UPDATE 2/5/13 @ 10 p.m.
COLUMBUS, Ohio (AP, WSAZ) - Ohio Governor John Kasich proposed a sweeping state budget on Monday that reduces state income and small business taxes through increases in other areas.
It also would boost school funding and expand Medicaid services with help from the federal government.
The Republican governor was scheduled to discuss his budget proposal Tuesday with small business owners in the Cleveland suburb of Brooklyn Heights.
Meanwhile, Kasich's budget director was expected to testify before the House finance committee on the governor's $63.1 billion, two-year spending plan.
Kasich's tax reform package incorporates a significant rewrite of Ohio's tax code that delivers $1.4 billion in tax cuts over three years.
Small business taxes would be cut by 50 percent.
Ed Lake, the owner of Tropical Moon Frozen Yogurt in Huntington and Barboursville, is opening a third store in South Point, Ohio in March.
Lake says he expects Kasich's proposal will help his and other small businesses.
"Taking that break, if that happens, for a small business is going to be a plus," Lake said.
Kasich’s plan also decreases the sales tax from 5.5 percent to 5 percent.
In Chesapeake, Ohio at Jill's Tumble World, the owners say the changes in the tax code will help keep costs down.
"A lot of times we feel like we're getting hit by a new tax every day,” co-owner Chad Greenhill said. “It gets stressful. To hear there's going to be a tax break, that will be a great benefit to us."
The budget does also place taxes on professional services such as lawyers and accountants, and adds taxes on oil and gas drillers.
It also sets up a potential fight among the governor and Republicans who control the state Legislature and are strongly against President Barack Obama's health care law.
The state anticipates more than 365,000 Ohioans will be eligible for coverage beginning in 2014 by expanding Medicaid, the health program for the poor that already provides care for one of every five residents in the state.
A broad group of Ohio's doctors, hospitals and health providers back the idea.
Gov. John Kasich, who last summer called the federal health overhaul a "massive new tax on the middle class," proposed the Medicaid expansion in his two-year budget plan released Monday. He now must persuade Republican state lawmakers to back the plan despite the fact that many have philosophical concerns with law's mandated coverage and campaigned against it just a few months ago.
"If Ohio doesn't extend Medicaid, Ohioans' federal tax dollars will be used to expand health coverage in other states, giving businesses there a competitive advantage and creating a healthier workforce that those states can use to attract and retain jobs," Kasich said.
The leader of the Ohio House has said his fellow Republicans have concerns about the expense of expanding Medicaid. House Speaker William Batchelder told reporters the idea also poses philosophical questions for lawmakers who oppose the law's mandate for almost everyone to obtain health insurance.
Kasich said he views the expansion decision separately from Obama's health care overhaul law and its mandate.
The federal government will pay the entire cost of the Medicaid expansion for the first three years, gradually phasing down to 90 percent of the cost after that. Even at those generous rates, however, some GOP governors and state legislatures say they fear being stuck with long-term costs.
Ohio will see an influx of $2.4 billion in federal funds over the next two years beginning in July to cover those who are newly eligible, Kasich said.
Separate changes to eligibility for Medicaid will mean that almost 91,000 who are covered by Medicaid will be dropped from the program.
The state also expects to net $235 million because of a boost in tax revenue, plus additional savings from proposed Medicaid eligibility changes and savings on medical care for prisoners.
Kasich proposal also calls for an automatic "opt-out" trigger. Under his plan, if the federal government doesn't pick up its share of expanded coverage, the program for newly eligible shuts down and Ohio taxpayers wouldn't be stuck with the bill.
Kasich's decision is significant not only because Ohio is a political bellwether, but also because of his previous service is Congress, where as chairman of the House Budget Committee in the late 1990s he helped pass major legislation to reduce federal debt.
That gives his decision Monday added weight, and could undercut arguments from some conservatives that Washington cannot be trusted to honor its financial commitments for the latest Medicaid expansion.
Ohio was among 26 states that sued to overturn the federal law. The U.S. Supreme Court upheld the heart of the overhaul last year but allowed states to decide whether to expand Medicaid.
Kasich joined Arizona Gov. Jan Brewer, a conservative Republican, in calling for expansion. Several other GOP governors have said they will not go forward, including Rick Perry in Texas, Bobby Jindal in Louisiana and Nikki Haley in South Carolina.
The Medicaid expansion is intended to cover about half of the 30 million uninsured people expected to eventually gain coverage under the health care overhaul. The law expanded Medicaid to cover low-income people making up to 138 percent of the federal poverty level, or about $15,400 a year for an individual. That provision will mainly benefit low-income adults who do not have children and currently can't get Medicaid in most states. Separately, the overhaul provides subsidized private insurance for middle-class households.
Washington, D.C., and 17 states have opted to expand their Medicaid rolls.
Gov. John Kasich's decision will come Monday as he rolls out his new state budget proposal.
At stake is expanding health care coverage for more poor people in the state. It's a key element of President Barack Obama's health care overhaul.
A group of Ohio's doctors and hospitals back the idea. But some conservatives worry the plan will be too costly and are against it.
The U.S. Supreme Court left it up to states last year to decide on Medicaid expansion.
If Kasich wants to move forward with expansion, he'll need to persuade the Republican-controlled state Legislature to go along with his plan.