The Ohio House and Senate passed differing budget legislation, with a conference committee now hashing out the differences before a recently extended budget deadline of July 7. The stakes for Ohio taxpayers are very high.
The Senate budget includes across-the-board income tax reform that would save taxpayers more than $1.65 billion. The plan drops four existing tax brackets down to two, taking a big step toward a single flat income tax rate. The top rate would lower to 3.5% (down from 3.99%), and the bottom bracket would be set at 2.75%.
The House Republicans priority bill, House Bill 1, would have taken the state to a flat 2.75% rate this budget cycle.
These plans show plenty of agreement between Republicans in both chambers. However, the House-passed budget did not include the flat tax plan, and the more modest income tax cuts they approved were only a fraction of the Senate’s tax reforms.
Ohio taxpayers should be encouraging legislators to keep the Senate’s significant income tax cuts.
The Senate also included reductions to the Commercial Activities Tax (CAT), which would significantly reduce the cost of this burdensome tax for Ohio businesses, helping them grow and create jobs.
The CAT is a gross receipts tax, not a tax on profits, making it especially burdensome and destructive to economic growth. Compliance is also costly and adds to the tax’s burden. The provision to significantly reduce the CAT is a vote of confidence in Ohio businesses that they can grow and compete with anyone, as long as government does not handicap them with high taxes. It will help improve Ohio’s overall business tax climate that ranks in the bottom half of states currently.
School choice has also been a priority of both chambers, with the Senate leading the way with their universal voucher plan to expand school choice to all children in Ohio, with lower income families eligible for greater funds.
The Senate budget also includes a provision to protect consumers from city bans on vaping products.
By preventing local governments from implementing stricter regulations on reduced-risk alternatives to smoking, the state can protect individual liberty and avoid an anti-market patchwork of local ordinances that would make Ohio a harder place to do business, and dampen critical state tax revenue.
These many positives are huge wins for Ohio taxpayers, families, and businesses. Republican lawmakers should fight to keep them in the budget and build the plan around these priorities.
There are risks as well, as the Senate budget includes two unnecessary and damaging tax proposals that the House did not.
One provision would grant Cincinnati the power to tax ridesharing, on top of existing sales tax. Ostensibly this is to fund a convention center, but it is directed to “economic development”, which can mean almost anything. And there is no end date or limit to the taxing power.
That means everyone who uses ride-hailing apps in Cincinnati will pay more, likely forever, and very likely at higher rates in the future.
Cincinnati is running a deficit, and this tax is also a bailout of sorts, alleviating pressure on the city to spend more wisely.
Additionally, state legislature’s efforts to curb radical city policies, including blocking ridesharing taxes, will be undermined with this exemption. Other cities will put the pressure on in the future for additional tax authority, or to ban various products or energy sources.
The other tax risk is the proposal to double the tax on sports betting from 10% to 20%, that would take Ohio from having one of the lowest tax rates to the third highest in the U.S. – higher even than Illinois.
Ohio lawmakers hit a homerun with the passage of legalized sports betting due to a low tax rate and modest regulatory structure that has allowed the industry to thrive. Thanks to the legislature’s conservative legalization bill, sports betting in Ohio is already on pace to deliver the revenue that the Senate budget predicts under the proposed tax increase.
Spending levels are another big factor for taxpayers. The Governor’s budget proposal and House budget would spend more money overall than the Senate.
The Senate’s spending plan is $2 billion slimmer, keeps government from growing too fast, and enables more tax relief. Ohio is running a budget surplus, more money is being taxed away than the state needs and those dollars should be returned to the taxpayers who earned it, not spent on making government more costly.
As negotiations continue, House and Senate Republicans have created great opportunities for conservative reforms that will make Ohio more competitive and more attractive to families and businesses. Avoiding the pitfalls and capitalizing on those opportunities will be key in turning out a winning budget in the coming weeks.