House Budget Keeps Income Tax Cut, Nixes Other Tax Hikes

Apr 15, 2015

Republican leaders in the Ohio House say they’re on board with Gov. John Kasich’s proposed income tax cut, but don’t want to offset it with other tax increases.

Governor Kasich’s proposed budget included a three quarter of a percent increase in the state’s sales tax and wanted to apply sales tax to some services that are not currently taxed. He also wanted a dollar a pack increase in cigarette taxes, an increase in the commercial activity tax that businesses pay on gross receipts and a severance tax hike on fracking.

In exchange for those tax hikes, Kasich was willing to offer a 23 percent income tax cut that would have lowered the top rate on income of more than 212,000 dollars. House Speaker Cliff Rosenberger says his members liked the tax cut idea but aren’t going quite as far as the Governor did in his plan.

“It is a 1.2 billion dollar tax relief to Ohioans over two years. It is a 6.3 percent across the board income tax cut beginning in FY16. It lowers the top rate below 5 percent and it makes the 75 percent small business tax deduction permanent. And I think this is a huge step in the right direction, not only for Ohio but for all Ohioans and most importantly, for those small businesses in Ohio,” Rosenberger says.

But when it comes to Kasich’s proposed tax cuts, they are mostly a no-go in this budget.

“We did remove the sales tax, the increase, the expansion, the severance tax, the cigarette tax and the commercial activity tax,” said Finance Chairman Ryan Smith.

“We did keep one piece which was the means testing for retirement income credits and basically that’s the retirees with incomes of more than 100,000 would no longer be able to receive the $50 senior tax credit, the deduction of social security income or the retirement income credit. But I want to make it clear that seniors with incomes below 100,000 remain unaffected.”

One big part of the house budget is the way it deals with Medicaid. Governor Kasich had expanded Medicaid and took some authority away from the legislature in the way he’s done that. Rosenberger says this budget intends to give the legislature control over the way the program is operated.

“Our number one concern and goal is that this is not about expansion. We are talking about re-authorization and how do we continue to put this program in a way that helps look at implementing cost transparency measures?

“We are going to require that the Department of Medicaid seek waivers to allow for health savings accounts and work requirements. We are going to have a report that studies what we currently have in place and we are going to return Medicaid eligibility determinations to the General Assembly.”

One of the more controversial parts of Governor Kasich’s proposed budget was the way he changed funding for K-12 schools. Nearly three quarters of Ohio’s school districts would have taken a cut under Kasich’s plan in what some school leaders described as a Robin Hood approach to funding.

The House budget returns the funding formula closer to what it has been. Again, Finance Chair Smith explains the House’s goal was not based on achieving equality.

“What we are trying to do is bring the bottom level up. We want to insure that every child – that we are providing a core funding level to allow all schools to be competitive.  That is the thrust behind this. We don’t have any thought of this ever being equal in the expenditure per pupil. I don’t expect it to be equal but I expect it to be adequate.”

While no district would lose funding under the house proposed plan, 93 will lose money because of a loss of tax revenue on tangible personal property.  There are a lot of details of the budget that are still unknown. But it is clear that the House is doing much what it did two years ago with the Governor‘s budget.

The House is choosing to adopt the tax cuts without hiking other taxes to offset those tax breaks. And that means some cuts to state programs and services are likely to be discovered in the coming days.