The new state budget includes changes that total $2.7 billion in tax cuts targeting individuals and businesses over three years.
But how the changes impact you — and whether you see a cut — depends on how much money you make, how much you buy, whether you own a business or a home and where you live. That’s because income tax cuts in the plan are paid for in part by a hike on sales taxes and likely increases in future property taxes.
The changes likely won’t be game-changing in most individual circumstances, said experts contacted for this story. But taxpayers — particularly senior citizens — interviewed for this story expressed concerns about how specific changes might affect them.
“Overall, it’s probably not significant for the general population,” said Brian Schneider, a tax principal for Dayton accounting firm Battelle and Battelle. “But there are bits and pieces and a certain number of folks who will be substantially impacted.”
As for businesses, most will see savings of a few hundred dollars, Schneider said.
“I think most businesses would say, yup, that’s a couple hundred dollars, but that’s not a drastic change that’s going to allow me to hire ten more people,” he said.
But even if most people and businesses don’t see a huge difference, the change will add up to boost Ohio’s economy, as well as improve the state’s national reputation with companies that might locate here, said Richard Vedder, an Ohio University economist who advised Republican Gov. John Kasich on an early version of the tax plan.
“It sends a message to the broader national business community that highly productive people can come into Ohio and the state won’t gouge them,” Vedder said.
Here’s a rundown of some of the tax changes:
Income tax cut swapped for sales tax hike
The plan’s largest element is a 10-percent income tax cut phased in over three years. Meanwhile, the state sales tax rate will increase from 5.5 percent to 5.75 percent.
Most people should come out ahead as a result, but by how much depends on how much you make and how much you spend.
People who make more money also pay more in taxes, so they will save more under the cut than those who make less. People who make less money and those with larger households tend to spend a greater portion of their budgets on sales taxes, although basic necessities such as food and medicine are untaxed.
Bob Bowen, a 52-year-old married father who lives with his wife and two teen-age children in Fairfield, indicated his family may not see much gain because of the tax revisions.
“I think the 10 percent income tax cut is a great thing, but it’s probably going to be offset by how much we spend,” said Bowen, an information technology project manager. “I think at the end of the day, those two things are going to wash out.”
Jim Hurst, 70, of Kettering, viewed the larger income tax reduction that will be given to higher income earners coupled with the rise in the sales tax as unfair.
“I think the sales tax is going to have an adverse impact on low income people,” the retired archivist said, taking a break from playing pool at the Charles I. Lathrem Senior Citizen Center in Kettering. “The income tax reduction is going to favor high income people.”
* WHEN DO THEY TAKE EFFECT?
The sales tax hike begins Sept. 1.
As for the income tax cut, its first phase, an 8.5 percent cut, technically takes effect immediately and retroactive to the beginning of this year. However, most Ohioans won’t see a change in their paychecks for months. That’s because the state first has to update the tax formula it sends to employers, and then employers will have to update their tax withholding policies.
“It’s likely people will realize the bulk of their 8.5 percent cut when they file their taxes” in 2014 and receive a refund, said Ohio Department of Taxation spokesman Gary Gudmundson.
* BOTTOM LINE:
A family of four making $50,000 a year will save $96.75 in income taxes. The same family would pay $29.41 more a year in sales taxes, according to IRS estimates, which don’t include big-ticket purchases such as a car.
End of state property tax rollback
Under the new budget, the state will no longer pay 12.5 percent of homeowners’ property tax bills for replacement or increased tax levies. Existing levies and renewals will not be affected.
This means homeowners will have to make up the difference on new levies for schools, libraries, etc. Also, local governments won’t receive more money from the change.
This is the most difficult change to predict how much it could cost you. It depends on whether voters approve new levies where you live.
WHEN DOES IT TAKE EFFECT?
November. New levies passed in August will be unaffected.
New levies will cost property owners another $4.37 per mil per $100,000 in value than they would have before. That means a new 10-mil school levy approved in November would cost the owner of a $100,000 home an extra $43.70 compared to an identical levy passed in August, while the owner of a $200,000 home would pay an extra $87.40.
Homestead exemption limited
Homeowners 65 and older who make more than $30,000 will no longer qualify for the Homestead exemption. People who already have the exemption, which shaves $25,000 off a recipient’s home’s taxable value, will be grandfathered in.
Donald G. Harlow, 62, a retired auto assembly worker in Urbana, is upset he and his wife, Barbara, will likely make too much money to qualify for the exemption, which saves an average of $360 a year for eligible Champaign County homeowners.
Senior citizens need that extra income, Harlow said. “By then, between your medical costs, rising utilities, nothing’s cheaper. You need that little bit of a break. That’s why I’m outraged.”
“I’m to the point where I’m ready to sell my house and move out of state because of the way Ohio is with the tax base,” he said.
Carol Driscoll, who just turned 65, qualified for the homestead exemption before the change, so she will keep it.
“Because I’m now on a fixed income, I’d like to be able to take advantage of all the exemptions,” said Driscoll, a recently retired clerk at the Kettering Recreation Complex. “I don’t want to raise my property taxes at all for anything.”
* WHEN DOES IT TAKE EFFECT?
January 1, 2014.
* BOTTOM LINE:
Starting next year, people who turn 65 that make more than $30,000 a year will no longer qualify for the exemption, which can be worth several hundred dollars a year or more, depending on where you live and how much your house is worth.
Business tax cut, CAT tax hiked
The tax plan gives businesses a 50 percent tax deduction on their first $250,000 of income. Specifically, the tax cut applies to LLCs, S Corporations, sole proprietorships and partnerships.
The cut would save businesses that make $25,000 a year or less — 80 percent of Ohio businesses fall into this category — $351 or less, according to the Ohio Department of Taxation.
Businesses making $100,000 or less — 15 percent of businesses — would save no more than $2,141, while businesses making $250,000 a year would save $7,002.
As a trade off, businesses that pay Commercial Activity Taxes with sales exceeding $1 million will pay anywhere from $650 to $2,450 more a year. This change will raise $264 million for the state.
Dean Blair, general manager of Foreman-Blair Buick GMC Cadillac in Springfield, welcomed the 50 percent reduction as an opportunity for the business to reinvest in itself.
He declined to talk about company revenues, but said the business makes enough that it qualifies for the CAT tax hike.
Overall, he said Ohio lawmakers reached “good compromise” on the tax deal.
“I’m no different than anybody else,” Blair said. “I don’t want to see any taxes go up, but I respect that our state has to have a balanced budget. Wish our nation had to do the same thing.”
John Venturella, chairman of tax services at the accounting firm Clark Schaefer Hackett in Miami Twp., said the changes could spur economic growth.
“Because of the tax breaks, I would have to say that businesses are going to hire because the economy is getting better and they see a bigger demand for what they are producing,” he said. “There were other things Ohio was doing previous to this that would encourage businesses to hire more.”
WHEN DOES IT TAKE EFFECT?
The income tax cut takes effect immediately, retroactive to the beginning of the year. The CAT tax hike takes effect on Jan. 1, 2014.
The most 95 percent of businesses — those that make less than $100,000 a year — would save is $2,141 a year. The most the next 5 percent could save is $7,002.
Meanwhile, the CAT tax hike on larger businesses will cost businesses with sales exceeding $1 million up to $2,450.