Kasich works on plans to lower income tax rates

Dayton Daily News - July 14, 2012

Jackie Borchardt

Proposal to raise oil, gas taxes and cut income tax stalled. Governor says farmers would benefit.

Gov. John Kasich isn’t backing away from his frack-tax proposal, but said Friday he’s exploring ways to further lower the state’s income tax rates.

Kasich introduced his plan to raise taxes on oil and gas taken from Ohio soil in tandem with cutting personal income tax rates in March, but state lawmakers quickly nixed the proposal from their already-full plate of bills suggested by the governor. The plan has drawn opponents from the left and right, from the public sector and the energy industry.

Kasich told reporters Friday that he’s optimistic his plan will be successful and he’s spoken with industry leaders and lawmakers.

“It’s just a matter of time rather than it is a matter of if it’s going to happen,” Kasich said. Kasich didn’t give details but said he’s looking to tax exemptions, loopholes and “special deals” that could further reduce the state’s income tax burden, which he said ranks in the top third in the nation.

Kasich made a case Friday that the income tax cut would benefit farmers and received the endorsement of Ohio Department of Agriculture Director David T. Daniels and former director Fred Dailey. Daniels said farmers have faced difficult times due to unpredictable weather conditions.

“These meaningful tax reforms might mean the difference between profit and loss for all small farmers and farmers throughout Ohio,” Daniels said.

But Jerry James, president of Artex Oil and the Ohio Oil and Gas Commission Board of Trustees, said the severance tax hike would hurt farmers more than they’d be helped by a modest income tax cut.

Most leases require the landowner to pay the severance tax. Currently, that’s 20 cents on each barrel of oil and 3 cents on a unit of natural gas that sells for $2-$3 and has dropped in recent years. The taxes pay regulatory costs.

Kasich proposed taxing on high-volume horizontal wells or “shale wells” 1 percent on natural gas and 1.5 percent initially on crude oil. The crude oil tax would increase to 4 percent in later years.

That cost would most likely be passed on to farmers in addition to income tax paid on what they earn from the wells. At its peak, James said, income tax rates wouldn’t drop greatly and landowners would pay at least 10 percent on the oil and gas withdrawn on their property.

Kasich said landowners can avoid that problem if they specify in their leases that the company pay the taxes.

James said those leases are few and far between and would likely end if severance taxes are raised.

The Ohio Farm Bureau has yet to take a position on the plan, which affects their members who negotiate drilling leases. Bureau spokesman Joe Cornely said they’re closely examining the plan and expert analysis to determine how to best advise Ohio farmers.

“It’s very complex – they’re lots of different angles to this,” Cornely said. “We’re obliged to help our members reach an informed opinion.”

Kasich has played the income tax cut as a way to attract business to the state and said the idea of lowering income taxes gets the attention of CEOs he talks to. According to administration officials, three-fourths of Ohio small businesses file as individuals.

“We have much more tax reform to do in this state because the lower this income tax is, the better position we’re going to be in to get these companies to move here,” Kasich said.

Ohio reduced its income tax 21 percent over six years under the premise entrepreneurs would relocate from lower-taxed states. Zach Schiller, a policy analyst for Cleveland-based Policy Matters Ohio, said the cuts demonstrate the tactic doesn’t work.

A March report from the left-leaning think tank found the average Ohioan would save $42 a year from Kasich’s income tax cut plan after the industry reached peak production levels. Taxes for Ohioans in the top 1 percent — earning at least $321,000 a year — would be reduced by about $2,300 a year.

Kasich works on plans to lower income tax rates

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