The Ohio Senate finance committee has released an $85.7 billion biennial budget proposal, and the headline for taxpayers is a $1.5 billion income tax cut, to go with a universal school voucher plan.

The Senate budget will reduce the state’s current four income tax brackets to only two, reducing the top rate from 3.99% to 3.5%, and trimming down the lower two brackets to one 2.75% bracket.

This plan reduces the income tax for all Ohioans, and takes another big step toward a single flat income tax rate. The House considered HB 1, which would have created a single flat income tax rate of 2.75%. The Senate’s plan moves decisively toward this goal. This is the conservative, bold, income tax relief that should earn the support of both chambers.

The Senate’s budget also reduces the Commercial Activities Tax (CAT) by 25%. A welcome reduction in this inefficient and burdensome tax.

Ultimately, the biggest problem with the CAT is that it’s a gross receipts tax, imposed not on profits alone but all earnings for businesses that are eligible. A complicated exemption system spares many small businesses from the tax, but significant compliance burdens are still imposed on all businesses. Lowering the rate of the tax is a win, but ultimately broader reform is necessary to fix the burdens of the CAT.

The Senate budget offers the most expansive school choice program yet in Ohio. All Ohio families would be eligible for a voucher, with more funds available for lower income families and means testing for higher income families.

“Any Ohio K-12 student in a family making less than 450% of the federal poverty line – equal to $135,000 in annual income for a family of four – to be eligible for vouchers. Students from families making more than that would also be eligible for vouchers of at least 10% of the scholarship amount (equal to about $650), with the exact amount they receive being based on their families’ income,” reports the Cleveland Plain-Dealer.

This is a game changer: no children would be forced to stay in failing public schools, and every child in Ohio will have access to a voucher.

The Senate has delivered massive wins for Ohioans, which cannot be overstated. Still, there are some negatives.

The budget removes inflation indexing for the income tax brackets. With inflation at elevated levels, it is possible this leads to Ohioans paying a higher tax rate even if their buying power is being reduced. However, the legislature may intend to pass a flat tax in the future which would greatly moderate the impact of this change.

The Senate budget includes one tax increase, to double the tax on sports betting, from 10% to 20%, an idea initially proposed by Gov. DeWine. This tax hike would be a mistake. Ohio would go from having one of the most competitive tax rates on sports betting to the third highest in the U.S.

Outside of a few outliers, like Pennsylvania, Rhode Island, or New York, states are imposing modest to low tax rates on sports betting, and for good reason. Tax rates at or above 15% have been shown to reduce betting activity and revenue. High taxes on betting cause multiple issues. For one, bettors are incentivized to bet in the black market. There are plenty of black market options, and those funds not only are no longer taxed, they can go to illicit, criminal operations.

Consumers near the border with Indiana or Michigan, states with tax rates under 9%, will bet there. Kentucky may soon legalize sports betting. Even Illinois imposes a lower tax rate, 15%, than the Senate’s proposal. Ohio would fall behind the national and regional competition with a 20% tax rate.

The tax burden affects profitability for sports books. Like any business, costs get passed down. Unlike every business, sports book margins are very tight. Reduced revenue can quickly hurt the industry and economic growth.  

Further, Ohio’s sports betting industry has far exceeded expectations on tax revenues uunder the competitive 10% tax rate.

The sports betting industry has already paid nearly $45 million in taxes since legalization. Companies generated around $3 billion in revenue in just the first three months of legal betting, when the state’s analysis predicted a $3.35 billion market and $24 million in taxes in over a year. Tax revenues are already on pace to reach at or near the Senate budget’s revenue expectation for this misguided tax increase.

As conservatives would predict, low taxes and modest regulation deliver massive economic growth – and government gets the benefit of higher tax receipts. This win-win situation should not be meddled with.

Back to one of the many positives, the Senate budget also spends more than $2 billion less than the House’s budget. Tax dollars are better spent, and taxpayers would see more of their hard-earned dollars returned to them.

The Senate plan offers big wins for Ohio taxpayers and should serve as the model for an agreement on the final product. Finance Chair Matt Dolan, Senate President Matt Huffman, and the entire Republican caucus have done great work on behalf of Ohio taxpayers.