COLUMBUS (AP) — Ohio’s budget director defended a proposed increase to the state sales tax at a hearing Tuesday, as a legislative panel began reviewing Gov. John Kasich’s $72.3 billion, two-year state spending plan.
The rate would jump from 5.75 percent to 6.25 percent and would be expanded to cover services such as cable TV subscriptions, parking, lobbying and opinion polling in the perennial battleground state.
Even with the half-cent increase, Ohio’s sales tax would remain competitive with other states, budget director Tim Keen told lawmakers at the House Finance Committee’s first hearing on the governor’s proposed budget.
Keen said the changes would raise an estimated $2.62 billion in state sales tax revenue over the two-year period.
Part of that money would help pay for Kasich’s plan to cut the income-tax rate by 23 percent over the next two years.
By 2017, the top marginal income-tax rate will have fallen from about 5.9 percent in 2011 to 4.1 percent.
But some state lawmakers on the House panel questioned the impact the sales tax increase could have on their constituents’ pocketbooks, especially on the heels of an increase in the last budget.
State Rep. Mike Dovilla asked Keen how he would justify a new sales tax increase to shoppers in his Cuyahoga County district, which would see the highest total state and local sales tax rate at 8.5 percent.
Keen told him that the cuts to Ohio’s income tax would give residents more choice in how they spend their dollars.
“If their income tax rates are lower, they have more opportunity to keep their own money,” Keen said.
“We’ll see what the reaction is back at home,” Dovilla responded.
The state’s sales tax currently applies to numerous items, including electronics, clothing and other retail goods. Groceries, housing, medicines and many other purchases are exempt from the tax.
Democratic Rep. Denise Driehaus of Cincinnati criticized the plan as tax shifting. She said it disproportionally affects lower-income residents who see fewer dollars back from the income tax cut while paying more for goods.
“As you increase the sales tax, the value of their wages becomes even less,” she told Keen.
Keen said the administration believes the income tax is “the most economically harmful tax” because it discourages investment and saving. He said reducing the income tax frees up money to be spent in the broader economy.
“When income taxes are cut, I mean, that affects people’s paychecks,” he said.