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Ohio income taxes may fall; sales tax could rise

GOP leaders in the Ohio House and Senate say they’ve crafted a tax plan that will mean almost all Ohioans will pay less in taxes over the next three years. However the plan calls for an increase in the sales tax.

The plan unveiled Thursday incorporates the major tax reform idea from each chamber – a personal income tax rate cut and a bigger cut for small businesses and pass-through entities – by raising the sales tax rate, reducing exemptions for businesses paying the Commercial Activity Tax, closing loopholes and eliminating the state share on new and replacement local levies.

GOP 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 music downloaded over the Internet.

Despite the tax increases, Senate President Keith Faber emphasized the package as a whole returns more dollars to taxpayers’ pockets than it takes.

“This is sustainable, it is balanced and it does not rely on one-time money,” Faber said.

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

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 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.

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

“Do I think it will make a difference? Absolutely. 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.”

The two-year state budget totaled $61.7 billion when the Senate passed it. The House rejected the Senate’s changes to the bill, 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.

Earlier this week, lawmakers on the committee learned they might have as much as $400 million to build their tax package. The plan proposed Thursday raises revenue from several places, but not from raising taxes on oil and gas companies as Kasich proposed.

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