Paychecks and purchases impacted by Ohio tax plan

The tax package unveiled by legislative Republicans on Thursday has several moving parts that together net a $2.6 billion tax cut over three years.

Whether you would pay more or less under the plan depends on how much you earn, whether you own a business or property and how much you spend on taxable goods.

Lawmakers began examining the proposal and hearing testimony on Friday and will continue reviewing the plan Monday and possibly Tuesday. Then a bipartisan panel of lawmakers will report back to their chambers a compromise bill for approval before sending the plan to Gov. John Kasich before a June 30 deadline.

Democrats railed against the plan, saying it favors Ohio’s wealthy ahead of its poor and returns tax dollars that could support public schools and government services. Republicans defended the plan as one that encourages business growth and sends a general message that Ohio is business-friendly.

Here’s a look at how the current proposal will impact taxpayers:

Sales tax

State sales tax would increase from 5.5 percent to 5.75 percent. The state would tax a couple new items and begin collecting sales tax on all Internet and catalog purchases. Lower-income Ohioans pay a larger share of their income in sales taxes, so critics say the increase shifts the tax burden more toward lower-income people. Conservative economists said on Friday the slight increase would be offset by greater savings on income tax through the earned income tax credit. An estimate of the impact of the credit minus the eliminated exemptions was not available Friday.

Bottom line: Everything you purchase now, plus digitally downloaded products and magazine subscriptions, would be taxed a quarter of a percent more. Ohioans who shop online would pay sales tax when they check out. On the purchase of a $14,000 car, the buyer would pay $35 more in sales tax. A song purchased from iTunes would cost at least a nickel more, depending on local sales tax.

Income tax

The plan cuts personal income tax rates 8.5 percent for 2013, retroactive to Jan. 1, 2013. Rates would drop 9 percent from current rates in 2014 and 10 percent in 2015. The plan eliminates the $20 personal tax exemption and exemption for taxpayers earning less than $10,000, adding in a nonrefundable state earned income tax cut. Taxpayers earning between $22,000 and $43,800 would save, on average, $79 in 2015, according to the Ohio Department of Taxation. Taxpayers earning more than $219,050 – the top 3 percent – would save $2,794 in 2015.

Bottom line: All Ohioans’ personal income tax bill would be reduced. The earned income tax credit would lower the tax burden for up to 2 million low- and moderate-income taxpayers, but unlike its federal counterpart, cannot reduce a tax bill below $0 and provide a refund.

Property taxes

The plan rolls back state-paid reductions for property taxpayers for new and replacement levies such as for schools, libraries and parks. Currently, the state pays 12.5 percent of taxpayers’ bills, so eliminating the reductions means higher tax bills for home and property owners on future levies. Critics say this provision would make it more difficult for school districts and other local government municipalities to pass levies, another hit to jurisdictions still hurting from 2011 budget cuts.

Bottom line: Property taxes could increase in future years more than they would under current law for property owners in jurisdictions passing new levies. The homestead exemption that Ohio senior citizens receive on their property taxes would require means testing under the new plan. Current seniors would not be impacted, but future seniors above a certain income would not be eligable for the exemption.

Business taxes

Kasich proposed a 50 percent tax cut for limited liability companies, S corporations, partnerships and others who file business income on personal income tax returns up to $750,000 of income. This plan cuts the maximum amount to $250,000 and maximum savings of $6,666, according to the Department of Taxation. The limit keeps the benefit for 98 percent of those who qualified under the higher limit, but offers a fraction of the savings that critics say isn’t enough to directly create jobs.

Meanwhile, the plan increases taxes for businesses paying the Commercial Activity Tax, applying the tax to gross receipts higher than $500,000 instead of $1 million.

Bottom line: Taxpayers who file business income earned from partnerships, sole proprietorships and other pass-through entities would save more than the 10 percent personal income tax provides. Businesses reporting more than $1 million in gross receipts would pay $1,250 more on their annual tax bill.

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