Ohio lawmakers debate freeze on income tax

By Marc Kovac

The bill includes a 5-percent pay cut for officials earning a base salary of $60,584.

COLUMBUS — Is it a tax increase or not?

That was one of the questions lawmakers on both sides of the political aisle and members of Gov. Ted Strickland’s administration debated late Monday afternoon, as the Ohio House began hearings on legislation to freeze income-tax rates at 2008 levels, forgoing a decrease that was to take effect this year.

Republicans contend the move, supported by Strickland and House Democrats, is a tax increase.

“It sounds like, if we have a deficit and we’re trying to raise $844 million new dollars, that that’s a tax increase,” said Rep. Randy Gardner, a Republican from Bowling Green. “The fact of the matter is House Bill 318 raises income-tax rates for every tax bracket in the state of Ohio. Current law is lower than what it would be if HB 318 would pass.”

But House Democrats, who control the chamber, and administration officials said the freeze is a freeze, not a hike. Most taxpayers will pay less in 2009 than they did a year earlier.

“The amount of the tax they pay, is it more or less?” asked Rep. Vernon Sykes, a Democrat from Akron and chairman of the finance committee. “... The amount of taxes [to the] taxpayers is less, so it cannot be calculated as an increase.”

State Tax Commissioner Richard Levin added, “Ohio taxpayers will still enjoy a 16.8-percent reduction compared to 2004, because of the four rate cuts from 2005 through 2008. Furthermore, due to a 2009 increase in the personal exemption from $1,500 to $1,550, taxpayers will have slightly reduced liability in 2009 from 2008 if their current circumstances are similar, even with frozen tax rates.”

Late last month, Strickland proposed postponing the last year of a five-year tax cut after the Ohio Supreme Court ruled that plans to place slot machines at horse racing tracks were subject to a voter referendum — a move that effectively tied more than $850 million in school funds needed during the current biennium.

The governor subsequently abandoned the video lottery terminal plan for the short-term, shifting his support to freezing the income tax rate at 2008 levels. House Democrats introduced the tax freeze in legislation late last week, and the House finance committee began hearings on the bill Monday afternoon. A floor vote is expected Wednesday.

Under the rate freeze, a family of four with a household income of $60,000 paid $1,474 in taxes in 2008. Under Strickland’s plan, they’ll owe $1,467 for ’09, a savings of about $7 over the previous year. Under the planned tax cut, they would have owed $1,389, $85 less than ’08. The rates increase with income.

The legislation also includes a 5-percent pay cut for lawmakers, who earn a base salary of $60,584, with those in leadership and serving as committee heads making more.

During Monday’s finance-committee hearing, House Democrats and representatives of the Strickland administration reiterated their call for quick action on the legislation. They said the tax-rate freeze was the best of several options considered for filling an $851 billion budget hole. And they said they opposed efforts to increase other taxes (such as the state sales tax) or cut from school funding.

But House Republicans have been critical of the plan and assertions that a failure to adopt the tax-rate freeze would mean a cut to school funding.