Kasich’s budget cuts income tax

First Posted: 2/2/2015

COLUMBUS (AP) — Larger businesses would see tax hikes and wealthier school districts would see less state aid under a proposed state budget that Gov. John Kasich described on Monday as his most ambitious yet.

The Republican governor’s $72.3 billion, two-year spending blueprint takes on the tobacco and oil-and-gas lobbies with proposed tax increases on cigarettes and drilling, respectively, while directing record spending toward K-12 and higher education, development disabilities and mental health.

“At the end of the day, we want everybody to have a chance to rise,” Kasich said at a news conference.

But Kasich cautioned that added funding comes with the personal responsibility for Ohioans that he talked about in his inaugural address last month.

“It should be pretty clear that we expect something from you when we reach out our hand to help you,” he said.

Budget Director Tim Keen said the budget continues to fund an expansion of the Medicaid health program approved through a legislative maneuver last session.

The administration extended Medicaid eligibility in 2013 to cover thousands more low-income residents, as allowed under President Barack Obama’s health care law. Kasich needs legislative approval to continue to fund it after June.

Kasich also proposes capping tuition increases in 2016 at 2 percent and freezing tuition rates in 2017. The budget also creates a $120 million fund aimed at reducing accumulated student debt among Ohioans.

A new task force would be charged with analyzing what’s contributing to the high cost of college and working to drive down costs, the governor said. It builds on the work of an earlier working group led by former Ohio State University President Gordon Gee.

The budget also encourages high schools to add more advanced placement classes that allow students to earn college credit earlier and encourages a system where college credit is made available for expertise gained outside the classroom. The budget also allows community colleges to offer bachelor’s degrees in areas where the training isn’t available at a traditional four-year institution.

Kasich said the administration is proposing an adjustment to Ohio’s school funding formula that accounts for a district’s income level and directs more resources to districts with less ability to pay. Additionally, districts would see their state funding guarantee reduced by 1 percent.

The income-tax rate would be cut by 23 percent over the next two years under the plan. By 2017, the top marginal income-tax rate will have fallen from about 5.9 percent in 2011 to 4.1 percent.

The plan also raises the rate on Ohio’s decade-old commercial activity tax, or CAT, for businesses for the first time — from 0.26 percent to 0.32 percent. Kasich said the increase would be used to pay for eliminating income taxes on all small businesses with annual gross receipts of $2 million or less.

It also increases the sales tax by a half-cent and attaches it to more items — including cable TV subscriptions, parking and travel packages. Tax Commissioner Joe Testa said the broadened sales tax, which would raise $1.5 billion over two years, is far less than what was proposed in the last budget.

Senate Democratic Leader Joe Schiavoni said, “The last thing Ohioans need is another increase in the state sales tax. Instead of raising taxes on everyone to benefit a few, the governor should have proposed meaningful investments in education and local communities.”

The second-term governor’s tax increase on cigarettes — up from $1.25 to $2.25 a pack — comes in tandem with a series of initiatives to reduce smoking statewide. Those include banning cigarettes and tobacco in primary and secondary schools and requiring public colleges and universities to go tobacco-free.

Kasich said it’s time for the oil and gas industry to pay an increased rate, arguing — as he has for nearly four years — that Ohio’s severance tax rate is low compared to other states. His latest plan proposes a fixed rate on crude oil and natural gas of 6.5 percent at the wellhead, and a lower rate of 4.5 percent for natural gas and natural gas liquids sold downstream.

The Ohio House will begin hearings on the budget Tuesday. After the chamber passes its version of the bill this spring, it goes to the Ohio Senate, which will then pass its version. Disagreements in the two versions will go to a conference committee this summer. The budget must be in place by June 30.

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