Governor's budget proposal includes income tax cut

John Kasich couldn"t have been more emphatic about his hopes for the state income tax when he launched his campaign.

"We'll march over time to destroy that income tax that has sucked the vitality out of this state," Kasich said during his kick-off event in June 2009 from his hometown of Westerville.

He played up the issue again during a campaign webcast on Aug. 26, 2009.

"Phase out the income tax," he said. "It's punishing on individuals. It's punishing on small business. To phase that out, it cannot be done in a day, but it's absolutely essential that we improve the tax environment in this state so that we no longer are an obstacle for people to locate here and that we can create a reason for people to stay here."

But after taking office, Kasich had other issues on his hands; among them: preparing a state budget proposal that would close a multi-billion-dollar revenue gap.

He did succeed on keeping a related tax promise -- to no longer delay the final year of a five-year, 21 percent income tax reduction that was promised to Ohioans as part of a 2005 tax overhaul. In 2009, Democratic Gov. Ted Strickland – with the backing of the legislature – put that final phase of the tax cut on hold to close another budget hole.

But until recently, with Ohio"s economy struggling to recover from the Great Recession, the governor hadn"t said much about his promise to eliminate the state's income tax – which generates about 40 percent of the state's revenue.
In light of that, PolitiFact Ohio rated his progress on fulfilling his campaign promise as Stalled on the Kasich-O-Meter.

His new budget plan, however, is a move toward fulfilling that promise.

The tax proposal in the governor"s budget plan calls for three successive reductions in the state"s income tax rates. In each of the first two years, the cut would be 7.5 percent. In the third year, there would be a 5 percent reduction in rates.

Taxpayers would save $2.1 billion over the three years, the administration estimates. The change would lower the top marginal rate from 9.925 percent to 4.74 percent.

Kasich"s budget also proposes a 50 percent income tax cut on the first $750,000 of income earned by small businesses. Ohio doesn"t have a corporate income tax. This proposal would benefit business owners whose business income shows up as part of their personal income tax returns.

The administration says that 98 percent of all small businesses in Ohio will qualify for the deduction for all their annual income. It estimates that will result in savings of $1.9 billion to those businesses over three years.

That savings, it says, will yield new capital that can be poured back into the economy in the form of investments into business expansion and the creation of new jobs.

The tax proposals have a long way to go before they can become reality. The Finance Committee in the Ohio House opened hearings on the tax plan on Tuesday. The General Assembly likely won"t approve the state"s two-year budget until sometime at the back end of June 2013.

But the proposals are enough for us to adjust the Kasich-O-Meter. On his promise to phase out Ohio"s personal income tax, we can set the meter at In The Works.