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Kasich tax plan would cost $814M

Jan. 14, 2010 @ 03:00 PM

COLUMBUS, Ohio (AP) — Legislative analysts have determined that a proposal to phase out Ohio’s income tax — a key issue in the 2010 governor’s race — would cost state and local governments and libraries more than $800 million next year.

Losses would rise from $814 million to more than $12 billion by 2020, according to an Ohio Legislative Service Commission analysis obtained by The Associated Press. The commission reviewed the proposal because it’s been introduced as a bill in the Ohio House.

Former U.S. Rep. John Kasich, the Republican candidate for governor, has made a 10-year phase-out of the income tax central to his campaign platform. Kasich is set to announce a running mate later Thursday, state auditor Mary Taylor, who has criticized Gov. Ted Strickland for balancing his budget using too much non-tax revenue, including federal stimulus dollars and other one-time income sources.

Legislative analysts note it’s unclear how the private sector would respond to lower income taxes over time or how the state budget would be affected.

Their report said lower taxes might “lead to different choices between income and leisure, encouraging increased economic activity and higher saving and investing,” but the analysts were unable incorporate those predictions into their findings.

The report dated Wednesday found the first year of the phase-out would mean a $768 million loss to the state general revenue fund, a $30 million loss in state aid to local governments, a $16 million loss to public libraries. That would amount to $79 million to cuts to county, city and township governments and local libraries in fiscal year 2011, the second year of the current state budget.

Of the $12 billion the tax cut would spell for government entities when fully in 2020, $11.5 million would come from the state’s main bank account, the general revenue fund. That fund helps pay for health and social service programs, public schools, higher education, public safety and prisons.

Ohio had been in the process of reducing its income tax rates by 21 percent over a 5-year period, but Strickland and state lawmakers agreed last year to postpone the final year of the cuts for two years in order to balance the current $50.5 billion, two-year budget. That decision filled an $814 million budget gap.

The Democratic governor saw his popularity fall in 2009 as he grappled with budget woes. After speaking out against expanded gambling, Strickland pursued the authorization of slots-like video lottery terminals — only to have the plan sidelined in court. He proposed freezing income-tax cuts as a substitute, a move Republicans criticized as a reversal of his previous opposition to tax increases.

In Taylor, Kasich will add gender and geographic diversity to his ticket and the authoritative voice of the state’s first CPA auditor on Ohio’s economy.

But Taylor’s public attacks of all the one-time money in Strickland’s budget may run into a conflict with Kasich’s support of an income tax phase-out.

In April, she took the unusual step of making her own budget projections. The numbers showed that when one-time income sources are gone, the state will need $8 billion over the next two years to balance its budget. Fellow Republicans said that showed the state was laying the groundwork for either a hefty tax hike or deep budget cuts.

The legislative analysis of Kasich’s tax proposal suggests it would require deep budget cuts as well.