Little support for tax hikes

COLUMBUS

Gov. John Kasich spent a significant portion of his State of the State address trying to persuade Republican lawmakers to support the tax reform package included in his biennial budget proposal.

While the leaders of the Ohio House and Senate aren’t publicly putting the kibosh on those plans yet — ask them, and you’ll hear a lot of talk about conversations and vetting and stakeholders and the months-long budget deliberations in the two chambers — it’s a safe bet that lawmakers aren’t going to back the tax hikes included in Kasich’s two-year spending plan.

Kasich wants to cut taxes on most small businesses, cut overall income tax rates by 23 percent and increase personal exemptions for Ohioans earning less than $80,000 a year.

He would pay for the tax cuts, in part, by increasing taxes on cigarettes and other tobacco products, oil and gas produced via horizontal hydraulic fracturing, commercial activity taxes on larger businesses and the state sales tax.

The net result would be a tax cut of more than $500 million.

Tax increases

But lawmakers balked at comparable tax increases offered by Kasich in past budgets and mid-biennium reviews. I can’t imagine that they’re going to change their minds this time around.

That’s not to say that they don’t support Kasich’s overall philosophy on taxes. Statehouse Republicans back the notion that Ohio’s tax rates are too high and are stifling economic growth.

While overly quiet at other times during Kasich’s State of the State, lawmakers offered ample applause whenever the governor talked about the need to cut taxes.

“High taxes, especially the income tax, punish a small business owner’s willingness to take the risk to hire more people, to invest in improvements and work harder to be successful,” Kasich said. “Lower taxes incentivize all of those things. ... It’s also why I want to eliminate income taxes for virtually every small business in our state, to help fuel and accelerate growth.”

He continued later, “A certain level of taxes, of course, is inevitable, to pave the roads, run the schools and care for the needy. The government’s got to make that money go as far as it can. And those taxes must be generated in the least harmful way. This means we must reduce Ohio’s traditional over-reliance on income taxes and lean more on consumption taxes. Now, let me finish this. I think we should lean less on income taxes, which punish investment and the growth and seek to lean more on consumption taxes.”

That’s the debate that’s unfolding in the Ohio House and Senate, as lawmakers grapple with a shift from income taxes to consumption taxes.

Republican lawmakers aren’t completely unwilling to adopt the latter — look at the last biennial budget, when they OK’d a sales-tax increase.

But they’re not on board with the governor’s plan to increase taxes on oil and gas produced via fracking. The Legislature has balked at larger severance tax increases proposed in recent years, and there’s no sign members are going to change that position.

Expect lots of pressure from business groups on proposed increases to commercial activity taxes on larger businesses, a new sales tax increase and a tax hike on cigarettes and related products.

What you’re left with is a Republican-controlled Legislature that wants to cut income taxes but isn’t too keen on raising other rates to make that happen.

Come June, what that probably means is a budget with a big tax cut for small businesses and some sort of additional reduction for other taxpayers, paid for via spending cuts or by directing other revenues to that purpose, with few tax hikes as part of the deal.

Marc Kovac is The Vindicator’s Statehouse correspondent. Email him at mkovac@dixcom.com or on Twitter at OhioCapitalBlog