As state lawmakers wrestle with a $1-billion budget hole, Senate Democrats are pushing a plan to ditch a tax cut that allows small businesses to avoid taxes on the first $250,000 in earnings.
The Legislative Service Commission, a non-partisan agency that writes and analyzes legislative proposals, said suspending the tax break would boost Ohio’s budget coffers by $1.1 billion a year.
In 2013 and 2015, lawmakers and Gov. John Kasich adopted a tax break for small businesses that are organized as partnerships, sole proprietors or limited liability corporations. The first $250,000 in business earnings are tax free and earnings above that are taxed at 3 percent.
The Ohio Secretary of State’s office reports a big uptick in new business filings recorded – 24.6 percent in May 2017 over May 2016. Critics say individuals are forming partnerships or LLCs to take advantage of the tax break, the state is losing money needed for essential services and the promise of job creation hasn’t come true.
Ending the small business tax break would help balance the state budget, Senate Democrats said.
“We’re not raising taxes on small businesses. We are creating a fairness,” said Senate Minority Leader Kenny Yuko, D-Richmond Heights.
So far this year, personal income tax revenues are 8.6 percent lower than anticipated and sales tax revenues are missing projections by 2.5 percent, according to the state Office of Budget and Management.
Republican legislative leaders, though, aren’t willing to suspend or eliminate the tax break.
“I don’t think that we need to raise taxes and I’m not at all convinced that we need to spend more money,” said Senate President Larry Obhof, R-Medina. “I think that Ohio, by and large as I’ve said before, doesn’t have revenue problem, we have an expenditure problem. The state budget has grown significantly in the years that I’ve been here. We ought to be able to live within our means.”
The 4,600-page state budget bill lays out how the state will spend more than $130 billion over two years in both state and federal funds. The Senate made dozens of changes to the House-passed version of the bill, including chopping out a $1-million a year earmark to help Wright-Patterson Air Force Base prepare for a possible federal Base Realignment and Closure Commission. That earmark was made after Wright-Patt missed out on other state grants.
The Senate also cut funding and changed the marching orders for the Federal Research Network, which is run by Ohio State University. The Senate set funding at $1.75 million a year while the House wanted it at $3.5 million a year. The network is designed to tie together Ohio’s public and private universities and federal installations, including Wright-Patterson AFB and NASA Glenn Research Center.
Lawmakers will work in the 4,600-page state budget bill over the next two weeks and adopt a final version by June 30. It lays out how the state will spend more than $130 billion over two years in both state and federal funds.