Terra Goodnight · February 12, 2013

State budget includes massive shift from income to sales taxes

The two-year state budget announced last week includes a proposed to massively shift the cost of paying for government away from the income tax – the state’s most progressive tax, based on one’s ability to pay – toward more reliance on the sales tax. Here are the specific components of the plan: Sales tax: net tax increase of $2.9 billion

• Expand the sales tax to cover all “non-essential” services individuals and businesses purchase: raises $4.4 billion
• Lower the sales tax rate from 5.5 to 5 percent: costs $1.5 billion

Income tax changes: net tax decrease of $4.3 billion

• Lower income tax rates in all brackets by 20 percent over 3 years: costs $3.1 billion
• Allow businesses to deduct half their income from the newly-reduced rates: costs $1.2 billion

Oil and gas severance tax: net tax increase of $200 million

• For horizontal wells, increases the tax on oil extracted from $.20/barrel to 4%; converts tax on natural gas from $.03/MCF to 3%; waives all taxation for first year of operation: raises $200 million

Paired with natural growth in state tax collections from the ongoing economic recovery, the changes in law are expected to result in a reduction of $900 million over the next two years to the state’s bottom line. The choice to reduce tax revenue is occurring in the context of $1.8 billion in cuts to schools and $1 billion in cuts to communities during the last two-year period that have yet to be restored.

Today, the Ohio House of Representatives will have its first opportunity to review the plan in detail, hearing testimony from Kasich Tax Commissioner, Joe Testa. A live stream will be available on the Finance Committee’s website. Follow us on Twitter for our live commentary on today’s hearing and continued budget analysis.