Budget Focus Continues On Right Path

Yesterday, the Ohio Senate released its changes to the biennial budget plan currently moving through the legislative process.  And while there’s some details of lesser note, making Ohio more business friendly continues to be a main focus.

Senate President Keith Faber said favoring a tax cut for small-business owners over a cut for all Ohioans is a means to job creation.

“While we all support a 7 percent across-the-board income tax cut, we just did a 4.5 percent across-the-board income tax cut,” said Faber, a Celina Republican. “While I’m sure it helped at the margins, the reality is we want to do something that’s targeted to those 95 percent who are creators of the jobs.

“We believe the small-business tax cut will directly grow jobs in the immediate future.”

Though a personal income tax cut sounds all good & great, the small-business tax cut will have a greater impact on driving our state’s economy and helping all Ohioans.  The 7% income tax reduction from the Ohio House was a good step, but it barely returned enough to my middle class family to order an extra pizza once a month.  Regardless, both proposals have merit, and are aimed at putting Ohio on the right path.

Ultimately, I believe some version of Governor Kasich’s original proposal is the next big step for Ohio’s tax system, though it most likely won’t be achieved this year.  A substantial reduction, if not elimination, of the state income tax is necessary to keep Ohio competitive with other states, both for individuals and businesses that pay at the personal level. 

And while there has been a lot of criticism—some justly—the idea of broadening the sales tax base is one Ohio must consider.  Decades ago, Ohio had a goods-based economy; now, we’re more service-based.  If a tax must exist, it has to be able to go after the dollars where the activity exists.  And a consumption tax is the fairest tax—if you use it, you should be taxed, just like everyone else.

That said, Kasich’s original sales tax proposal bit off more than it could chew and would have been a nightmare to implement.  Changing a huge portion of the tax code in only a couple of months?  Commissioner Testa is good, but that’s asking a lot.

At the end of the day, this budget won’t be anything remarkable in terms of tax reform, but it will be a stepping stone in the right direction.  Both the House and the Senate deserve credit for keeping the focus where it needs to be.

Author: Jake3BP

Formerly GOHP Blog, now Jake3BP. Working to present a unique, conservative perspective on politics in the state and throughout the nation. Just a regular working Joe, bringing you in depth and engaging discussion on the issues affecting our state and nation.

9 thoughts on “Budget Focus Continues On Right Path”

  1. The Kasich Administration says 20% of the tax cut will go to people outside of Ohio. 80% of business owners will get less than $400 a year. Unless you own a pass through entity your family won’t even get that extra pizza a month.

  2. Jake (or others), how does the Senate’s version of the tax cut specifically target small business? Since many small businesses are S corps, and their incomes flow through to individual tax returns, it would seem that an overall tax cut would hit many small businesses along with everyone else. So how do they specifically target small businesses including those that are flow-through entities AND those that are not?

  3. You missed the part about business owners being able to reinvest that money into hiring more people. I don’t care about my extra pizza, but I do care about job creation.

    1. They can’t if their owners have to take it as profit to qualify for the tax cut… which they do. And not all business owners have a say on whether a company hires, either. So, no, this tax cut won’t create jobs especially since 80% of the business owners getting it will only get $400 a year and just as many already have no employees beyond the owners already.

  4. Bryan, the only companies in Ohio (to my knowledge) that don’t or can’t file their taxes at the individual income tax level are C corps, which are not subject to the state income tax anyway. In other words, this 50% tax cut for pass-through entities has far more effect in moving the needle for small business job creation than an across the board 7% cut.

    1. Um, neither are S corps or partnerships subject to income tax, they’re subject to Commercial Activities Tax. And 20% of this income tax cut goes to peope out of Ohio, according to the Kasich Administration

  5. Jake – thanks for the reply – I still don’t get it. I am not familiar with the details of what the Senate proposed. How does the 50% tax cut for pass-through entities work? Is it a tax credit for corporate earnings? Does it apply to any specific groups like manufacturing? If a pass through business is taxed at the personal level, then how do you cut the taxes for that entity without cutting all personal rates, or at least all personal rates at a given income level?

  6. Bryan, my understanding is it’s a tax deduction, allowing pass-through entities to cut their taxable income by 50%, effectively cutting their tax liability in half. It applies to all industries.

    1. It doesn’t cut the entities’ tax, but their owner’s personal income tax on the income they get from their equity share (for S Corps it would be dividends, for LLCs, draws). That’s why it is highly unlikely to generate job creation as these dividends and draws are made AFTER the company has made any decision to expand payroll. Heck, there is nothing in the tax cut that prevents them from getting these cuts if they CUT employment if that increases the size of tax cuts the owners can take. There is nothing about this tax cut that is directed to job creation. It’s just political spin to justify exempting 50% of business owners’ of the first $750,000 of income of business owners.

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