ohio. As was the case before the Trump tax reforms, Ohio’s new exemption would be layered on top of the state’s existing tax exemption for children and other dependents. Rather than laying an exemption on top of an exemption, policymakers could convert the existing and proposed tax exemptions into a partially refundable child tax credit equal to 7.5 percent of the federal child tax credit.
There is ample precedent for pegging a new state CTC to the federal CTC. Most states, including Ohio, already have tax credits for low-income workers and childcare expenses set as a percentage of federal credits. Under the proposed 7.5% matching CTC, for example, a family with one child would receive a $150 credit whether they earned $30,000 or $300,000.
This would effectively double the level of support most families receive now. By tapping into the most successful Republican pro-family tax reform in years, Ohio could simplify the tax code, provide much-needed tax relief to working-class families with children, and do so at little additional cost. That’s something Governor DeWine, like Senator DeWine before him, can and should get on board with.