Kasich’s sales tax plan in jeopardy

As state legislators head into their two-week spring break, a large homework assignment looms: Republican Gov. John Kasich’s broad-ranging, $63 billion two-year budget plan.

Majority Republicans in the Ohio House continue to tweak Kasich’s plan, but one major element appears destined for the cutting room floor: a proposed tax overhaul that amounts to a $1.4 billion tax cut over three years, paid for by applying sales taxes to dozens of previously untaxed services.

House Republicans support the income tax cut, said State Rep. Ron Amstutz, R-Wooster, chairman of the powerful House Finance Committee that’s working through the governor’s proposed budget.

But the sales tax expansion? Not so much.

Business groups, including the Ohio Chamber of Commerce, have opposed the sales tax expansion, calling it expensive and burdensome to collect. If the sales tax proposal does survive the finance committee in any way, it will look “very, very different,” Amstutz said.

“We’ve identified enough difficulties and unintended consequences associated with the sales tax expansion to have developed a sense that we need to, and have been in the process of developing, alternative means of financing the income tax reduction,” he said.

That comes down to math. The total tax cuts Kasich proposed cost a total of about $7.2 billion over three years — $1.9 billion to pay for a 50-percent tax cut on businesses’ first $750,000 in revenue, with the rest to pay for an across-the-board 20-percent cut in personal income tax rates. Meanwhile, the new sales taxes were projected to raise about $5.2 billion during the same time period.

Tim Keen, director of Kasich’s Office of Budget and Management, said there’s room within the governor’s budget to keep some of the tax cuts even without the sales tax hikes.

“If folks don’t like how we’ve proposed to fund the whole package through broad-based tax reform, we’re prepared to work with interested parties, and have been trying to do that, to put together alternatives,” Keen said. “We just want to achieve the goal.”

Another element of Kasich’s tax plan — a proposed tax hike on oil and gas drillers in Ohio — also is in the rear-view mirror for the time being, Amstutz said. The revenues the new taxes would generate — the governor’s office estimates $200 million over two years — aren’t expected to raise enough money for the state to make it a priority for this budget, he said.

“For the next two years, there’s not real money there,” he said.

Other areas of Kasich’s budget continue to be under review, although the specifics are less clear.

House Republicans are exploring alternatives to Kasich’s proposal to expand Medicaid coverage to 138 percent of federal poverty guidelines, a move that would affect an estimated 275,000 low-income and disabled Ohioans.

The medical industry, Democrats and religious groups have thrown their support behind Medicaid expansion, a key component of the federal healthcare law, also known as Obamacare. However, conservative groups, and the Republican legislators who identify with them, have steadily opposed it, citing among other things the potential cost to the state if the federal government doesn’t follow through on its promise to reimburse most of the costs, as well as what they say is the system’s ineffectiveness.

Mike Dittoe, a spokesman for House Speaker Bill Batchelder, R-Medina, said members are considering options such as pursuing federal funding to send Medicaid-eligible people into the private healthcare exchange set up by the federal healthcare law.

“All options are on the table. There is truly a very high distaste for the federal (healthcare) law in the majority caucus,” Dittoe said.

Republicans also are tweaking Kasich’s school funding formula to address funding for rural school districts. Many officials with these schools have complained the initial plan left them behind.

“The Medicaid expansion is very much up in the air, and I would say the same for the school funding issue,” Dittoe said.

State legislators must approve a state budget by June. To keep things on track, house leadership has set a soft deadline of mid-to-late April to approve a version to send to the Senate.

By the time that happens, Kasich’s budget, which numbers 4,200 pages and weighs in around 20 pounds in paper form, likely will be more svelte, Amstutz said.

“There are probably dozens of smaller bills inside this bill that need more attention that we can give them in this process,” Amstutz said.