· May 29, 2013

Senate budget changes include misguided business tax cut proposal

After weeks of deliberation, the Senate Finance Committee accepted the newest version of the state budget, on Monday. Highlights included:

• Senate Republicans decided to swap the 7 percent income tax cut that House Republicans had inserted for Gov. Kasich’s original small business tax exclusions;
• Gov. Kasich’s Medicaid expansion was not included but Republican leaders said standalone legislation could be introduced soon;
• Republicans punted on changes to the school funding formula and plan to introduced their recommendations as an amendment to the bill next week;
• The Senate dumped the contentious provision requiring universities to charge in-state tuition to out-of-state students who receive documents for proof of residency when registering to vote;
• And, Republican leaders kept in language that effectively denies funding to Planned Parenthood here in Ohio.

The most noteworthy change is the decision to bring back Gov. Kasich’s small business tax cut. Originally touted as a job creation effort, the provision creates a new 50 percent income tax deduction on up to $750,000 of income for individuals who receive business income and who are a sole proprietor or a pass-through entity. Many of these individuals are lawyers, hedge-fund managers, or “passive investors” who have no say in the hiring decisions of the companies they invest in.

The main problem with the business tax cut is that it fails to target actual job creators and is, basically, another give away to wealth Ohioans. A recent report by Policy Matters found that more than half of the eligible businesses are sole proprietors and, nationally, 85 percent of sole proprietors have zero employees. The report also found that only 11 percent of all taxpayers in America that receive business income – 2.7 percent of all filers – own a small business with any employees other than the owner.

In addition, it is estimated that 80 percent of eligible businesses would receive less than $400 a year – an amount nowhere near large enough to encourage hiring. In total, less than 2 percent of all businesses would receive enough to hire even one minimum wage employee.

Budgets are about setting priorities and yesterday Senate Republicans decided to prioritize another misguided tax giveaway over, say, properly funding local governments in Ohio.  Local governments will receive $1.4 billion less under this budget than they did in fiscal years 2010-11 – an amount roughly equal to this tax cut. Instead of helping local governments hire police officers and fire fighters, or providing needed services, Senate Republicans lawmakers once again decided to award the wealthy instead of prioritizing the middle class.