COLUMBUS, Ohio (AP) – Ohio 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. Lawmakers he will ask to approve the measure face particularly competitive elections this year.
Testimony was set to begin on the bill Wednesday 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.
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.
The bill would devote $10 million in casino licensing fees to a student mentorship program called Community Connectors, begin technical and vocational offerings as early as seventh grade, and set up programs to reduce Ohio’s 24,000-student-a-year dropout rate. Kasich also proposes a dropout recovery program for adults piloted through community colleges and career centers.
Those efforts would dovetail with an effort to streamline Ohio’s disjointed coordination of three federal workforce programs, better coordinating the programs and reducing duplication.
The bill also sets up a Human Services Innovation Office within the Ohio Department of Job and Family Services aimed at simplifying government interactions for the poor.
Here is a look at the key proposals in Ohio Gov. John Kasich’s midterm budget bill as provided by his office:
- Cut Ohio income taxes by 8.5 percent to bring the top rate to 4.66 percent by 2016.
- Increases earned income tax credit from 5 percent to 15 percent.
- Raises personal tax exemption from $1,700 to $2,700 for those earning less than $40,000 and from $1,700 to $2,200 for those earning between $40,000 and $80,000.
- Raise Commercial Activity Tax rate from 0.26 percent to 0.30 percent.
- Increase cigarette taxes from $1.25 to $1.85 a pack, with similar increases on other tobacco products and e-cigarettes.
- Raise the severance tax rate on high-volume drillers to 2.75 percent of gross receipts, exempting $8 million per well in start-up costs.
- Earmark 20 percent of drilling-tax collections to local communities, through a combination of direct payments, competitive transportation grants and a legacy fund controlled by newly created regional commissions appointed by the governor.
- Extend vocational options to 7th and 8th graders.
- Establish dropout recovery programs for adults ages 22 and older at eligible community colleges and career centers.
- Provide $10 million in casino licensing fees for Community Connectors mentorship program.
- Tie two-year colleges’ state funding to completion rather than enrollment.
- Base 50 percent of state funding to technical centers on the percentage of students who find jobs.
- Allow two-year colleges to offer students a guaranteed tuition rate.
- Create a globalization liaison at the Board of Regents to attract and retain international students.
- Fast-track state licensing and certification for veterans and their spouses.
- Grant free college credit to veterans for military training and experience.
- Allow veterans priority course registration and high-quality academic and career counseling.
- Establish state Human Services Innovation Office within Ohio Department of Job and Family Services.
- Allocate $26.9 million from the national tobacco settlement to for tobacco prevention and cessation efforts.
- Direct $6.5 million to new substance abuse prevention initiatives.
- Streamline three federal workforce training programs to avoid overlap and ease use.
For more information on Kasich’s plan, click here.
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