|
Tax
Reform…What’s Next?
Tax
reform was at the top of the agenda when the 126th General Assembly
began in January 2005. The tax reform package passed by Ohio lawmakers
eliminates the tangible personal property and corporation franchise
taxes while phasing in a 21% personal income tax reduction and new commercial
activity tax (CAT).
The most important provision in this extensive tax reform package is
the four-year phase-out of the tangible personal property tax (TPP).
For decades the Ohio Chamber cited the TPP as the major tax-related
impediment to business investment and job creation. Its elimination
is the key to making Ohio’s tax structure more competitive. Once
the anti-competitive TPP tax is fully eliminated, the state will be
in a much better position to capture more capital investment, new businesses
and jobs.
The tax reform package also includes a 21%, five-year reduction in state
personal income tax rates across all nine-income brackets. These tax
reductions benefit both individuals and small businesses. Nearly 80%
of all Ohio businesses are small businesses with fewer than 500 employees.
Many of these small businesses, such as partnerships, S corporations,
and limited liability companies, are taxed only at the individual shareholder
or partner level. These individuals pay personal income taxes on their
proportionate share of earned profits. The Ohio Chamber strongly supports
broad personal income tax cuts, like this one, because they benefit
a large number of small businesses. The capital created from the tax
savings improves our economy because it allows small businesses to invest
in new plants and equipment.
With passage of these tax reforms, Ohio lawmakers have done a lot to
modernize Ohio’s tax structure. Now they are discussing what they
should do next to further improve the state’s business tax climate,
spur capital investment and create jobs.
The first proposal to receive legislative attention was HB 626 (Calvert,
R-Medina). The bill would reduce the capital gains tax rate to 3% by
2008. Currently capital gains are taxed as ordinary income, just like
employee compensation on a W-2. Under this bill, the state would tax
capital gains at a lower rate than ordinary income; similar to the way
they are taxed by the federal government. Although this approach would
be beneficial for some taxpayers, HB 626 has not generated a broad base
of support across the state.
Consequently, the House Ways & Means Committee is having hearings
at the Statehouse on Tues., Aug. 22 and Tues., Sept. 12. They want to
hear ideas about the tax reform steps taxpayers and other interested
groups think they should take next.
The Ohio Chamber will testify before the committee on Aug. 22. To learn
more about this issue, please contact Daniel
Navin, Ohio Chamber Assistant Vice President, Tax & Economic
Policy.
|
