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Published: Thursday, 3/13/2014

Kasich’s tax plan faces tough legislative test

Lawmakers look to keep parts, slash others

BY JIM PROVANCE
BLADE COLUMBUS BUREAU CHIEF

COLUMBUS — It didn’t take long.

As Gov. John Kasich’s budget director on Wednesday started the job of selling the governor’s proposed 8.5 percent income-tax cut, mostly paid for with higher taxes on businesses, tobacco, and drilling, state Rep. Louis Terhar (R., Cincinnati) asked what it would take to keep the tax cut and lose the increases.

“That’s not the proposal of the administration, and I have not made such a calculation,” budget director Tim Keen said.

The controversial tax-reform proposal has elements people like and elements they don’t, and pulling all of the pieces together has just begun.

The focus has to remain on that $2.6 million in income-tax cuts through the broad across-all-brackets rate reduction and expanded breaks for lower and middle-income Ohioans, Mr. Keen said.

“The tax where Ohio is most noncompetitive, and the tax that perhaps has the greatest impact on investment, business growth, and job creation is the personal income tax,” he told the House Ways and Means Committee.

“It’s the governor’s belief that we need to make progress on reducing the personal income-tax burden for all Ohioans,” Mr. Keen said. “This is the area of focus that will bear the greatest result in improving our economic competitiveness in growing jobs in the state of Ohio.”

The 1,600-page bill incorporating the tax reform plan and numerous other proposed changes sought by Mr. Kasich is just a day old. But state Rep. Jeffrey McClain (R., Upper Sandusky), the committee chairman and bill sponsor, said it will be divided into up to 15 bills and distributed to as many as 11 House of Representatives committees for vetting.

Various elements of the tax package have drawn laurels and daggers. Democrats again argued that the administration’s fixation on the income tax, particularly the top 5.3-percent bracket paid by the wealthiest Ohioans, is misplaced.

“There just doesn’t seem to be data or studies to support the contention that somehow cutting income taxes will lead to job creation in any economy,” said state Rep. Mike Foley (D., Cleveland), a committee member, who argued the bulk of any savings from such a cut would go to wealthy Ohioans.

The tax package calls for a $2.2 billion, across-the-board cut in the state income tax that would drop the top bracket rate to 4.88 percent and expand both Ohio’s new Earned Income Tax Credit for low-income earners and personal exemptions for families earning up to $80,000 a year.

But to pay the bulk of the bill, the package includes raising Ohio’s cigarette tax by 60 cents over two years to $1.85 a pack; raising lesser taxed ecigarettes, smokeless tobacco, and cigars to the higher cigarette rate; raising taxes on shale oil and natural gas drilling in eastern Ohio to 2.75 percent of gross receipts, and increasing the commercial-activities tax paid by larger businesses on their gross receipts from 0.26 percent to 0.3 percent.

Once the dust settles from the various moving parts, the net tax cut for Ohioans is expected to be $174 million.

Senate President Keith Faber (R., Celina) said questions exist within his caucus about tax-plan elements, including whether a $174 million net tax cut is big enough.

“I think there are certain members who believe parts are dead on arrival,” he said. “I think all of it is going to need tweaking and some work, but that’s the legislative process.”

A lot of the attention has been on the tobacco and commercial-activities taxes, the latter of which hasn’t been raised since its 2005 creation as a flatter, simpler alternative to a variety of other business taxes that were phased out.

“The CAT impacts different businesses very differently,” Mr. Faber said. “If you’re high-margin, low-volume, the CAT’s not really that big a factor. If you’re low-margin, high-volume, the CAT can be very significant.”

Contact Jim Provance at: jprovance@theblade.com or 614-221-0496.



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