Changes in state tax laws may be unsettling, but they are necessary to strengthen Ohio and create jobs, Gov. John Kasich said Thursday during a visit to Dayton to promote his proposed state budget.
“There probably has never been a budget like this, some people say, in modern times,” Kasich said in a panel discussion at Early Express, a mail service, printing and marketing company on East Second Street.
Unveiled earlier this week, Kasich’s proposal would cut by half taxes on the first $750,000 in earnings for certain small businesses that pay income taxes — such as S corporations, limited liability companies or certain partnerships. It will also cut personal income taxes by 20 percent over three years while imposing new “severance” tax rates on oil and natural gas drillers.
The proposal also calls for cutting the state sales tax from 5.5 percent to 5 percent while broadening the number of services required to collect the sales tax. While the sales tax historically has been drawn from purchases of goods, a growing number of services would be part of the expansion, including cable TV, information services, financial services, legal services, architectural, engineering and design services.
The state’s economy has changed since the sales tax was first imposed in the 1930s, in the Great Depression. The economy is more focused on delivering services, not just producing goods, said Joe Testa, Ohio tax commissioner.
“We’re going to treat services as we have goods in the past,” said Testa, who joined Kasich in Dayton.
The governor focused on the sales tax expansion at one point in the hour-long panel talk, which brought together entrepreneurs and others from Dayton and Columbus. He twice asked panel members how they would defend the sales tax expansion to legislators who are hearing from constituents opposed to the idea.
“A growing state with a growing income is going to benefit everyone,” said Tony Caporale, a University of Dayton economics professor.
“We all know that we can’t make everybody happy,” said Jeff Hoagland, president and chief executive of the Dayton Development Coalition, which works with Ohio’s job-creation agency, JobsOhio, in this part of the state.
Kasich said there was “no pre-screening” of the Dayton panel members, who praised aspects of the governor’s plans.
Cindy Woodward, Early Express president, said lower taxes could mean hiring more workers or investing in capital. She has 16 employees.
“We can be more competitive,” Woodward said.
Back in Columbus, Ohio Democratic Party Chairman Chris Redfern said his party “adamantly opposes” Kasich’s budget plan.
“Make no mistake, this budget shifts the tax burden in Ohio away from the super wealthy and Kasich’s political contributors directly onto the shoulders of working-class Ohioans,” Redfern said.
Some affected service-providers are questioning the expansion. Jonathan McGee, executive director of the Ohio Cable Television Association, contends that cable TV already shoulders local taxes.
“Imposing a state sales tax on cable services will effectively result in double taxation of cable customers,” Mike Hogan, a Time Warner Cable Inc. spokesman, said in an email. “Adding a state sales tax, currently at 5.5 percent, plus any applicable county ‘piggyback’ tax (which could be up to an additional 3 percent depending on the county), on top of the current local franchise fee of up to 5 percent … could result in a possible 13.5 percent tax rate.”
D. Jeffrey Ireland, a Dayton attorney, was warily eyeing the proposed legal services sales tax.
“We’ve traditionally not been subject to that, so it will become an administrative — ‘nightmare’ is too strong a word — change,” Ireland said.
The Dayton Bar Association released a statement saying the proposed expansion amounts to a “tax on our access to justice.” It will impose a burden on estates that require an attorney’s services as well as those “facing involuntary legal hardships,” the association said.
A study released Thursday found the overall tax burden would increase for Ohioans earning less than $51,000 a year.
The Institute on Taxation and Economic Policy, a Washington, D.C.-based nonpartisan think tank, calculated the overall impact of the plan on the average taxpayer in seven earning levels.
Kasich’s proposal, excluding higher severance taxes, would provide a $10,369 annual tax cut on average to the top 1 percent of Ohio taxpayers who earned more than $335,000 in 2012, the study said. The poorest fifth of Ohio taxpayers, making less than $18,000 a year, pay $63 more in taxes. The middle fifth, making between $33,000 and $51,000 in 2012, averaged an annual tax increase of $8.