With House Bill 59, the FY 2014-15 state budget, now in the Senate, the debate continues over how to provide personal income tax (PIT) cuts and small business tax relief without jeopardizing the state’s recent economic progress. Last week the Ohio Chamber offered ideasto help achieve that goal but urged that raising the commercial activity tax (CAT) rate should not be among them. While raising the CAT rate might be an easy way to generate revenue for an income tax cut, doing so would undermine the state’s overall economic competitiveness, particularly in the manufacturing sector.

When the CAT was created back in 2005, the Ohio Chamber was among just a handful of business groups that opposed its adoption. We were particularly concerned that the CAT would always be a convenient target and therefore raising it would be one of the first options policymakers would look to whenever they were searching for additional revenue.

The Ohio Senate is currently working on its version of the biennial budget bill, House Bill 59, which will likely include some alternative tax reforms different from the executive and House budgets. House leaders are also continuing to develop their own additional tax reform ideas with input from a number of interested parties, including the Kasich administration. This is being done to broaden the range of tax reform options on the table in anticipation of a conference committee on HB 59 that will forge a compromise between the executive, House and Senate versions of the bill.

Gov. John Kasich made lowering Ohio’s marginal personal income tax (PIT) rates a central goal of his executive budget. He proposed both a 20 percent (over three years), across-the-board PIT rate reduction and a 50 percent PIT exclusion up to a $375,000 cap for owners or partners of a pass-through entity (PTE), such as a partnership or S corporation.  House and Senate leaders agree that Ohio’s PIT rates must come down to make Ohio more competitive with those of our neighboring states.