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June 20th, 2013 By German Lopez | News | Posted In: News, Budget, Taxes

Final State Budget to Cut Income Taxes, Raise Sales Tax

Tax plan also creates earned income tax credit, changes property taxes

ohio statehouseOhio Statehouse

Republican state legislators today rolled out a major tax overhaul that would cut Ohio income taxes, but the plan would also increase and expand sales and property taxes.

Legislators plan to add the tax changes to the $61.7 billion two-year budget. The final plan is being touted as a merger of the original proposals from the Ohio House and Senate, but none of the proposed tax hikes in the revised plan were included in the original tax proposals from either chamber.

Relative to rates today, the new plan would cut state income taxes across the board by 8.5 percent in the first year of the budget’s implementation, 9 percent in the second year and 10 percent in the third year. That’s a bump up from the House plan, which only included a 7-percent across-the-board income tax cut.

The Senate’s 50-percent tax deduction for business owners would be reduced to apply to up to $250,000 of annual net income, down from $750,000 in the original plan.

Under the revised plan, a business owner making a net income of $250,000 a year would be able to exempt $125,000 from taxes.

The plan would also create an earned income tax credit that would give a tax refund to low- and moderate-income working Ohioans.

To balance the cuts, the plan would hike the sales tax from 5.5 percent to 5.75 percent. Some sales tax exemptions would be eliminated, including exemptions for digital goods such as e-books and iTunes downloads.

The plan would also make two major changes to property taxes: First, the state would not pay a 12.5-percent property tax rollback on new property tax levies, which means future levies for schools, museums and other services would be 12.5 percent more expensive for local homeowners.

Second, the homestead tax exemption, which allows disabled, senior and widowed Ohioans to shield up to $25,000 of property value from taxes, would be graduated over time to be based on need. In other words, lower-income seniors would still qualify for the exemption, while higher-income seniors wouldn’t. Current exemptions would remain untouched, according to House Finance and Appropriations Committee Chairman Ron Amstutz.

The final tax plan is a lot closer to Gov. John Kasich’s original budget proposal, which left-leaning Policy Matters Ohio criticized for disproportionately favoring the wealthy (“Smoke and Mirrors,” issue of Feb. 20).

The budget must now be approved by the conference committee, House, Senate and Gov. John Kasich in time for a June 30 deadline.

 
 
 
 
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