Kasich cut income taxes in Ohio but raised sales taxes

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December 21, 2015

As a presidential candidate, Ohio Governor John Kasich has proposed to cut individual and corporate income taxes. Kasich also championed income tax cuts in Ohio, and succeeded in enacting some of those proposals. And while these changes have clearly reduced Ohio’s taxes, he did pay for (part of) those tax cuts by hiking other taxes, sometimes incurring opposition from within his own party.

In his first term, Kasich (who took office in 2011) proposed and the legislature approved a budget that reduced all Ohio income tax rates by 10 percent. He also created (and later expanded) Ohio’s earned income tax credit, increased the personal exemption, and eliminated Ohio’s estate tax. To pay for some of those cuts, the governor and legislature also agreed to increase sales taxes, raising the rate from 5.5 percent to 5.75 percent, and increase the cigarette tax from $1.25 per pack to $1.60.

This year, Kasich and the legislature cut income tax rates again, bringing all rates down a cumulative 15.7 percent during his term. The top rate (on taxable income above $208,500), for example, went from 5.925 percent to 4.997 percent.

Kasich originally proposed larger consumption tax increases than those enacted in this year’s budget, including increasing the sales tax from to 6.25 percent, raising the gross receipts tax rate from 0.26 percent to 0.32 percent, and increasing the cigarette tax by $1 per pack.
 

Ohio’s Tax Changes (and Kasich’s Proposed Changes)

 

2011

2015

Kasich Proposal

Top Income Tax Rate*

5.925%

4.997%

4.1%

Sales Tax Rate

5.5%

5.75%

6.25%

Cigarette Tax Rate

$1.25/per pack

$1.65/per pack

$2.25/per pack

Gross Receipts Tax Rate

0.26%

0.26%

0.32%

*The individual income tax changes (and Kasich’s proposed changes) lowered all eight of Ohio’s tax rates by the same percentage.

 

He planned to use the additional revenue to pay for even bigger across-the-board income tax cuts—for example, taking the top rate down to 4.1 percent. But the legislature balked at the tax swap and instead enacted the more modest income tax cuts and a smaller cigarette tax hike.

Kasich also signed into law a controversial tax change this year—a 100-percent deduction on the first $250,000 in business income taxed as personal income (often referred to as “pass-through” income). This essentially eliminates taxes for smaller businesses, which he said would “free up nearly $950 million in new capital over two years for Ohio’s hometown businesses.” Critics warned the deduction would allow some wage earners to avoid tax by recharacterizing their current earnings as business income—as happened in Kansas when that state created a similar exemption

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