Gov. John Kasich...
The Kasich Income Tax Cut
Key Points  
March 18, 2012 

Ohio’s income taxes are too high and must be lowered to create jobs.  We need to lower income taxes in order to create a jobs-friendly climate in Ohio. 

According to the Tax Foundation, Ohio’s combined state and local income tax burden is among the highest in the nation—in nearly the top third.  Ohio’s combined state and local income tax burden per capita is among the highest also—in the top quarter. 

Lowering income taxes helps small businesses create jobs.  Small businesses hire half of Ohio’s private sector workforce and 75 percent of small businesses pay all their taxes through the income tax, not the business tax.  Therefore, lowering income taxes frees up money for small businesses to invest back into their businesses so they can succeed and expand. 

All new revenue from oil companies is used to cut income taxes. None of the new revenue from oil companies will go to government.  It will all go to taxpayers. 

$1 Billion by 2016: Between 2012 and 2016 Ohio taxpayers could see up to $1 billion in cumulative tax cuts. 

$500 million annually: When we hit peak production, Ohio taxpayers could see $500 million in tax cuts every year.  That’s approximately a 5 percent income tax cut. 

Ohio’s tax system for oil companies is completely outdated:  Oil companies’ taxes are currently two-tenths of one percent—20 cents—on a $107 barrel of oil.  They’re so low because Ohio has never been a major oil producer and our 40-year-old oil company tax never envisioned the explosion in oil and gas production we’re seeing now. 

· Oil companies will take in a total of up to $53 billion by 2016: Between 2012 and 2016 it’s estimated that oil companies’ cumulative gross income could be between $45 and $53 billion—just on Ohio oil, natural gas and natural gas liquids. 

· Taxes are eliminated for small gas producers: Almost all of Ohio’s small, conventional natural gas producers (90 percent or 44,000 wells) will have all of their severance taxes eliminated altogether. 

· There’s no change for conventional oil producers: Small, conventional oil producers would see no change in taxes—they’d stay at the current, low 20 cents-per-barrel tax. 

· Oil companies can break even first, then pay the new standard rate: Horizontal wells get up to two-years at the initial low 1.5 percent rate to break even before the standard 4 percent rate kicks in. 

Even Ohio’s new rates will be lower than other states, preserving our competitive edge:  Others state with shale formations or new oil industries--West Virginia, Texas and North Dakota—will all still have higher severance tax rates than Ohio.  Though Pennsylvania has no severance tax, it does have a state impact fee, but it lacks Ohio’s large expected amounts of high-value natural gas liquids. 

Who deserves low taxes: Ohioans or out-of-state oil companies?  The question isn’t whether or not there will be low taxes.  We have low taxes right now, but they only benefit the out-of-state oil companies that ship those benefits out-of-state to their out-of-state investors and shareholders.  It’s better for Ohio if those benefits remain in Ohio to benefit Ohioans, who will spend that money in Ohio and help rev-up Ohio’s economy. 

Bottom Line: Who should have low taxes, out-of-state oil companies or Ohioans? 

MYTH v. FACT 

1.    Myth: Raising severance taxes will raise prices for consumers and for gasoline. 

FACT: This is a misconception.  Like any other business, oil companies pass on their costs of doing business—including the cost of taxes—to whomever buys their products.  However, because oil companies will ship most of their products out of Ohio to users around the nation and even around the world, their costs of doing business are shipped out of state also, to be spread out and diluted over a wide, wide range.  This is why Texas and Alaska—which have higher severance taxes than Ohio—have very low in-state tax burdens on their residents: the cost of their high severance taxes are passed on and diluted across a range of out-of-state interests instead of being paid for by Texas and Alaska residents.  In fact, neither Texas nor Alaska has any income tax at all. 

2.    MYTH: Raising taxes will hurt the industry’s ability to grow in Ohio.

FACT: That’s just not true.  Ohio’s taxes on oil companies will be lower than other competing states with new oil industries.  Moreover, oil companies have announced $1.4 billion in new investments in just the last month.  In fact, Chesapeake announced a $900 million investment on Tuesday, March 13, after the governor’s income tax cut plan was already widely known.  The amount of money the oil companies stand to make in Ohio, and our comparatively low taxes, make our state a very attractive place to do business. 

3.    MYTH: It’s unfair to cut taxes on the backs of a single industry. 

FACT: Actually, it’s unfair for any single industry to enjoy disproportionately low taxes, as does the oil industry in Ohio today.  We should always seek to make taxes both low and fair.  Neither Texas nor Alaska has an income tax thanks to their high severance taxes.  The oil industry thrives in both states. 

4.    MYTH: Why do we want to raise taxes on an industry before we even know if it will be successful? 

FACT: We agree, which is one reason why we didn’t do what Pennsylvania did and we didn’t impose a state impact fee on the industry.  Oil companies will only pay taxes on what they produce and sell.  If there’s no oil, then they won’t pay anything. 

5.    MYTH: New severance tax revenue should go to fund government, not income tax cuts. 

FACT: Ohio governments don’t have revenue problems, they have spending problems.  Instead of seeking new revenue streams to support high costs, state and local government should be working to find innovative ways to reduce costs so they can reduce taxes and become more jobs friendly. 

6.    MYTH: Isn’t it anti-Republican to raise taxes on businesses? 

FACT: Cutting taxes on small businesses is classic, pro-growth economic policy.  Making sure tax changes are revenue neutral and don’t go to government is classic, conservative fiscal policy.  Cutting taxes for Ohioans instead of giving the benefits of low taxes to out-of-state oil companies who will ship those benefits out-of-state isn’t conservative or liberal, Republican or Democrat, it’s pro-Ohio.