Kasich: Eliminate income tax for business owners
COLUMBUS – Ohio Gov. John Kasich wants to eliminate state income tax for about 1 million business owners as part of the two-year state budget he plans to unveil Monday.
He also plans to increase the personal exemption Ohioans can claim on their state income tax return if they earn $80,000 or less each year.
Ohio would be able to afford the tax breaks in part because of $500 million in planned surplus tax revenue, boosted by an improved economy, Kasich aides said.
On Monday, the governor is expected to ask lawmakers to make up for the balance of the tax breaks by increasing other taxes, such as those on cigarette sales, business sales in Ohio and oil and gas obtained through fracking.
Kasich has called for those tax increases before, as a way to pay for income tax cuts. Statehouse Republicans last year stymied the governor's proposals. On Thursday, they praised the governor's desire to cut income taxes for small business owners, but shot down any moves to pay for such tax cuts by increasing other taxes.
"The House will not accept tax shifting. We just won't do it," said House Speaker Cliff Rosenberger, R-Clarksville, at a forum held by The Associated Press.
"The Senate will not consider a tax reform plan that does not take a significant amount of revenue off the table for the state," said Senate President Keith Faber, R-Celina. "That's not a tax cut."
It's unclear whether the $500 million in foregone state spending will be enough to satisfy the lawmakers. And opponents of increasing taxes on cigarettes and business sales have thus far held their ground.
In opposing a "tax shift," Republicans are adopting language used by Democrats to oppose Kasich's prior tax cuts.
For instance, Democrats used the term in 2013 to oppose Kasich's income tax cuts, which were paid for in part by increasing Ohio's sales tax by a quarter of a percentage point – "shifting" the tax burden, Democrats say.
Since low-income Ohioans often pay very little or nothing in income taxes, the tax cut saved them little, while wealthier Ohioans saved hundreds of dollars. Meanwhile, Democrats say, the hike in the sales tax squeezed low-income Ohioans' budgets more than it did those of wealthier Ohioans.
"The reduction in the income tax has created a situation of imbalance, because it impacts lower-class and middle-class people and it hits them harder than the wealthier among us," Rep. Denise Driehaus, D-Clifton, told reporters Tuesday. "We're tired of the tax shifting. It's a shell game. Services need to be paid for ... and we want everyone to pay their fair share."
Kasich's plan would wipe out income taxes for 98 percent of business owners who report their profits as their personal income – known as sole proprietors or "pass-through entities." They could skip their income taxes if their business has annual sales of up to $2 million.
Meanwhile, Ohioans who earn less than $40,000 a year would be able to claim a personal exemption on their state income tax of $4,000, up from $2,200 in 2014. Those whose incomes fall between $40,000 and $80,000 would see their exemption increase from $1,950 to $2,850. Those Ohioans – about 3 million in total – also saw their personal exemption increased last year.
On Thursday, Kasich also called for Ohio to increase subsidies for child care for Ohio's working poor. Government-subsidized child care currently ends once a family's income reaches 200 percent of the federal poverty level – $39,580 annual for a family of three. Under Kasich's proposals, subsidies would taper off until a family's earnings reach 300 percent of the poverty level – $59,370 for a family of three.
"Ohio is beginning to give the people at the bottom the kind of incentives they need to work more," Kasich said in a speech to community agencies that help the poor.