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Ohio

On Monday, Feb. 2, 2015, Gov. Kasich released Blueprint for a New Ohio, the 2016-17 budget proposal (proposal). As with his last budget, the governor seeks to lower the state income tax on “virtually all” Ohio based small businesses and increase exemption levels for lower and middle income Ohioans. Since taking office in 2011, the governor has already reduced income taxes by approximately $3 billion.

According to The Plain Dealer, the governor's proposal cuts state taxes overall by $500 million. It does this in part by shifting tax burdens from income based taxes to consumption based taxes, by way of a sales tax hike and a cigarette tax, and increasing taxes on oil and gas profits, as described below.

The proposal, previewed as a “comprehensive plan for helping all Ohioans share in our state's prosperity” includes these key provisions:

  • For small businesses that report income on their owners’ tax returns and have annual gross receipts of $2 million or less, complete elimination of the income tax.

At one of Gov. Kasich's pre-release appearances, The Plain Dealer noted that 98 percent of small businesses, including sole proprietors and S-corporations, fall into this category. In 2011, there were 970,570 small businesses that qualified for this benefit. The administration estimates that this component will cost Ohio about $696 million over the life of the two-year budget.

  • For individuals earning less than $40,000, an increased personal exemption from $2,200 to $4,000.
  • For individuals earning between $40,000 and $80,000, an increased personal exemption from $1,950 to $2,850. In 2012, about 3.05 million individuals had income below $80,000.

Gov. Kasich intends to pay for these cuts with tax increases in the following areas:

  • Sales tax: An increase from 5.75 percent to 6.25 percent will generate a portion of the revenue lost to the income tax reductions. This would apply to the usual goods, along with certain services such as: lobbying, marketing, public relations, management consulting, debt collection, travel, parking, and cable television.
  • Cigarette tax: The governor’s proposed increase is $1.00 per pack, resulting in a new tax of $2.25 per pack. According to the Tax Foundation, a 2014 excise tax ranking put Ohio at #27 in the nation. New York and Massachusetts are ranked first and second, respectively, and Missouri has the lowest excise tax. The Plain Dealer reported that Gov. Kasich’s previous proposed increase, from $1.25 to $1.85 per pack, would have generated $635 in additional revenue.
  • Oil and gas taxes: Though oil and gas drillers oppose the idea, the proposal seeks a 6.5 percent severance tax on oil and gas production levels at the wellhead for fracking wells. Bizjournals.com reported that in light of the impact that fracking has on roads and water supplies, Gov. Kasich believes that a higher tax on the industry is justified, especially considering that the areas where fracking is most prevalent typically have small populations and an insufficient tax base to compensate for such impacts.

Bizjournal.com notes that Ohio's current oil and gas tax rate is 20 cents per barrel on oil and three cents per thousand cubic feet of natural gas. This provision is expected to generate $76.5 million in fiscal year 2016 and $183.4 million the following year.

  • Social Security benefits tax: Part of Gov. Kasich’s plan to eliminate tax breaks for the most affluent Ohioans involves means testing that would tax Social Security benefits for those with a total income of over $100,000. This and other changes for seniors would generate an additional $166.5 million per year by 2017.

Gov. Kasich is also very focused on fighting poverty. As indicated in the same preview document referenced above, he wants to “end the siloed, fragmented approach” that merely treats the symptoms of poverty without addressing the underlying challenges that “needy Ohioans face.” The proposal addresses this by allocating $310 million in existing federal and state funds to the creation of a comprehensive case management and employment initiative.

For a more detailed summary of the proposal’s initiatives beyond the tax provisions, see our Ohio Statehouse Update.

Florida

Gov. Rick Scott recently unveiled his 2015-2016 budget proposal, “Keep Florida Working.” The budget is focused on four main components:

  1. $673 million in tax cuts for Florida families and businesses;
  2. The highest per-student K-12 funding in Florida history;
  3. Making Florida a global destination for jobs; and
  4. Strengthening Florida’s communities by enhancing workforce training, protecting the environment, and keeping families and communities safe and healthy.

The total budget is $77 billion. Of this, $28.3 billion is general revenue, representing a four percent increase from the previous fiscal year and primarily attributable to additional sales tax collections.

Within the $673 million tax cuts, Gov. Scott proposes the following:

  • A 3.6 percent decrease in cellphone, cable, and satellite TV taxes, representing a reduction of $470.9 million annually. An average family spending $100 a month on cell phone, cable, and satellite television services will save about $43 annually.
  • Elimination of the sales tax on college textbooks, which is expected to save students about $41.4 million per year. For example, a student taking five courses per semester will save about $30 per semester and over $240 for four years.
  • Effective April 30, 2014, Gov. Scott enacted a bill that exempted certain industrial machinery and equipment purchased by manufacturers from the sales tax until April 30, 2017. In Keep Florida Working, he made that exemption permanent. Beginning in 2017, this provision is expected to reduce the tax liability of Florida’s manufacturing businesses by $142.5 million annually and is intended to increase Florida’s competitiveness while encouraging the start-up and expansion of manufacturing businesses to spur job creation.
  • Business tax exemptions that help 2,189 job creators avoid the business tax by increasing the corporate income tax exemption from $50,000 to $75,000. In 2011, lawmakers increased this exemption from $5,000 to $25,000. In 2013, they increased it again from $25,000 to $50,000. The exemption is expected to save Florida businesses $18.4 million annually.

Gov. Scott’s budget also contains the “highest-per-student funding in Florida history,” and a $390.7 million increase in state education funding. Among other things, this figure includes a $40 million boost to the Digital Classroom Initiative, bringing the total cost of the initiative to $80 million.

According to WCTV, Gov. Scott plans to pay for the tax cuts with job and revenue growth. Though Florida has created more than 700,000 private sector jobs in the past four years, the governor’s critics question whether the growth is really lifting Florida's working families.

New York

Last week we wrote about the success of Gov. Cuomo’s unique Start-Up NY initiative, designed to grow new businesses and accelerate entrepreneurialism across the state.

His efforts to provide relief to small business and other taxpayers continue in his proposed 2015-2016 budget. The governor’s 2015 Opportunity Agenda (Agenda) contains 66 proposals across multiple areas. Here are a few of the tax-related initiatives:

Proposal #1: Cut small business taxes from 6.5 percent to 2.5 percent

The four percent tax cut will result in the lowest net income tax rate for small businesses since 1917. Gov. Cuomo justified the reduction by stating that “[s]mall businesses are the engine of opportunity and we will do everything we can to ensure they thrive and grow in New York.”

For the purposes of this tax cut, small businesses are defined as those with fewer than 100 employees and with a net income of less than $390,000. To maintain consistency, however, the lower rate would be available to firms with a net income of less than $290,000, with the rate to be phased up to the standard rate applicable to companies with a net income of less than $390,000. In New York, such entities account for 43 percent of private sector employment and 35 percent of private sector wages.

The reduction would occur over a three-year period for small businesses that file under the corporate franchise tax, pursuant to the following schedule:

  • For tax year 2016, from 6.5 percent to 3.25 percent;
  • For tax year 2017, from 3.25 percent to 2.9 percent;
  • For tax year 2018 and beyond, from 2.9 percent to 2.5 percent.

Ultimately, this provision is anticipated to benefit 42,000 taxpayers and provide $32 million in new tax relief when fully phased-in.

Proposal #2 and 3: Pass $1.7 billion in property tax relief for homeowners and renters

Recognizing that over the last few decades New York’s property taxes have risen to historic levels, the governor presented this component of his Agenda as a way to combat property taxes that have put the dream of home ownership out of reach.

Gov. Cuomo has already implemented a property tax cap limiting the amount that local governments and most school districts can increase property taxes to the lesser of two percent or the rate of inflation. A related program, the property tax freeze credit, reimburses qualified homeowners for local property tax increases on their primary residences when total household income is $500,000 or less, and where the school district in which the home is located complied with the property tax cap. This credit excludes New York City homeowners, who may qualify for a different program under the New York City Circuit Breaker Tax Credit.

With these initiatives, the governor hopes to provide relief to households in which the property tax burden exceeds six percent of the household’s income. The amount of the credit is up to 50 percent of the amount by which the property taxes exceed that six percent burden threshold. The credit is determined on a progressive income scale, with the notion of offering the greatest relief to those with the lowest incomes.

When the tax credit is fully phased-in, over 1.3 million taxpayers are projected to receive an average credit of $950. For comparison, the property tax cap credit, enacted in 2011, saved the average taxpayer slightly more than $800. The property tax freeze credit, enacted in 2014, saved the average New Yorker about $656.

Proposal #4: Modernize JFK, LGA, Stewart, and Republic Airports

The Agenda points out several interesting facts about the JFK and LaGuardia airports alone:

  • They host about 80 million travelers per year;
  • They support 350,000 jobs;
  • They provide $18 billion in wages;
  • They support more than $50 billion in economic activity; and
  • They are consistently rated among the worst airports in the country in terms of design and overall passenger experience.

As part of his budget, Gov. Cuomo launched the Master Plan Design Competition, a modernization and revitalization effort at all four of these airports.

Proposal #5: Propose making Republic and Stewart Airports tax-free zones through START-UP NY

The governor’s focus on the regional airports, Stewart and Republic Airports, involves designating them as tax-free sites by way of the Start-Up NY initiative, which offers “zero taxes for ten whole years.”

Additional proposals

The Economic Opportunity portion of the Agenda contains numerous other proposals pertaining to infrastructure development, environmental protection, farm preservation, poverty reduction, and economic mobility. Other aspects of the Agenda focus on education, public safety, government reform, and “fairness for all.”

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