Ohio lawmakers look to eliminate highest income tax rate, switch to flat tax
COLUMBUS, Ohio (WCMH) -- Ohio lawmakers are looking to eliminate the state's highest income tax rate and instead switch to a flat tax of 2.75%.
Supporters of the bill said the change would help Ohio compete with neighboring states. Opponents said the bill would mostly benefit the state's wealthiest residents and could lead to higher costs for low- and middle-income residents.
Ohio has three tax rates: 0%, 2.75%, and 3.5% for tax year 2024. House Bill 30 would phase out the 3.5% rate and tax all income levels at a flat 2.75% beginning in tax year 2026. For tax year 2025, the highest income tax rate would be reduced from 3.5% to 3.125%.
Beginning in tax year 2026, the highest tax rate would be eliminated and all income over $27,350 would be taxed at a rate of $378.69 plus 2.75% of excess over $27,350.
Tax rates for TY 2024
| Taxable Income | Tax Rate |
| $0 - $26,050 | 0% of nonbusiness income |
| $26,051 - $100,000 | $360.69 + 2.75% of excess over $26,050 |
| $100,001+ | $2,394.32 + 3.50% of excess over $100,000 |
Proposed tax rates for TY 2025
| Taxable Income | Tax Rate |
| $0 - $26,700 | 0% of nonbusiness income |
| $26,701 - $102,400 | $369.69 + 2.75% of excess over $26,700 |
| $102,401+ | $2,451.44 + 3.125% of excess over $102,400 |
Proposed tax rates beginning in TY 2026
| Taxable Income | Tax Rate |
| $0 - $27,350 | 0% |
| $27,351+ | $378.69 + 2.75% of excess over $27,350 |
The House Ways and Means Committee had its first hearing on the bill on Wednesday. In sponsor testimony, Reps. Adam Matthews (R-Lebanon) and Brian Lampton (R-Beavercreek) wrote that getting rid of the highest tax rate and switching to a flat tax of 2.75% would help Ohio compete with neighboring states for growth and investment.
The bill's sponsors said that neighboring states like Pennsylvania and Indiana have flat taxes that are lower than Ohio's highest rate.
"House Bill 30 and its implementation of a 2.75% flat tax rate will put Ohio in a position to lead the Midwest with a lower tax than our neighbors, thereby making us an economic model for the region," the sponsors wrote.
Matthews and Lampton said Ohio's population has declined every census since 1971 when the state had nine tax brackets with a top rate of 9.5%.
"This legislation is another important step that continues to build on the work we have already done to reduce the burden of taxation on the people," Lampton said in an statement to NBC4. "By leaving more money in the hands of those who have earned it, we empower Ohioans to pursue their own ends and create more opportunities for economic growth in our great state."
"Ohio is ready to reclaim our role as the economic engine of the Midwest. In just two years, we could have the lowest income tax in the region, thereby becoming a beacon of economic freedom and encouraging new investment in our state," Matthews said.
Policy Matters Ohio, which opposes the bill, said the proposal would not provide any benefits to households with incomes less than six figures while gutting the state's budget.
Bailey Williams, a tax policy researcher with Policy Matters Ohio, said that if the bill passed, it would mean libraries and school teachers would pay the same tax rate as corporate CEOs and professional athletes.
"A flat tax is a handout to the most well-off among us -- and it will devastate Ohio's ability to provide services that benefit everyone," Williams said in a statement.
Citing the Institute on Taxation and Economic Policy, the organization said the bill would cost more than $1 billion -- equal to about 11% of the state's income tax revenue for fiscal year 2024's General Revenue Fund.
"Ohio is already struggling to constitutionally fund our public schools, stabilize our failing childcare market, and provide meaningful property tax relief," Williams said. "Instead of addressing those issues, lawmakers would rather continue to shift Ohio's taxes onto low- and middle-income families."
Williams said that local governments would have to either cut back on services or ask citizens to pay more, usually through property tax levies, as more public service costs would be passed on to local communities.
"The historic rise in property values since the pandemic has shown the problem with overreliance on property taxes," he said. "HB 30 will make things worse for those who can afford it least."
Policy Matters Ohio called on lawmakers to reject HB 30 and instead close "wasteful loopholes," tax corporations and target tax credits where they're most effective.
Matthews expressed optimism about getting the bill passed.
"Previous General Assemblies have included tax cuts in our recent state budgets, and I would expect we can get one done now as well," he said.