Income Tax Cut Among Initial House Changes to State Budget Bill

Earlier today, the Ohio House of Representatives delivered its first changes to the two-year operating budget for the state of Ohio (House Bill 110).  While we still explore the many changes made to the original budget submitted by Gov. Mike DeWine, a few high-level items are of note and discussed below.

The House offered a two percent across the board rate cut on all nonbusiness income. This proposal would reduce the current top rate from 4.797% to 4.701 starting this calendar year. This change, combined with the tax conformity changes in Senate Bill 18 enacted this past March, may provide Ohio taxpayers up to $500 million in tax relief this biennium. There were other less significant tax changes in the amended budget, and those will be discussed in future tax specific blog entries.

This is a marked change from just two years ago, when the initial changes the House made to that year’s budget proposal included a $528 million tax increase on small business owners. The House-sought changes to the business income deduction (BID), which was created in 2013 in an effort to incentivize small business owners to reinvest in their companies, were largely avoided in the end. A recent study, conducted by Ernst & Young for the Ohio Chamber of Commerce Research Foundation, revealed that the BID has had a positive impact on Ohio’s economy and resulted in $5.9 billion of increased economic activity in 2018 alone.

Also included in the proposal announced today is the language from the Fair School Funding Plan (HB 1) also known as the Cupp Patterson bill. HB 110 includes the recommended changes in the funding formula contained in HB 1. The changes would be phased in over six years beginning with the 2021-2022 school year. An early review of the provisions announced this afternoon indicate that no school district loses funding during the phase-in, as any funding gaps are shored-up with short-term transitional payments.

Finally, the amended budget document includes the provisions of HB 2. HB 2, currently pending in a Senate committee, is the Broadband Expansion Grant Program. Supported by the Ohio Chamber, the bill seeks to deploy broadband service to some of the 300,000 Ohio households that currently lack access to high-speed internet.  The budget bill includes $170 million in appropriations for fiscal year 2022 and $20 million in appropriations for fiscal year 2023 to fund this program.

The Ohio Chamber will continue to review the budget documents and provide updates with additional insights as more details emerge. The House will now conduct hearings and make additional changes this month before sending the bill to the Ohio Senate.