Ohio budget deal will bring higher taxes to many in state

COLUMBUS, Ohio (AP) — Ohioans will pay more in 2009 taxes than expected because a budget compromise that cleared the Legislature on Thursday night delays the last in a series of tax cuts begun four years ago.

The bill received just enough Republican support to clear the GOP-led Senate 17-15 and headed immediately to the Democrat-led House, where it passed 54-42 with two Republicans joining Democrats in favor.

Senate Republicans whose vigorous opposition had delayed the plan for weeks delivered scathing floor speeches opposing the compromise and Gov. Ted Strickland’s handling of the budget. Fellow Democrats defended Strickland as ushering a difficult budget through an historic economic crisis.

For the majority of Ohioans, the tax change means they will have to forgo tax savings of less than $150.

The agreement delays a scheduled income tax cut to fill an $850 million budget gap in the state’s two-year, $51 billion spending plan while preserving state funding to school districts, which would have taken a hit if it had gone through. Educators and community leaders had spent the last week complaining loudly about the financial hardship they faced as a result of the budget impasse.

The deal resolved what had been increasingly tense negotiations between Strickland and Democratic lawmakers on one side, and Republicans loath to suspend a tax cut on the other. Strickland characterized the deal as a bipartisan compromise that will preserve a commitment to education funding.

On Thursday, five Senate Republicans supported Strickland’s plan to delay the final round of income tax cuts set in motion in 2005. In return, Democrats in both chambers agreed to a pilot project to test proposed construction contracting changes they believe aren’t ready to be implemented on all public projects. The agreement secured enough votes to get the deal out of the Senate and was greeted by applause when it landed later Thursday in the House.

“I think most Ohioans understand that it’s important to protect our schools,” Strickland said in an AP interview. “So I don’t have any concern that what will obviously be a political effort to paint this as a tax increase will be effective.”

Minority House Republicans opposed the deal because they viewed the tax change would be a job killer.

“We want the people of Ohio to understand what a dangerous impact it can have on our economy and job creation for our children,” House Republican leader Bill Batchelder of Medina said in a statement.

The deal impacts the wallets and pocketbooks of Ohio taxpayers, but not by much, many lawmakers would argue. It postpones for two years the final installment of what was to be a 21 percent income tax cut begun under Strickland’s predecessor, Bob Taft.

Strickland stressed that because of an increase in the personal exemption amount, most Ohioans will still pay less in taxes for 2009 than they did in 2008. Ohioans are paying 16.8 percent less in income taxes than they were in 2004, he said.

The lowest 20 percent of earners, making $18,000 or less, will have to pay only $2 more for 2009 than they would have had they received the 4.2 percent reduction in the tax rate, according to the Institute on Taxation and Economic Policy. The top 1 percent, earning $319,000 or more, will pay $1,980 more. And those in the middle 40 percent, earning from $32,000 to $76,000 a year, will pay an additional $37 to $69.

Without the deal on the tax plan, or an alternative proposal to cut $850 million from other state programs, the money would have been taken from school districts. Many had feared a direct impact on the classroom because of fewer teachers, larger classes, and a reduced ability to provide textbooks and supplies.

Strickland and his legislative allies have insisted the tax change is a delay, saying they have the intention of implementing the cut for the 2011 tax year. But the state faces a potential multibillion dollar deficit due to the expected absence of federal stimulus money, leading some to believe the delay may be permanent.

“While this fills the hole for now, we have a gigantic, yawning gap ahead in the next budget,” said Zach Schiller, research director for Policy Matters Ohio. “Even just continuing this, we would have billions of dollars in additional cuts and revenue needed.”

Strickland said that he and other governors will seek additional federal money in the coming years if the economy does not get considerably better.

The governor said he has been committed to the tax reductions, and insisted the tax cut delay really is a delay.

“This is a temporary delay. I have no intention of making it anything other than a temporary delay,” Strickland said.

The budget gap was created when the Ohio Supreme Court sidelined an earlier budget-balancing plan: legalized video slot machines at racetracks. The court agreed with the legal argument of LetOhioVote.org, which argued that voters are entitled to a referendum on the new machines. That vote could take place next year.

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AP Statehouse Correspondent Julie Carr Smyth contributed to this report.