The cut reduces the top tax rate for individuals in the state to just below 5 percent, the lowest rate since 1982, Testa said during a Greater Springfield Chamber of Commerce event at the Courtyard by Marriott in downtown Springfield.
It also increases the tax deduction for small businesses to 75 percent on the first $250,000 of business income for this tax year, and 100 percent beginning next year. Business income of more than $250,000 will be taxed at a flat 3 percent rate, Testa said.
Those cuts are part of a long-term plan to improve the state’s business climate, Testa said.
The cuts by themselves may not be enough to hire a new employee, he said, but even $1,000 to $2,000 can be important to a small business. From returns filed in 2015, state officials estimate the 385,000 businesses that claimed the small business deduction saved about $460 million.
“The power of that collectively moves the needle,” Testa said.
But Democrats countered the budget largely serves as tax cut for the state’s wealthiest residents.
“This budget does nothing to grow the economy, create jobs or stabilize working families,” said Rep. Denise Driehaus, D-Cincinnati. “Instead, it gives cuts to the wealthiest Ohioans while investing too little in schools and placing an additional tax on working families. We have seen this tax policy before — in 2005. It is a tax policy that didn’t work then and won’t work now. This state budget fails to build a vision for Ohio.”
The state budget also created a committee to study additional issues, including whether to increase severance taxes on shale fracking, and reviewing whether it’s possible to eventually transition from Ohio’s current progressive income tax system to a flat tax.
It’s not yet clear whether it’s possible to gradually switch to a flat tax or what that system would look like, Testa said, but there has been enough interest from state legislators to study the issue.
“We have this very complex personal income tax system in the state so inserting a flat tax is difficult,” he said.
He also discussed income tax fraud, which he said is a growing problem nationwide. The state prevented more than $266 million in thefts of income tax refunds in 2014, but the thieves constantly adapt, he said.
“This has become the single most gut-wrenching problem I have faced, ” Testa said.
The Department of Taxation implemented an identification confirmation quiz online and other security measures to prevent the crimes. While those efforts have caused headaches for taxpayers in some cases, he said it has helped prevent some thefts.
“You’d better have some pretty good walls to protect the taxpayers of this state,” Testa said.
About the Author