In a news conference, leadership for the Senate's Republican majority unveiled a proposal for the state's budget for fiscal years 2022 and 2023 that would reduce all nonbusiness income tax rates by 5% and exclude employment agency services from state sales tax.
Speaking to reporters, Senate Finance Chairman Matt Dolan, R-Chagrin Falls, and Senate President Matt Huffman, R-Lima, framed the cuts as a means of stimulating the state's economy following the economic slump from the pandemic of COVID-19, the respiratory illness caused by the virus.
"We believe that the best investment we can make in a citizen is to return the money to themselves, so hardworking Ohioans are going to keep more money in their pocket," Dolan said.
Huffman told reporters that he viewed the income tax as contributing to individuals' not working by penalizing those who earn more.
"If we want to talk about stimulus plans and what works and what doesn't, an income tax cut will always be the best stimulus," Huffman said.
The Senate plan is a significant deviation from the budget passed in April by the Republican-controlled House, which would reduce all nonbusiness income tax rates by 2% and establish income tax deductions for gains on investments in Ohio-based venture capital firms and on venture capital firm investments in state businesses.
Beth Ford, a spokesperson for the Senate Republican leadership, said in an email to Law360 that the Senate proposal would reduce the top income tax rate from 4.797% to 4.557% and remove both deductions proposed by the House budget proposal.
The House proposal, which otherwise mostly adopted the recommendations put forward in February by Republican Gov. Mike DeWine's budget, passed largely along party-line vote after proposals pushed by Democrats were shut out.
The Democratic minority also warned that the tax cut could risk loss of the state's federal coronavirus funding because of a clawback provision in the American Rescue Plan Act. Ohio is locked in an ongoing legal battle with the U.S. Treasury Department to block the enforcement of the clawback provision, which it claims infringes on state sovereignty by barring it from cutting taxes.
In addition to tax changes, the Senate budget deviates from the House budget by changing education funding formulas, restoring funding to certain state agencies and expanding eligibility for state-funded child care programs.
Ford said the sales tax exemption would reduce the burden on employers looking to hire employees, but did not directly respond to questions about what evidence supported claims that the income tax cut would stimulate the economy. Instead, Ford said that "if we give the people back their hard-earned money through these income tax cuts, they can choose to spend it however they wish."
In a news release shared with Law360, Senate Minority Leader Kenny Yuko, D-Richmond Heights, said that the latest proposal comes after decades of the state Legislature's proposing income tax cuts that disproportionately benefit the wealthy instead of policies that support workers and families.
"Our caucus was glad to hear the majority talk about the importance of helping working families, which has been our focus for many years. Making our middle class stronger is crucial for a robust economic recovery," Yuko said. "However, the majority's proposed tax cuts will not achieve that goal."
Dan Tierney, press secretary for DeWine, said in an email to Law360 that the governor's office was reviewing the proposal released Tuesday.
The offices for Republican and Democratic leadership in the House did not immediately respond to requests for comment.
--Editing by Robert Rudinger.
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