COLUMBUS, Ohio (WCMH) – A state lawmaker envisions a future where Ohioans aren’t required to give a penny of their paychecks to the state government.

A bill introduced by Sen. Steve Huffman (R-Tipp City) would repeal Ohio’s personal income tax over the course of 10 years, with a 10% annual reduction until Ohioans’ incomes are no longer taxed.

While some sounded the alarm about “disastrous” effects the bill could present for the state’s source of funding and for low-income families, others said it’s a long-overdue tax reform that will generate economic growth and allow Ohioans to recoup more of their paychecks.

“It makes the business environment more desirable for businesses, and it also puts that million or billion dollars back in everybody’s pocket every year,” Huffman said.

Ohio generates billions from the state’s income tax

The state’s income tax, enacted in 1972, generates on average about one-third of the state’s general revenue fund – which pays for everything from state parks to prisons, according to the Ohio Department of Taxation. 

In 2010, Ohio generated $7.8 billion from the income tax, with the highest income bracket taxed at about 6%. Four sets of tax reductions later, Ohio derived even more, raking in $9.3 billion in income tax revenue in 2019, with the highest income bracket taxed at about 4.8%, according to the Department of Taxation.

The tax cuts coupled with a growth in revenue is a sign, Huffman said, that demonstrates the Laffer effect – an economic theory that contends tax reduction stimulates increased circulation of money throughout the economy.

“Rather than pay $1,000 in personal income tax, you’re gonna go out and buy clothing, buy food, buy a car, and that’s going to generate more people going to work,” Huffman said.

Fiscal YearTotal Revenues (in millions)
Individual Income Tax Collections: Fiscal Years 2017-2021 (in millions)

But Guillermo Bervejillo, a state policy fellow at the left-leaning think tank Policy Matters Ohio, said repealing the state’s income tax entirely would lead to “disastrous” outcomes, both for the state’s economy and the greater social context.

“Over the past 17 years, we’ve been cutting income taxes, and what that’s led to is tax reductions for the wealthiest Ohioans and tax increases for the poorest Ohioans,” Bervejillo said. 

Since Ohio began a series of tax cuts and reductions to the number of income brackets in 2005, Bervejillo said the wealthiest 1% of Ohioans making an annual income of $551,000 are seeing average annual tax cuts of $51,000, citing a February report from the Institute on Taxation and Economic Policy.

Taxes for the bottom 20% of Ohioans, who make $23,000 or less per year, on the other hand, have witnessed an average $164 increase since 2005, the report found.

“[It] doesn’t sound like much, but it’s a week of groceries,” Bervejillo said.

How could Ohio recoup the loss in income tax revenue?

To fill the void of what he said would be an $8 billion loss of income tax revenue each year, Bervejillo said the state would likely have to make sacrifices elsewhere – like implementing higher sales taxes or slashing the state’s investment in infrastructure, public education, or state-run medical programs.

Unlike the state income tax, Ohio’s 5.75% sales tax is uniform across the board, meaning residents pay the same tax on goods regardless of their income level.

An increase in taxes elsewhere, like sales and gas taxes, would fall disproportionately on the shoulders of low-income families, according to state Sen. Nickie Antonio (D-Lakewood).

“Low-income people are then going to be shelling out more money out of their pocket for basic necessities, food, than someone who makes a higher income who it’s not going to be that big of a percentage of their overall annual income,” Antonio said.

Huffman asserted that he has no plans to boost taxes elsewhere. A full income tax repeal, he said, would further stimulate economic and job growth by encouraging businesses, like Intel, to relocate to and invest in Ohio.

“If you’re looking at northwest Ohio near Toledo, or southeast Michigan, and you’re a business and you know Michigan’s at 5% (income tax) and Ohio’s at zero, you’re essentially giving your worker a 5% pay increase without any more money out of your pocket,” Huffman said.

Ohio Taxable IncomeTax Calculation
$0 – $25,0000.0%
$25,001 – $44,250$346.16 + 2.765% of excess over $25,000
$44,250 – $88,450$878.42 + 3.226% of excess over $44,250
$88,450 – $110,650$2,304.31 + 3.688% of excess over $88,450
More than $110,650$3,123.05 + 3.990% of excess over $110,650
Ohio’s income tax rates, for taxable years beginning in 2021

Bervejillo isn’t swayed by the promise of greater business development. A company’s decision to break ground relies on a multitude of factors besides the state’s taxation scheme, he said. 

“Businesses move to a place according to infrastructure, education levels, logistical, strategic positioning – a whole load of characteristics that a state might or might not have, many of which are dependent on the state services funded by the state income tax,” he said.

If Huffman’s bill is enacted, Ohio would join nine U.S. states that have no income tax, according to an American Association for Retired Persons report.

Rea Hederman, executive director of the economic research center at the right-leaning think tank The Buckeye Institute, said the fact that Ohio is basking in a $1 billion surplus is yet another reason why the time is right for a full income tax repeal.

According to the Office of Management and Budget, the state’s unencumbered ending fund balance for 2022 – the anticipated remaining revenue after expenditures through July to November – is estimated to be $2.75 billion. 

While the OMB said that number could be lower due to future expenditures, Hederman said Ohio’s economy is booming, largely due to Gov. Mike DeWine’s decision to limit state spending during COVID-19.

“They can take their tax dollars and be able to spend it on their needs, making sure you have plenty of gas or extra help for a child that’s in K-12 that’s seen their education disrupted, or a nice family vacation where they get a chance to relax,” Hederman said. “Everyone could use a chance to get more money in their pockets.”