By Julie Carr Smyth
COLUMBUS: Gov. John Kasich rolled out an ambitious election-year policy document Tuesday that delivers a promised income tax cut through increases in tobacco and other taxes, and streamlines government offerings for job seekers and the poor.
The fate of the Republican governor’s plan is uncertain. The lawmakers he will ask to approve the measure face particularly competitive elections this year.
Testimony was set to begin on the bill today in the GOP-led Ohio House’s powerful Ways & Means Committee.
Kasich, who also faces re-election this fall, proposes reducing Ohio income taxes by 8.5 percent over the next three years, which would lower the top tax rate to 4.88 percent by 2016. The administration estimates that would mean a cumulative tax savings from 2011 to 2016 of about $350 for a median-income couple with two kids.
The bill also increases Ohio’s earned-income tax credit from 5 to 15 percent, and raises the personal income tax exemption allowed by low- and middle-income taxpayers.
The nearly $2.2 billion reduction would be made up for through increases in taxes on commercial activity, cigarettes and drilling.
Kasich said cutting income taxes and improving education and training are already proving beneficial.
“We’ve got to keep building on these ideas because they’re lifting our state, and with the continued partnership of the legislature we’ll keep that progress going for Ohioans,” he said in a statement.
Cuyahoga County Executive Ed FitzGerald, Kasich’s presumptive Democratic challenger in November, criticized the governor’s tax package as primarily benefiting the wealthy.
“As governor, I will focus on growing our economy from the middle out, rather than top down,” he said in a statement. “... Ohio’s seniors and most vulnerable should not have to pay for John Kasich’s giveaways to the very well off.”
The Kasich administration says Ohio’s 9-year-old commercial activity tax, conceived as an alternative to traditional business taxes on gross receipts and inventory, is due to be modernized. Its rate would rise from 0.26 percent to 0.30 percent, a 15 percent increase, under the plan.
Tax hike for smokers
Per-pack cigarette taxes would go from $1.25 to $1.85 under the bill, up 48 percent, and other tobacco products — including e-cigarettes — would see similar tax hikes. The bill couples those increases with $26.9 million in national tobacco settlement money for smoking cessation and prevention programs.
The legislation takes a second crack at raising the tax rate on Ohio’s big oil and gas drillers after an earlier Kasich effort fell flat at the Statehouse. Tuesday’s proposal imposes a severance tax on gross receipts from well operations of 2.75 percent, exempting smaller drillers and allowing large drillers to recoup costs of $8 million per well before taxes.
Kasich would earmark 20 percent of drilling-tax proceeds for local governments under the plan, with half the money flowing directly, a quarter set aside for competitive infrastructure grants, and a quarter directed to a “legacy fund” controlled by newly created shale gas regional commissions.
API Ohio, representing drillers, said asking energy developers to pay 10 times more than the commercial activity tax is “simply unworkable.”
“If this proposal becomes law, it has the real potential to place a chilling effect on the short- and long-term economic value of this shale play,” director Chris Zeigler said.
The influential Ohio Business Roundtable praised Kasich’s tax changes.
“Ohio as a state will be better with a modernized severance tax that recognizes the bounty of our natural resources, a consumption tax that discourages cigarette smoking, lower effective tax rates on business and reduced income taxes to enable our citizens to keep more of their hard-earned money,” President and CEO Richard Stoff said in a statement.
It’s the second time that Kasich has introduced something similar to a budget bill halfway through Ohio’s two-year budget cycle. The practice follows the pattern in Washington, where Kasich served as a congressman and House Budget chairman.
The legislation goes beyond tax changes with particular focus on education and workforce training initiatives, tying all state higher education funding to course completion and authorizing institutions to offer tuition guarantees.
For veterans, Kasich proposes setting up special offices on every public campus in the state to help them navigate college and a state initiative to expedite professional licensing and certifications paid for by the GI Bill.