Ohio ranked 38 out of 50 states in 2018 for its economic freedom, according to a report just released by the Fraser Institute and the Buckeye Institute, two free market think tanks.
Ohio dropped one spot from 2017, but the the state has still seen an overall improvement from two years ago, when it was ranked 45. In the early 2000s, the state was consistently ranked in the bottom 10; however, tax reforms by Republican Gov. John Kasich provided a boost for the state in the rankings.
“For Ohioans, this report paints a concerning picture,” Andrew Kidd, an economist with the Buckeye Institute, said in a news release. “Ohio moved up several spots a year ago, driven by Gov. John Kasich’s tax reform efforts. Yet, this year, Ohio has stayed in roughly the same position, taking up membership with the bottom third of economically free states.”
“Ohio continues to lag behind many of its neighbors and, compared to last year’s rankings, is flat lining when it comes to overall economic freedom,” Kidd continued. “When looking at Ohio’s rankings in specific categories, it is easy to understand why so many Ohioans struggle to achieve any form of economic prosperity.”
To measure economic freedom, the report graded each state in six main categories: government spending, taxes, regulation, sound money, freedom to trade internationally and legal system and property rights. The sections also had more specific subsections.
According to the report, Ohio’s biggest weakness was “Insurance and retirement payments as a percentage of personal income,” an area in which it was ranked last in the country. This was graded by determining how much money a state pays out in these mandatory government programs. The poor grade is mostly due to the state’s problems with its pension system.
“One direct approach Ohio could take to improve its ranking would be to address its looming pension crisis,” Kidd told Watchdog.org, “The state ranked dead last in terms of pension payments and, based on the recent Mercatus Center report, Ohio only has a decade left to fix the problem before funding could run out. Reforms are needed to both ensure those guaranteed a pension receive their benefits and allow new employees greater flexibility regarding how they want to invest in their retirement.”
The state also did poorly on government spending overall, in which it ranked 40th, and in sales tax revenue as a percentage of income, in which it was ranked 35th. Kidd said that Ohio’s overall economic freedom score could contribute to the states outcomes in the labor market, which tend to trail national averages.
In certain areas, the state outperformed the national average. Ohio ranked 11th for top income tax rate and top income tax rate threshold. It ranked 16th for government employees as a percentage of total state employees and it ranked 24th for property taxes and other taxes as a percentage of national income.
“With a low top income tax rate as well as a high income threshold to reach it, more families keep their hard-earned paychecks when compared to other states,” Kidd said.
There are several ways in which Ohio can begin to increase the state’s economic freedom, according to Kidd. The report claims that greater economic freedom will lead to greater economic prosperity.
“Ohio should also do more to help local governments reform,” Kidd said. “Ohio has a bewildering number of local taxing authorities that layer on top of state income and sales taxes thus creating significant additional burdens. Taking over some local government burdens that should really fall under the state while also facilitating more shared services and, under certain circumstances, consolidation could help ameliorate part of this burden.”