“At the end of the day, particularly the Republicans, when they look at this budget, they’re going to see that, at this moment in time, this is the most conservative budget that can exist during this budget process,” Senate Finance Committee Chair Matt Dolan, R-Chagrin Falls, told reporters at a news conference.
Sen. Vernon Sykes, D-Akron, the ranking Democrat on the Senate Finance Committee, said his party was not fully aware of the details within the proposal as it had been revealed to them only an hour before it was made public, but he did call provisions “troubling” or something they “don’t feel good about.”
The office of Gov. Mike DeWine, who initially outlined his preferred budget back in February, said it is ”reviewing the proposals and will continue to engage in the legislative process as the budget moves through its Senate and Conference Committee processes.”
The bill, formally known as House Bill 33, is expected to be deliberated by both chambers in a conference committee later this month.
Tax reform
The Senate’s proposal includes a new income tax policy that would change Ohio’s current five-bracket income tax system to a three-bracket system and grant tax relief to the state’s highest earners, in particular. Under the proposal:
- Earners under $26,050 would remain exempted from income tax.
- Earners between $26,051 and $92,150 will be taxed at 2.75%
- Earners above $92,151 would be taxed at 3.5%
Lawmakers say the new cuts will bring more workers and businesses to the state.
The House’s version of the budget maintained the highest tax bracket at 3.99% and the lowest at 0%, but merged the three middle brackets at an income tax rate of 2.75%.
The Senate’s income tax cuts were paired with a proposal to alleviate tax burdens on businesses by reducing the Commercial Activity Tax (CAT) by 25%, phased in over two years.
Senate Finance Committee member George Lang, R-West Chester, characterized the Senate’s tax policy as a step in the right direction on income tax, but it wasn’t exactly what he wanted.
“In general, I’m very pleased with the direction we’re going; I’m not pleased with the pace that we’re going at. I would like to see bigger deductions right now but, you know, we’ll take baby steps as we continue to lower taxes,” Lang said. “My goal is to ultimately eliminate the income tax in Ohio.”
Lang said he would have liked the Senate Finance Committee to eliminate the highest income tax bracket — effectively creating a 2.75% flat tax rate on all earners above $26,500.
Lang said he approached the budget with his sights set on “making Ohio more business friendly.” Lang characterized lower taxes and fewer regulations as possible recourse to stagnating population growth by drawing more businesses and entrepreneurs to the state.
“I want the wealthy in California, the wealthy in New York, the wealthy in New jersey — those that are creating businesses that are saying, ‘Hey, we can no longer afford to stay in these high tax states’ — those are the ones I want to come back because those are the ones who are creating the jobs,” Lang said.
Senate leadership said they were confident the state could afford to cut those taxes. Lang asserted that a lower tax rate would bring more revenue to the state by facilitating a broader tax base.
Extended tax holiday
The Senate proposes an extended sales tax holiday that coincides with the back-to-school tax holiday the state facilitates every August. Their budget outlines a period of at least two weeks this August where all state and local taxes will be taken off local goods and earmarks $1 billion in excess general revenue funds to reimburse municipalities for the total local sales tax lost during the holiday.
Gas, cigarettes and alcohol will still be taxed during the holiday. Dolan said items above $500 will also still be taxed, though that is not fully determined.
The tax holiday would only occur in years where there is more than $50 million in excess state general fund revenue.
School vouchers
The Senate proposal makes the state’s EdChoice Expansion Scholarship, often referred to as school vouchers, available to all K-12 students in Ohio.
Under the proposal, any student with family income below 450% of the federal poverty level (about 75% of Ohio students) are eligible for a full scholarship and students in more affluent families will be eligible for partial or entire scholarships based on means-based testing. The minimum scholarship is capped at 10%.
For a family of four, 450% of the poverty line is $135,000.
The universal voucher program would allow more students to use state funds to attend private schools — a policy at the center of contentious debate at the statehouse for years centered on school funding concerns and student equity.
August election
The proposal also provides $15 million to run the forthcoming August election to decide Issue 1 — a contentious amendment proposed by the General Assembly to make it harder to amend the state constitution. The single-issue special election was called by the legislature months after limiting August elections on the grounds of their expense, low voter turnout and redundancy so that Ohioans can vote on Issue 1 before an abortion-rights amendment hits the ballot this November.
The provision provides a source of funding for the election and clarity for local boards of elections who did not know how the election would be funded.
$1 billion investment fund
Ohio senators proposed removed earmarks for $1 billion in one-time spending from the state operating budget and placing the money into a new fund for community projects to be doled out next spring.
Creation of the One-Time Strategic Community Investment Fund would nix many earmarks for infrastructure and other projects contained in the House’s version of the $88 billion, two-year spending blueprint.
The fund would be created from leftover federal revenue and taxpayer money from fiscal year 2023, which the Ohio House and DeWine have proposed spending in different ways. The Senate concept is to help lawmakers make thoughtful, one-time funding decisions for priority transportation or capital projects and keep the budget document focused on policy decisions, according to the Associated Press.
The Associated Press contributed to this report. The story was updated to correct the new income tax brackets.
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