Saturday, June 01, 2002

Tax bill includes indexing

Rates will adjust to inflation

By John McCarthy
The Associated Press

        COLUMBUS — The 5.4 million Ohioans who pay state taxes will keep an average of $12 in 2006 under a plan to expand tax brackets with the rate of inflation, the Ohio Department of Taxation said Friday.

        The plan was part of the $1.7 billion budget bailout the Legislature approved this week. Gov. Bob Taft has said he will not veto the plan when he signs the bill next week.

        Known as income tax indexing, the plan keeps tax brackets increasing with percentages found in the Gross Domestic Product index, said Gary Gudmundson, spokesman for the department. The idea is to tax people at the same rate even if they get a small increase in pay. Many employees' raises are tied to the cost of living.

        The tax commissioner will decide in July 2005 what the tax index is for that year, and the savings will be reflected when taxpayers file their returns in 2006, Mr. Gudmundson said.

        The move will cost the state about $60 million in 2006, he said. That works out to about $12 per taxpayer.

        “That's reflecting what the increase would have been without capping it. So the state would have taken in, based on inflation, this $60 million in '06 and $124 million in '07,” Mr. Gudmundson said. “By adjusting the brackets up, the state is not getting that inflationary growth.”

        The plan was used to sell the bailout to House conservatives. An initial vote count found that Speaker Larry Householder, R-Glenford, was at least four votes short of the 50 he needed. The final vote was 51-43, with four Republicans joining Democrats in opposition.

        “It's been a measure, I understand, that they sought for quite a while,” Mr. Gudmundson said.

        Sen. Jim Jordan, an Urbana Republican, has introduced similar legislation before. However, he was one of three Senate Republicans who opposed the plan. It passed that chamber 18-15.

        Mr. Jordan said he could not justify voting for indexing when the bill raised the state tax on cigarettes 31 cents per pack to 55 cents. The bill also increased a tax on trusts, but the increase will lapse on Dec. 31, 2004.

        Legislative leaders and Mr. Taft believe the economy will rebound by then and the state will be able to afford both the end of the trust increase and income tax indexing.

        “A tax hike now vs. a tax saving in the future means you have a tax increase,” Mr. Jordan said. “There's a lot of good things in there, but the bottom line is we raised people's taxes.”


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