Ohio lawmakers are set to vote today on $402 million worth of tax cuts for small businesses and individual taxpayers as part of an ambitious off-year budget bill.
The GOP-controlled General Assembly aims to accelerate an income tax cut passed last year so that taxpayers see the full 10 percent cut in the current tax year, allow small businesses to deduct 75 percent of the first $250,000 in income — up from the current 50 percent — expand the state Earned Income Tax Credit for low-income Ohioans and boost the tax exemptions allowed for people making less than $80,000 a year.
The earned income tax credit would be doubled to 10 percent of the federal credit, up from 5 percent now. And exemptions for people making less than $80,000 would be staggered, based on income levels: for those making less than $40,000, the exemption would be $2,200, up from the current $1,700; and for those making between $40,000 and $80,000, the exemption would be $1,950, up from $1,700.
The tax deduction for small businesses would only be in effect for the 2014 tax year and would cost the state $229 million in foregone revenues. The Kasich administration argues that the break would allow entrepreneurs and small business owners to invest more money into growing and creating jobs.
The Kasich administration says the tax breaks are affordable because revenues are a bit ahead and spending is a bit below initial projections for the current two-year budget cycle.
“We are using the tax code — an area where we have direct control — in an effort to induce additional economic activity that wouldn’t otherwise take place,” said state Rep. Ron Amstutz, R-Wooster, who chairs the House Finance Committee and is the primary sponsor of the bill.
But Zach Schiller, senior researcher at the left-leaning Policy Matters Ohio, said half of the tax cut benefits would go toward the top five percent of Ohioans — those who earn $151,000 or more per year. “It is yet another tax credit directed at people who don’t need it,” he said.
Schiller, who specializes in the study of tax policy, argues that Ohio has seen a slew of tax breaks and cuts over the past decade, yet the state’s economic recovery is still sluggish and job creation hasn’t bounced back to pre-recession levels.
Amstutz sees it differently. “Ohio is doing better than the rest of the nation,” he said. Ohio’s unemployment rate for April was 5.7 percent compared with the national rate of 6.3 percent.
The House and Senate ironed out differences they had over House Bill 483. A couple of contentious proposals got tossed out during the conference committee process: eliminating school districts’ ability to challenge property valuations and requiring municipalities to report how much income tax revenue comes from non-residents. Amstutz said the municipal income tax report requirement appeared to generate administrative problems.
The bill tweaks some state spending, including adding $16 million to help cover the cost of publicly funded child care for low-income workers and proscribing how $47.5 million should be spent in the area of mental health and addiction services. Lawmakers agreed to spend $4.4 million for drug courts in each of Ohio’s 88 counties, $25 million for local mental health boards, $10 million for recovery housing beds and $6.5 million for prevention programs at the Ohio Department of Mental Health and Addiction Services.
The conference committee report is expected to get a final floor vote from each chamber on Wednesday and then head to Gov. John Kasich’s desk for his signature.
Lawmakers are set to go on break on Thursday and not return to session until after the November elections. Kasich proposed many more tax changes, including increasing taxes on cigarettes and tobacco, oil and gas severance and sales taxes. Legislators side stepped those proposals, leaving them for another day.
Ohio’s Major Tax Changes
2005: implementing a 21 percent across-the-board income tax cut; replacing two major business taxes with the Commercial Activities Tax
2007: the Homestead Property Tax exemption is expanded to include any senior or disabled home owner, not just those with low incomes. The program allows shielding of $25,000 of the market value of a home from property taxes.
2011: the state estate tax is eliminated, starting in January 2013. The change benefits families with estates worth $338,000 or more and costs local governments $230 million a year.
2013: phasing in a 10 percent across-the-board income tax cut over three years; and increasing the state sales tax by half of one percent.