Republican Gov. John Kasich’s plan to change Ohio’s tax structure will make the tax code more fair and competitive, Tax Commissioner Joe Testa said on Tuesday, but Democrats are challenging the specifics of the plan.
Testa appeared before the Ohio House Finance Committee for an all-day ession with legislators. He pushed back against a variety of concerns over the tax proposals in Kasich’s new budget, which would lower Ohio’s income and sales tax rates across the board while newly taxing services that had been untaxed. Kasich’s plan would also impose higher taxes on the oil and gas industry.
Testa framed the plan as a modernization of Ohio’s tax code that would encourage economic development and provide a more favorable tax environment.
Testa also argued the energy industry wouldn’t be scared off by the prospects of increasing taxes on oil and natural gas extracted through “fracking” up to 1 percent and 4 percent, respectively.
“As long as there is money to be made, producers and pipeline companies will be active,” Testa said.
Democrats challenged specifics of the plan, questioning how Kasich’s office determined which services would remain tax-exempt and whether it would actually benefit Ohio’s business climate. Both Republicans and Democrats questioned the impact a proposed hike in oil and natural gas drilling taxes would have on economic development and individual landowners.
House finance committee Chairman Ron Amstutz, R-Wooster, introduced Kasich’s 4,206-page budget on Tuesday. The governor last week announced the major reforms of his budget, which also include expanding Medicaid and overhauling Ohio’s school funding formula.
Kasich’s budget plan represents a net $1.4 billion tax cut for Ohioans, Testa said, including a tax cut up to $375,000 for small businesses.
“The server at your favorite restaurant making $3 an hour plus tips will absolutely benefit as more income flows through our economy,” Testa said.
That statement could be a response to criticisms from Democrats on the House Finance Committee, who have said Kasich’s tax plan would disproportionately benefit the rich at the expense of the middle class.
On Tuesday, Rep. Matt Lundy, D-Elyria, said that Kasich’s plan could best be summed up with a riff on the popular Apple slogan: “There’s a tax for that.”
Lundy questioned whether newly taxing Ohio businesses for a slew of currently untaxed services — including real estate services, haircuts and pinball machines — would drive them across the Ohio river to Kentucky.
“I think Ohio will have a reputation as a low tax state,” Testa responded.
Rep. Vernon Sykes, D-Akron, questioned why tennis and golf lessons — classified more broadly as educational services — would be tax-exempt under Kasich’s proposal.
Testa responded that Kasich has proposed a broad exemption for all education.
Rep. Jeff McClain, R-Upper Sandusky, noted that Kasich’s plan would prevent counties from changing their sales tax rates for three years.
What if those counties decided they needed more revenue, asked McClain, a former longtime Wyandot County auditor.
“We are building in a guaranteed growth of 10 percent, minimum,” Testa responded. Kasich’s plan guarantees an annual increase in sales tax revenues over the next two years of at least 10 percent, and 15 percent starting in 2015. “We think that’s pretty supportive of even the counties that grow the slowest. So that’s how we’re addressing that.”