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COLUMBUS — Republican lawmakers want to raise the state sales tax and scale back future local property tax rebates to help fund a much deeper income tax cut over three years than had previously been debated.
The 0.25 percent hike in the state share of the sales tax would bring the rate to 5.75 cents on the dollar while the rate in Lucas County, with its local piggyback tax, would climb to 7 cents. Current rates in counties across northwest Ohio range from 6.5 cents to 7 cents before the increase.
The language is expected to be added Tuesday by a GOP-controlled legislative conference committee to the proposed $61.7 billion, two-year budget. None of the tax hikes had been previously included in either the House or Senate-passed versions of a budget that must reach Gov. John Kasich’s desk by month’s end.
Business groups such as the Ohio Chamber of Commerce applauded the plan, which promises a net income tax cut of $2.6 billion over three years for individuals and small businesses after more than $1 billion in tax hikes and “loophole” closings are factored in.
Personal income tax rates would be reduced 8.5 percent this year across all income brackets and reach 10 percent by the third year. The tax on the first $250,000 in income earned by small business owners would be halved.
“This is a tax-cut package,” said Senate President Keith Faber (R., Celina). “We did do some loophole closings and tax restructuring, frankly, to try to do flatter and fairer.”
Democrats blasted the package.
“This is something we haven’t seen,” said Rep. Michael Ashford (D., Toledo), the No. 4 House Democrat. “Democrats haven’t seen it. It’s never been discussed in finance [committee]. This is from the office of the governor, and I hope it’s voted down.
“We are just rebounding right now with people buying more consumer items,” he said. “As people buy more, more dollars rotate through the economy, and more people are employed. I’m against the increase in the sales tax from the get-go.”
The House and Senate visions of the budget featured income-tax cuts totaling $1.4 billion over two years. The House would have spread those benefits to everyone across all tax brackets via a 7 percent rate cut. The Senate targeted the cuts exclusively to small business owners that pay the income tax with a 50 percent reduction on the first $375,000 in profits.
Mr. Kasich had originally proposed a plan that incorporated elements of both, but also requested a broad expansion of the sales tax base to professional services and a hike in taxes paid by shale oil and natural gas drillers. The latter two proposals were largely dead on arrival with his GOP colleagues in the General Assembly.
Still, Mr. Kasich welcomed the latest developments.
“This is another big step forward in Ohio’s comeback,” he said. “Balancing budgets, strengthening education, reforming regulations, and cutting taxes an additional $2.6 billion — these are the kinds of changes Ohio is making that other states aren’t, which are helping drive our state forward better and faster.”
Cuyahoga County Executive Ed FitzGerald, a candidate for the governor’s job in 2014, countered: “With this plan, Governor Kasich and his Statehouse allies continue to benefit their wealthiest friends with another unfair tax plan for the middle class that hurts small businesses, seniors, and working Ohioans.
“These tax cuts that benefit the rich mean fewer firefighters and police officers on the street and fewer teachers in our children’s classrooms. This is nothing but another massive tax shift that will put a greater burden on middle-class families across Ohio in order to benefit those at the very top.”
The plan would also:
Gradually reduce eligibility for the senior citizen homestead exemption, which forgives part of the value of their homes from local property tax bills. Those now receiving it would continue to get the benefits, but over time, those newly entering the program would have to meet income eligibility requirements.
- Raise the dollar value of the home exempted from property taxes under the homestead program from $25,000 to $30,000.
- Scale back over time the property tax rollback in which the state picks up 12.5 percent of the local tax burden. The state would no longer pay it on new tax levies, but would continue it on existing levies and renewals.
- Slash from $1 million to $500,000 the threshold at which businesses must pay the commercial activities tax of 0.26 percent on their gross receipts.
- Expand the sales tax base to include magazine subscriptions and “digital goods” such as ebooks, movies, and music.
- Create an earned income tax credit by which low and moderate-income families can offset their tax bill. But unlike the federal credit, there would be no refund if the value of the credit exceeds the tax bill. This would replace existing law exempting those earning less than $10,000 a year from the income tax.
- Extend the cigarette tax to cigarette-look-alike minicigars, known as cigarillos. They are currently taxed at a lower rate like other cigars, chewing tobacco, and other noncigarette products.
- Eliminate the ability of gamblers to write off their losses.
The changes to the senior homestead exemption and broader property tax rollback will be seen as another blow to schools and local governments as they seek to persuade voters to support future new levies.
“Every time a community raises a levy, the state is picking up 12.5 percent,” Mr. Faber said. “That’s something that long term is starting to become a sustainability issue. … In this budget, we’re increasing K-12 [school] funding by 11 percent, and I would think a lot of local property taxpayers think that levies should not be easier to pass.”
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