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Income tax cut in the works; Ohio sales tax could rise

Republican state lawmakers say they’ve crafted a tax plan that will mean almost all Ohioans will pay less in taxes during the next three years. But the plan calls for raising the state sales tax and adding the tax to new items.

The plan unveiled Thursday by GOP leaders incorporates the tax cut ideas approved by each chamber earlier this year, paid for by raising the sales tax rate, reducing exemptions for businesses paying the Commercial Activity Tax, closing loopholes, means testing homestead tax exemptions for seniors and eliminating the state share on new and replacement local levies.

Lawmakers propose increasing the state sales tax rate from 5.5 percent to 5.75 percent and applying that tax to digital goods such as electronic books and online music downloads. Earlier this year, Ohio Gov. John Kasich called for decreasing the sales tax rate and applying the tax to about 80 goods and services.

Despite the tax increases, Senate President Keith Faber, R-Celina, said the package as a whole creates a $2.6 billion tax cut over three years. The new revenue will offset a $3.2 billion cut to personal income taxes and $1.7 billion cut for small businesses and pass-through entities..

“We’re trying to create a fairer and flatter tax system that helps all Ohioans,” Faber said.

Senate Minority Leader Eric Kearney, D-Cincinnati, said the new plan hurts senior citizens, small business owners and middle class Ohioans.

“All Ohioans will have to pay higher taxes every time they go to the store or buy a car thanks to this Republican tax hike,” Kearney said in a statement. “This plan is the continuation of a GOP tax shell game that benefits the wealthy at the expense of everyone else. It is simply unfair.”

Lawmakers plan to insert the 11th-hour tax package into the two-year $61.7 billion state budget bill, now in its final days of deliberation before Kasich must sign it into law.

Income taxes would be cut 10%

The plan proposes a 10 percent across-the-board personal income tax cut phased in over three years, starting with 8.5 percent in 2013. The newly proposed cut is slightly larger than the House-approved 7 percent cut, but only half of what Kasich proposed in February. The plan eliminates the $20 personal exemption but includes a nonrefundable state earned income tax credit to reduce the overall tax burden on lower-income families.

The new GOP plan keeps Kasich’s 50 percent tax cut for pass-through entities, but only up to the first $250,000 of income instead of $750,000, the level Kasich proposed and the Senate approved in its version of the bill.

Faber said 98 percent of businesses and others eligible for the cut file less than that amount as personal income.

Zach Schiller, research director for left-leaning think tank Policy Matters Ohio, said cutting income taxes while raising sales tax rates shifts the tax burden from the wealthy to poor and middle class Ohioans and further hurts local governments. Studies have shown lower-income taxpayers pay a larger share of their earnings on sales tax than wealthier taxpayers. Schiller said the state levy rollback will make it harder for school districts and other municipalities to pass levies.

“Dumping this many changes into the tax code at the last minute is not respectful to the people of Ohio,” Schiller said.

Schiller also questioned the value of the tax cuts, which would save most Ohioans a small amount and businesses eligible for the exemption less than $7,000 — hardly enough to create jobs.

Kasich told reporters earlier this week that any size tax cut would make a difference.

“Particularly when you have around this country, it seems, an inability to cut taxes,” Kasich said. “I’m on the phone with CEOs just about every day and when I tell them about the momentum and what we have coming here, they like it,” Kasich said.

He echoed that support Thursday in a written statement: “This is another big step forward in Ohio’s comeback… these are the kinds of changes Ohio is making that other states aren’t which are helping drive our state forward better and faster.”

The plan does not increase taxes on oil and gas companies, as Kasich proposed. Instead, lawmakers want to end the 12.5 percent property tax relief paid by the state, leaving property owners with the whole tax bill on new and replacement levies, and add a means test for the homestead exemption for future senior citizens.

Lawmakers plan to review the tax plan Friday before sending it to a bipartisan panel of lawmakers from both chambers called a committee of conference. The group of four Republicans and two Democrats works through differences in the bill before both chambers vote on the bill a final time. Kasich can veto parts he doesn’t like before signing the bill into law before the June 30 deadline.

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