Cleveland.com - John Kasich to Propose Eliminating Income Tax on Most Small Businesses, Boost Exemptions for Low-, Middle-Income Ohioans

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By Robert Higgs

The budget proposal Gov. John Kasich will unveil Monday will include reforms that would eliminate state income tax on nearly all small businesses in Ohio and increase exemption levels for lower- and middle-income Ohioans.

Kasich revealed his plan in an appearance Thursday before a conference of the Ohio Association of Community Action Agencies. He also used the event to highlight initiatives in his budget that will help to lift the poor out of poverty and make Ohio's welfare programs operate more effectively.

His tax plans, touted as "a comprehensive plan for helping all Ohioans share in our state's prosperity, call for:

Elimination of income tax from small businesses -- pass through entities such as sole proprietorships and S-corp. companies that report income on the owners' individual tax returns.

Increasing the personal exemption for Ohioans earning less than $40,000 a year from $2,200 to $4,000 in 2015.

Increasing the personal exemption for Ohioans earning $40,000 to $80,000 a year from $1,950 to $2,850.

The reform for small business is intended to bolster hiring possibilities. Small businesses provide employment for more than half of Ohio's workers.

The 100 percent income deduction would be available to all small businesses with annual gross receipts of $2 million or less. They still would be subject to Ohio's commercial activities tax, which corporations also pay.

For 2011, there were 970,570 tax filers with small businesses that had gross receipts of up to $2 million. The administration estimates that the tax elimination would cost Ohio about $696 million over the life of the two-year budget.

Ohio Tax Commissioner Joe Testa said about 98 percent of the businesses that report income as pass-through entities would qualify for the tax reduction.

"Small business is the element of job growth. ... It gives us the greatest promise for people to get to work," Kasich said.

"There's the butcher, there's the baker and there's the candlestick maker. There's the florist and the barber. Why do they matter?" Kasich said. "They matter because they are part of the glue that holds our communities together."

The business tax relief will send a message, too, Kasich said.

"If you want to start a small business, do it in Ohio."

Boosting the personal exemptions rewards work, Kasich said.

"You want to give incentives to people who go to work and you want them to have incentives to work even harder," Kasich said. "So by doubling the personal exemption and combining it with the earned income tax credit, Ohio is beginning to give the people at the bottom the kind of relief they need and the incentives to work more."

For 2012, about 3.05 million Ohioans filed returns with up to $80,000 of tax liability, according to the administration.

Kasich did not take questions afterward. Testa, when asked how the tax packages would be paid for, said more details would be rolled out with the budget unveiling Monday.

The administration did say that the overall tax reform package in the budget will be a net cut of $500 million over the two years.

It's no secret, though, that Kasich continues to favor increasing the severance tax on oil and gas resources extracted from the ground. He also has favored boosting the per-pack tax on cigarettes.

Two years ago he proposed changes to Ohio's sales tax that would have broadened the base to include services. Legislators didn't go along with that plan, but increased the tax by a quarter of one-cent on goods purchases.

Ohio House Speaker Cliff Rosenberger and Senate President Keith Faber, both Republicans, said they were interested in the tax proposals, but wanted to see the details. They also said they would want the overall impact of all tax changes to be a net tax reduction.

That was the case in Kasich's previous budget proposals.

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