A tax break to nowhere
Next week, a new version of the two-year state budget will be introduced in the Ohio House of Representatives. One of the many items worth watching: What happens to a new, $350 million-a-year tax break for business owners proposed by Gov. Kasich.
It would wipe out the state income tax for owners of businesses with $2 million or less in annual receipts and who pay that tax on their companies’ profits (See our April 9 report here). Interestingly, some of Ohio’s major business associations, including the state chamber of commerce and the Ohio Manufacturers Association, have lined up against the Kasich tax plan, and voiced criticism of the new business tax break
Companies might seek to organize their businesses into multiple entities to avoid exceeding the $2 million threshold, said Ernst & Young, which studied the plan at the initiation of the Coalition of the Ohio Metro Chambers of Commerce. Even the conservative Tax Foundation called the business-income tax break “a bad deal.” It noted that the proposed exemption could cause some employees to become independent contractors. This would reduce their taxes, with no net gain to the economy. Tax avoidance could well be a problem if this plan is enacted.
But more important, it rests on a mistaken notion that scattering a tax cut across hundreds of thousands of business owners is likely to create jobs. A tax break created in 2013 hasn’t brought new jobs, like earlier income tax cuts. Business owners expand when they anticipate greater demand for their products or services, not because they have a few hundred dollars more in their wallets.