With a June 30 deadline looming, the Ohio Senate is working on its own version of a two-year state budget and could release it as soon as Tuesday.
The House's version of the budget, which passed with overwhelming support last month, would eliminate the income tax for workers earning less than $22,250 and reduce all other income-tax brackets by 6.6 percent. However, some small business owners might see an increase in their state income taxes.
Those who are self-employed or small business owners making more than $100,000 could see a drastic hike in their state income taxes under the House plan.
According to state tax data, 86 percent of current filers would still pay no income tax under the House plan to roll back the deduction to $100,000. Under former Gov. John Kasich, the first $250,000 of earnings were tax free.
Greg Lawson, a research fellow at the Buckeye Institute, a nonpartisan, free-market public policy think tank, tells the Center Square that the Buckeye Institute has always been reticent toward the small business deduction.
“The Buckeye Institute has always expressed concerns with the small business deduction. We maintain that this policy creates incentives for individuals to avail themselves of the deduction without necessarily hiring additional people," he said. "While the deduction was never perfect, the challenge now is that simply closing it will lead to a tax increase on some small business owners, which are the greatest net job creators in the economy.”
“This is especially bad due to Ohio's uniquely bad municipal income tax, which most states do not have, that can easily add 2 to 2.5 percent more to their tax bills,” Lawson told The Center Square.
He went on, “thus, while the House did initiate a net income tax reduction, the cuts should be substantially deeper across the board. This is better for everyone.”
The Buckeye Institute has “always preferred across-the-board rate reductions that would help all Ohioans.”
Repr. Jay Edwards, R-Nelsonville, also has been concerned with the small business deduction and stressed that it goes to owners of companies regardless of size or whether they have employees or not.
Business owners can just as easily spend the savings on a family vacation as on the actual business, he told the Columbus Dispatch.
“I’m all about small business. I come from small business. But I think it’s something we really need to revise ... so it is tied to employment, tied to keeping it within the business. Right now, it’s just a free $250,000 and there’s no requirement for employees,” Edwards told the Dispatch.
While the Buckeye Institute would like to see the savings from the deduction put back into businesses, people should be able to spend their savings how they would like to.
“We would like to see those savings being put back into the business so it can grow and lead to more jobs being created," Lawson told the Center Square. "However, it is the people's money, not the government's. So, they should be able to spend how they want.”