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ohiostatehouse.jpgMore tax changes are likely coming to the Buckeye State. Lawmakers are considering a tax package from Gov. John Kasich and an alternative offered by leaders in the House; Senate leaders have indicated that they will draw up their own separate tax plan that will likely include elements from the governor’s proposal and the House proposal.

Kasich’s plan would cut income taxes for the third time in his administration – essentially, another giveaway to the wealthiest Ohioans. His proposal would cut income tax rates by 23 percent across the board, exempt business income for business owners with $2 million or less in annual receipts, and increase the allowed personal exemption for individuals making less than $80,000. To partially pay for these cuts, Gov. Kasich wants to means-test three deductions and credits for seniors – a progressive aspect of his plan that is unfortunately offset by the regressive nature of his rate cuts and business income exemption. A report by Policy Matters Ohio, using ITEP data, found that the governor’s plan would give the top one percent of Ohio taxpayers an average break of $13,000, while the bottom 60 percent of taxpayers would get just 15 percent of the income tax cuts.

But, more significantly, Gov. Kasich’s plan would also increase sales taxes, commercial activity taxes and cigarette taxes, as well as implement a new severance tax on oil and gas, to pay for his income tax cuts. The sales tax rate would increase from 5.75 to 6.25 percent and new services would be added to the base. The excise tax on cigarettes would increase by $1 per pack. These changes would wipe out the modest income tax cuts for the bottom 60 percent of taxpayers and leave them with higher tax bills than before.

As bad as the governor’s plan is, the alternative offered by the House isn’t much better. Policy Matters Ohio says the proposal “is tilted in favor of the wealthiest Ohioans and would increase income inequality in Ohio”. While the House budget would implement smaller income tax cuts than Kasich’s proposal – just a 6.3 percent across-the-board cut, rather than 23 percent – more than half of their cuts would go the top 5 percent of Ohio taxpayers. The bottom fifth of taxpayers would receive an average tax cut of just $2. The House plan would means-test the deduction available for Social Security income and other senior credits – a progressive feature that is, again, outweighed by regressive cuts. In total, the House plan would also expand the business income deduction currently available, another concession to wealthy Ohioans. The House’s plan would reduce tax revenue by $1.2 billion, $700 million more than the governor’s plan.

The Senate has not yet released a plan, but Senate President Keith Faber says tax cuts are definitely planned. An editorial in The Columbus Dispatch suggests that senators follow the governor’s lead and support income tax cuts with a shift to consumption taxes. But the reality is that consumption taxes are regressive and a shakier foundation on which to base state budgets.

Instead, Ohio policymakers should avoid income tax cuts – which will benefit those already doing well – and focus on funding key investments that support working families, the middle class, and businesses alike, such as public education and infrastructure.