toledoblade.com --

DAYTON - Celebrating a political high amid a series of lows, Gov. Bob Taft yesterday signed a $51.2 billion, two-year budget that adopts his overhaul of the state's tax system.

The signing triggers a 21 percent across-the-board reduction in personal income taxes over five years and gradual replacement of two taxes on business profits and factory investment with a new tax on gross sales.

But beginning today, smokers will pay 70 cents more per pack of cigarettes, shoppers will continue to pay half of the penny-on-the-dollar sales tax surcharge that was supposed to expire today, and coin dealers will lose their sales tax exemption.

"This will be a net gain for Ohio taxpayers," said Mr. Taft, who signed the bill in a ceremony at Rack Processing, a Dayton manufacturer of racks used by auto manufacturers.

OHIO BUDGET HIGHLIGHTS

• Decreases personal income tax rates 4.2 percent each year.

• Exempts those earning less than $10,000 a year from income tax.

• Hikes the cigarette tax 70 cents per pack to $1.25.

• Makes permanent half of temporary” penny sales tax surcharge, leaving state tax at 5.5 percent.

• Creates Commercial Activity Tax at 0.26 percent of business gross sales over $1 million.

• Phases out tangible personal property tax on business machinery, equipment, inventory, furniture, and fixtures.

• Phases out corporate franchise tax.

• Eliminates sales-tax exemption on investment coins and precious metal bullion.

• Drops 25,000 working poor parents from Medicaid family health coverage rolls.

• Reinstates and makes permanent “temporary” income tax on trusts that expired Dec. 31.

• Reduces prescription drug aid for 15,000 extremely poor, medication-dependent adults.

• Halves funding for adult Medicaid dental services.

• Provides $75,000 for Inspector General’s investigation of workers compensation losses in risky coin and hedge-fund investments.

"It's a very slow-growth budget, but most importantly our tax reform plan will position Ohio for growth and prosperity in the future," he said. "It's a new tool to market our state. It clearly says that Ohio means business."

The shift to a broader gross-receipts tax has been applauded by manufacturers who would no longer be taxed on equipment and machinery purchases. It has been derided by grocers and other retailers with high sales volume but low profit margins.

"For the first time in the state's history, we're going to tax milk and bread. Milk and bread!" said House Minority Leader Chris Redfern (D., Catawba Island).

Before signing the budget bill into law, Mr. Taft used his veto pen to strike the General Assembly's outright ban on the use of Third Frontier dollars for embryonic stem-cell research.

The veto may have endangered any chance lawmakers will place his $500 million Third Frontier bond issue for high-tech research and development on the Nov. 2 ballot. House Republicans have come up short of the votes necessary to put the issue on the ballot, although they plan to try again on Aug. 2.

The ban would have prohibited Third Frontier from funding any research involving human embryonic stem cells, even those eligible for federal funds under President Bush's 2001 edict limiting aid to research involving only stem cell lines in existence at that time.

The veto preserves existing Third Frontier policy, which mirrors Mr. Bush's directive but, so far, has funded only adult stem-cell research.

"It's a fair policy," said Mr. Taft. "It's a balanced policy that respects the dignity of human life. No taxpayer dollars will be used for any project that will involve the destruction of embryonic stem cells that were created after August of 2001."

Rep. Mike Gilb (R., Findlay) said Mr. Taft's veto will likely cost him his Third Frontier vote.

"It certainly will put that vote in jeopardy," he said. He is considering a ban amendment for the Third Frontier resolution. Such a move would bypass the governor, since joint resolutions do not require his signature.

"I commend the governor for making a decision that will go against many of his supporters," said Rep. Kenny Yuko (D., Richmond Heights), diagnosed with multiple sclerosis in 2000.

Supporters of embryonic stem-cell research have argued that cells in such early development offer more promise because they might be theoretically triggered to become specific types of cells to battle disease or repair injury.

"The governor crossed a line today by adopting a new policy for Ohio that says it is OK to kill one human being to save another, paid for through our government," said Denise Mackura, executive director of Ohio Right to Life.

The tax-reform plan is expected to raise $1 billion less over the next two years.

Funding for K-12 education would rise an average of 2 percent a year, or a total of $270 million over the biennium, with roughly a third of the state's 612 school districts expecting no increase in state aid.

At the same time, the state expands the number of charter schools and takes its Cleveland experiment with school vouchers statewide with a separate program providing scholarships for up to 14,000 students in persistently failing schools to attend the private or religious schools of their choice.

Mr. Taft vetoed legislative language that would have allowed developers to create artificial wetlands far from the originals they've affected. He said he believes replacements should be created in the same watershed.

Mr. Taft did not remove an exemption from the gross-receipts tax for those doing business within a foreign trade zone at Rickenbacker Airport, a cargo hub south of Columbus.

Other trade zones, including that of the Toledo-Lucas County Port Authority, argue the exemption places them at a competitive disadvantage.

Contact Jim Provance at:
jprovance@theblade.com
or 614-221-0496.

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