COLUMBUS — Gov. John Kasich wants to slash taxes $1.4 billion over three years through a 20 percent cut in the income tax paid by individuals, a 50 percent cut in the income tax paid by small businesses, and a half-cent reduction in the state’s share of the sales tax to 5 cents on the dollar.
On top of that, all Ohioans and small businesses would share in $400 million in automatic income tax rebates for this calendar year because the new surplus-fueled balance in the state’s budget reserves is about to trigger a provision in state law that’s been dormant for about a decade.
The plan -- announced today in Columbus -- would at least partly be financed by a broadening of the sales tax base to include services not currently covered and by hiking taxes on an anticipated boon in natural gas and oil exploration. The governor argues that reducing the income tax for small businesses at a greater rate than individuals will free up capital for hiring and make them more competitive.
The sales tax base would be spread more widely to cover nearly everything but housing, education, medical, and construction spending. This includes a number of professional services like lobbying that former Republican Gov. Bob Taft tried to tax about a decade ago only to be confronted with a brick wall in the General Assembly.
The two-year, $63.7 billion plan is up about 14 percent from $58.8 billion in the current budget. The administration stresses that the cost is largely due to the expected addition of people coming out of the “woodwork” to join Medicaid, as well as additional education expenses. These are people who are already eligible but for some reason have never applied. They are expected to join now as a result of the heath insurance mandate under the Affordable Care Act, but they would not be covered by the enhanced federal reimbursement.
The administration says spending across most of the rest of state government would be largely flat..
Now the ball moves to the GOP-controlled legislature, which has until the end of the current fiscal year on June 30 to put its brand on the state’s taxation and spending plans for 2014 and 2015.
Mr. Kasich will take on some in his own party as he proposes to partner with the federal government to expand Medicaid, the government health insurance program of last resort, to families earning 38 percent over the federal poverty line. That’s $31,809 a year for a family of four.
The expansion is part of the effort under President Obama’s Affordable Care Act to provide options for more individuals who must obtain health insurance or face penalties starting in 2014. The expansion would open the Medicaid doors to an estimated 400,000 or so more adult Ohioans.
Mr. Kasich has tried to draw a distinction between expanding Medicaid and what is commonly called Obamcare, which he opposes. The federal government has promised to pay 100 percent of the costs from the additional enrollees for the first three years.
After that, the reimbursement would gradually drop to 90 percent. The normal federal reimbursement rate for most other Medicaid programs is about 62 percent.
If the federal government fails to live up to its side of the deal, the Kasich administration said it would reverse position on the expansion.
“Given the results of the presidential election, the Supreme Court's decision, and Washington's inaction on real healthcare reform, Obamacare is the law of the land, and Ohio needs to work to reduce its impact,” reads press materials associated with the budget.
A recent study suggested the state would come out ahead financially in healthcare savings and in increased healthcare jobs and tax revenue and would largely break even after the reimbursement rate drops. Opponents, however, consider the move to represent another expansion of a government entitlement program.
"Accepting federal funding for Medicaid expansion means greater access to healthcare, economic mobility, and jobs for many Ohioans,” said Becky Williams, president of the Service Employees International Union District 1199.
The state is facing a potential year-end surplus approaching $1 billion, depending on what the state does with an unbudgeted $500 million that arrived last week from the state’s lease of its profitable liquor enterprise to JobsOhio, its private non-profit economic development corporation. That deal remains under a legal cloud while a challenge is pending before the Ohio Supreme Court.
The budget holds some good news for local governments thanks to the expansion of the sales tax base, but the increase would be capped.
Mr. Kasich last week announced his $15.1 billion, two-year funding plan for K-12 education. That plan would drive greater state support to poorer districts and would target funding toward programs for gifted, special needs, reading, and students for whom English is a second language.
It also expands the number of students eligible for vouchers to attend private and religious schools, increases support for charter schools, and creates a $300 million competitive grant program for schools tackling innovative cost-savings measures.
Schools and local governments are still awaiting the computer printouts that will show how they specifically fare once the state aid is run through their respective formulas.
As promised, the governor’s separate two-year transportation budget that must pass by April 1 includes his controversial proposal to borrow against future toll collections on the Ohio Turnpike to finance highway and bridge constructions across the state. It promises that 90 percent of the funds generated by the turnpike funds will be spent in northern Ohio.
Mr. Kasich hopes that his tax proposal will serve as his first real down-payment on cutting if not eliminating the state’s income tax. In 2011, Mr. Kasich allowed the previously approved, final increment of a total 21 percent cut in the tax to take effect despite calls from Democrats to delay it to offset the severe cuts suffered by schools and local governments in his first $55.8 billion budget.
Those cuts were due in part to the expiration of one-time federal stimulus dollars and the state’s decision to accelerate the process of weaning schools off of revenue from a pair of now defunct business taxes. That 2011-2012 budget also led to the privatization of a state prison, repealed the estate tax beginning this year, and overhauled Medicaid spending, shifting the emphasis for the long-term care of the elderly away from nursing homes more towards in-home care.
The new budget would continue to increase state funding for in-home care.
Mr. Kasich and his taxation commissioner, Joe Testa, will host what is being billed as a “Tax Cut Town Hall” today at 7 p.m. at Crimson Cup Coffee & Tea in Columbus. The event will be streamed live on the Internet via www.OhioChannel.org.
Mr. Kasich started his school-funding road show in Cincinnati last week and will bring his broader budget tour to northwest Ohio later this week.