Ohio would phase out its income tax (on nonbusiness income) entirely and eliminate the Commercial Activity Tax (CAT) as well under plans announced Tuesday.
Reps. Adam Mathews (R-Lebanon) and Brian Lampton (R-Beavercreek) and Sens. Steve Huffman (R-Tipp City) and George Lang (R-West Chester) said at a Statehouse press conference they’re introducing two variations of the plan, reflective of their call to put the end goal in sight but tailor the specifics to changing economic conditions.
The Senate plan was introduced later Tuesday as S.B. 216 (Lang-S. Huffman); the House plan was introduced on Wednesday as H.B. 386 (Mathews-Lampton).
“Whether that is going flat faster, whether that is going lower faster, whether it’s holding a bit with economic conditions, that’s fine, as long as we hit the goal at the end,” Mathews said.
Mathews likened it to President John F. Kennedy’s pledge to put men on the moon by the end of the 1960s, which depended on technological advances yet to be achieved at the time. They plan a series of town hall meetings to share the plan more widely, he said.
Lang said Ohio’s recent record of cutting income taxes and the economic arguments of Arthur Laffer show that tax cuts drive revenue growth though greater economic activity.
“Let’s go back to 1970,” Lang said, referencing the year before Ohio’s income tax was instituted. “Not only was the music a lot better then, but Ohio’s business environment was rocking and rolling.”
In the time since, Ohio has regressed from the 12th largest economy to the 24th, and seen its congressional delegation shrink from 24 to 15 members, Lang said. “One tax after another, one regulation after another, and we started driving businesses away,” he said.
Huffman said the legislation builds on his 134-S.B. 327, which proposed a 10-year phaseout of the income tax on nonbusiness income.
The lawmakers said their plan is not based on finding spending cuts, though Lang expressed hope that an improved economic climate would see greater workforce participation and thus lower spending on assistance programs.
The planned legislation would leave Ohio mostly dependent on the sales and use tax, which has been the largest tax source for the past several years as lawmakers have cut income taxes, partially offset with a sales tax increase in the FY14-15 budget, 130-H.B. 59 (Amstutz).
At the time of its passage, the current biennial budget, H.B. 33 (Edwards), was built on forecasts of about $28 billion in sales tax revenue over the biennium, compared to about $22.6 billion in income taxes and about $4.3 billion in CAT revenue.
The two plans would both phase down the rates for Ohio’s current two-bracket income tax structure at differing paces. The House plan (option 2 in the chart below) collapses the tax into a single bracket of 1.17% in 2028, with a full phase-out by 2030. The Senate plan (option 1) consolidates the brackets more quickly, bringing them together at 2.7% in 2026, again with a full phase-out by 2030.
