It’s the first week of July. The beginning of the state’s new fiscal year. The two-year state budget has been finalized by the legislature and signed into law by Gov. Mike DeWine. Lawmakers have returned to their districts to start their summer recess and to interact with their constituents. Right?
Not so fast.
That’s how it normally goes in an odd-numbered year – and that’s how it’s gone every year since 2009. Not this year, however. This year, the Ohio Senate and the Ohio House were unable to reach consensus on a number of key issues – most significant among them whether or not to raise taxes on small business owners – in time to complete the budget before the fiscal year officially ended at midnight on Sunday, June 30.
As a result, lawmakers enacted a 17-day temporary budget extension, giving themselves more time to negotiate and to finalize the budget. The House blamed the Senate, the Senate blamed the House, and Gov. Mike DeWine expressed disappointment.
The governor’s budget proposal, HB 166, was first introduced on March 25. The House made its revisions and passed it with a bipartisan vote of 85-9 on May 9, and the Senate passed its version unanimously on June 20. However, there are hundreds of differences – 457 pages worth, to be exact – between the three versions, and major areas of disagreement remain over taxes, health care, and education.
Unfortunately, one of those remaining areas of disagreement is the business income deduction (BID). The House remains committed to its plan to raise taxes on small business owners by $528 million by reducing the amount of business income a pass-through business can deduct from $250,000 to $1000,000 and eliminating the flat 3% tax rate on any remaining business income. This despite hearing from countless small business owners about how they have used their tax savings to reinvest in their businesses by paying off loans, giving employee bonuses, increasing wages, offsetting rising health care costs, purchasing new equipment and more – and despite the fact that Ohio is projected to collect nearly $3 billion more in taxes over the upcoming biennium than the current one without raising taxes.
Similarly, the Senate remains committed to its plan, which would keep the BID at its current $250,000 level, minimizing the tax impact on most business owners. So, if you haven’t already done so, there’s still time for you to contact your legislators and let them know that you want them to support the Senate-passed version of the changes to the BID.
Also apparently still unresolved in HB 166 are other issues impacting employers, including new graduation requirements and surprise billing. The current plan is for these and the other differences to be worked out prior to July 17, so that the legislature can finalize the new, two-year budget no later than that day.
The state operating budget isn’t the only budget over which differences remain, however. The House passed a Bureau of Workers’ Compensation (BWC) budget, HB 80, that contained several provisions that would have been harmful to employers and the system, all of which the Senate subsequently removed. The House rejected the Senate’s version, resulting in the legislature also failing to agree to a new BWC budget by the Sunday midnight deadline. Therefore, a temporary extension to buy additional time to finalize the BWC budget was also necessary. The differences between the House and Senate on HB 80 could be determined alongside the HB 166 differences, or they could be worked out after HB 166 is wrapped up; the temporary extension for the BWC budget lasts until July 30.