Economic benefits of eliminating Ohio income tax questioned

State Rep. Adam Mathews, R-Lebanon, speaks during an Ohio House session at the Statehouse in Columbus, Ohio. (Photo by Graham Stokes for Ohio Capital Journal. Republish photo only with original article.)

Some Ohio lawmakers have proposed eliminating the state income tax, saying it would strengthen the economy. But a majority of economists surveyed on the matter disagree.

Republican lawmakers in both houses of the General Assembly filed a bill that would eliminate the income tax and the commercial activities tax by 2030 on the rationale that it would stimulate the economy.

“Ohio is ready to reclaim our role as the economic engine of the Midwest,” state Rep. Adam Mathews of Lebanon said in a January statement. “This step ensures Ohio is a destination for businesses to grow and attract people who want to work and live here, raise a family, and truly thrive.”

Politicians — particularly those on the right — have long claimed that tax cuts have a stimulative effect on the economy. 

But some economists have said it’s not that simple. The structure of the cuts is critical, and they have to be paid for with accompanying spending cuts, they say.

In addition, income tax cuts tend to be regressive, meaning they most benefit the wealthy in ways that don’t trickle down effectively to lower-income families. The 2017 Trump tax cuts blew up the deficit while primarily benefiting the richest Americans, according to many analyses. 

In Ohio, the state is already foregoing $1 billion a year in taxes on limited liability companies in a way that mostly benefits the wealthy. It was sold on promises that the cut would stimulate economic growth.

However, the LLC tax cut has been in place for a decade and the Federal Reserve Bank of Cleveland in March reported that Ohio’s economic growth between the fourth quarter of 2021 and the third quarter of 2023 was the fifth-worst of any state. 

In a survey released this week, a panel of 19 Ohio economists was mostly dubious that eliminating the Ohio income tax would help the state economy. Asked if they agreed that such elimination would stimulate growth, 11 disagreed, three agreed and four said they were uncertain. And all but one said eliminating the Ohio income tax would make it difficult to balance the state budget.

In the comment section of the survey, Jonathan Andreas of Bluffton University said that eliminating the income tax would cut down on bureaucracy.

“Although the federal income tax is a pretty efficient and very progressive way to generate revenues, state income taxes like Ohio’s are relatively regressive and Ohio’s is particularly burdensome relative to the smaller amount of revenue given that Ohio has three income tax authorities: state, school district, and local!” he wrote. “That is an absurd amount of bureaucracy for a much smaller amount of tax revenues than the feds get. I’d prefer that we just pay one income tax to the feds and have states generate revenues primarily through higher land taxes which are more efficient and about as progressive.”

But another economist, Will Georgic of Ohio Wesleyan University, said the Ohio proposal smacks of one tried in 2012 and 2013 in Kansas by former Gov. Sam Brownback. It failed to deliver the promised growth and it nearly bankrupted the state.

“I think that Ohio is more like Kansas than its lawmakers want to admit (and certainly more like Kansas than we are like Florida, Washington, Nevada, or Texas),” Georgic wrote, referring to states without income taxes. “This experiment did not go well for Kansas.”

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