Axe the tax? Should Ohio eliminate the individual income tax?

Yahoo

05-04-2025

Apr. 5—LIMA — It is a phrase that almost everyone has heard: the only two constants in life are death and taxes. However, while paying a tax for goods is nothing new, as events like the Boston Tea Party show, taxation on individual income has a somewhat shorter history going back to the ratification of the 16th Amendment on Feb. 3, 1913 and a prior 10-year period in the 1860s when a tax on income helped pay for expenses related to the Civil War.
While Americans have grown accustomed to income taxes, particularly at the federal level, states like Florida, Texas, Tennessee and others, now including Mississippi, do not collect individual income taxes at the state level. In a statement, Mississippi Gov. Tate Reeves promoted this move as a means not only for residents to keep more of what they earn but also as a way to attract new residents and new investment.
"Mississippi has the potential to be a magnet for opportunity, for investment, for talent — and for families looking to build a better life," he said in the statement.
When it comes to Ohio, the Tax Foundation, a research firm that analyzes tax policy nationwide, rated Ohio 35th in the nation for state tax competitiveness, giving the state a lower rating for its corporate gross receipts tax and higher local tax levels.
Could eliminating the state individual income tax benefit Ohio?
Some say it is time for a change
One person who has broached this idea is Republican gubernatorial candidate Vivek Ramaswamy, who has made it a talking point in his campaign.
"We will eliminate the income tax in Ohio & it turns out most people in our state vehemently agree," he said in an April 1 post on X.
It's your money, not the government's. We will eliminate the income tax in Ohio & it turns out most people in our state vehemently agree. pic.twitter.com/fYe9DkJ4tH
— Vivek Ramaswamy (@VivekGRamaswamy) April 2, 2025
Legislators in the Ohio General Assembly have also tried to make this a reality, with Reps. Adam Mathews, R-Lebanon, and Brian Lampton, R-Beavercreek, introducing House Bill 386 in January 2024, which aimed to eliminate both the individual income tax and the 0.26-percent Commercial Activity Tax. That bill only got as far as the House Ways and Means Committee during the 2023-2024 session.
A new bill, House Bill 30, also sponsored by Mathews and Lampton, would, over two years, reduce the state's progressive tax rates of 2.75 percent and 3.5 percent to a flat tax of 2.75 percent for all earners of more than $27,350. This bill, introduced on Feb. 3, has also been referred to the House Ways and Means Committee for review.
Bluffton University economics professor Jonathan Andreas sees the idea of fairness as a potentially compelling argument when it comes to a flat tax.
"Most Americans like a progressive income tax because most of us are like, 'Hey, I'm not rich, and it's harder for me to pay, say, 20 percent of my income than it would for Bill Gates to pay 30 percent of his income,'" he said. "But there's a pretty significant group, higher earners especially, that feel like a flat tax would be the most fair because they don't feel like they get a fair shake if they are paying a higher percentage than middle class people, and so there is a fairness argument."
But at what cost? Is it feasible?
When it comes to that original axiom of the inevitability of death and taxes, Ohio Northern University College of Business Administration Dean John Navin would refute that claim, at least when it comes to individual income taxes.
"The question is, can you get rid of it? The answer is, absolutely," he said. "You can get rid of any tax you have, but you have to decide: do you want to replace the revenue or can you afford to have a budget that is smaller?"
According to the Ohio Legislative Budget Office, the state's combined state and local tax revenue in fiscal year 2021 totaled $62.85 billion, with 26 percent, or just over $16.34 billion, coming through individual income taxes. Only sales tax revenue (40 percent) and property tax revenue (29 percent) were higher sources of tax revenue for the state.
If the state's portion of that $16.34 billion in tax revenue were to be eliminated, the state would have to find that revenue using other means, Navin said.
"Either we could raise the sales tax and the use tax, and that's certainly an option, or you could raise corporate income tax," he said. "While it's an option, it's not one that's appealing if your goal is to increase businesses in the state of Ohio."
Navin also looked at the situations of some of the no-income-tax states like Florida and Texas, situations that may not apply as well to Ohio.
"In the case of Florida, it's pretty obvious how Florida gets its money with tourism taxes," he said. "Sales tax and use tax in Florida are huge. Texas is oil and gas [production] tax, so they don't have to have a state income tax. Alaska has the same natural resource tax with oil, for the most part."
Are things really that bad? Could the problem lie elsewhere?
When asked about the potential for the elimination of individual income tax in Ohio, House Speaker Matt Huffman, R-Lima, began his answer by noting there are already people in the state who pay no income tax. Along with individuals making less than $27,350 and pay no income tax, for small business owners who file "single" or "married filing jointly" returns, the state will not charge income tax on the first $250,000 of business income.
"So when you think about small businesses in downtown Lima and what they generate as a sole proprietor or as an LLC, most of those folks are paying zero income tax now," he said. "So that's not a flat tax. It's even better."
Huffman also noted that for those promoting a flat tax alternative, issues like the business income deduction will have to be considered, since such a move could inadvertently increase taxes for some rather than reduce them.
"Two things are going to happen if you either lower the income tax to 2.75 percent or eliminate the tax," he said. "Especially if you eliminate the tax, either there are going to be services that you don't provide or some other taxes or going to go up, or a combination of the two."
When asked about the state's current tax policy, Ohio Gov. Mike DeWine said that the state has already taken strong measures to reduce the tax burden on residents, reducing the number of tax brackets from as many as eight down to just two today.
"It's the lowest it's been in 50 years in the state of Ohio, so we're very competitive with other states," he said. "And I've never seen a company that looks at Ohio and comes in and says to me, 'Well, Gov. DeWine, we'd love to come to your state, but your income tax is too high.' It's just not an issue anymore."
The more pressing issue, he said, centers around property taxes, which have risen rapidly as property values have risen with equal speed.
"When you have a reappraisement for your house that you've been living in for 30 or 40 years and you've paid it off but now you're 70 years old and seeing the real estate tax go up and you're on a fixed income, that's pretty tough," DeWine said. "So I think that's where the real focus is."
Huffman also pointed to another factor that could be overlooked: local income taxes and levies.
"Ohio is the most expensive local government state in the United States," he said. "We have over 6,000 local taxing districts between school districts, cities, villages, townships, counties, the local sewer levy, the fire levy, whatever those things are. Ohio is the 13th highest-taxed state when you consider all taxes, state and local, but when you consider just states, we're in the 30s. So the state tax burden is already pretty competitive."
Huffman pointed to efforts in the statehouse to alleviate this burden, but he noted that this is a decision that the voters have to make in their own localities.
"One of the things we're doing in this budget that's about to come out is that school districts — many of them, not all of them, but many of them — have more money than they can spend," he said. "So we're going to say in this budget that if you have extra money, you need to reduce the real estate taxes of the people who pay the following year, so we're getting immediate relief."
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