Open for business: State Rep. visits Marietta to talk about effort to phase out certain taxes

State Representative for Ohio House District 56 Adam Mathews speaks to a group about companion Ohio House and Senate bills that seek to phase out the state’s income tax by 2030. (Photo by Michelle Dillon)

A state representative came to Marietta Wednesday to discuss the future of Ohio’s income tax.

State Representative for Ohio House District 56 Adam Mathews gave a presentation at Freedom Gate Church Wednesday evening about two bills that were introduced during this legislative session that would get rid of the state income tax on non-business income and the commercial activity tax (CAT) by 2030.

“The reason we’re here tonight is because there’s a very exciting idea being talked about in Columbus and that is making some changes to or possibly even eliminating our state income tax,” Washington County Commissioner Kevin Ritter said as he introduced Mathews.

Mathews said bills were introduced in the Ohio House and Senate this legislative session, the 135th General Assembly, that would phase the income tax and CAT out over six years. House Bill 386 was sponsored by Mathews and State Representative for Ohio House District 70 Brian Lampton and Senate Bill 216 was sponsored by State Senators George Lang and Stephen Huffman, according to Mathews.

Mathews sponsored HB 386 because he has five children and he wants them to live in a state with the same economic activities he had growing up that allowed him to come back to Ohio after he left as an adult, he said.

State Representative for Ohio House District 56 Adam Mathews speaks to a group about companion Ohio House and Senate bills that seek to phase out the state’s income tax by 2030. (Photo by Michelle Dillon)

He is also involved in the effort to phase out the state income tax because ever since Ohio started the tax in 1971 it has lost relative population and therefore has lost representation in Washington, D.C., he said.

If the state income tax is phased out then the CAT needs to be phased out so as not to create reverse incentives for moving into the state, according to Mathews.

Mathews shared some details on how the bills would accomplish phasing out the state income tax and the CAT.

For tax year 2024, there are two tax brackets for the state income tax: 2.75% for taxable income from $26,050 to $100,000 and 3.5% for taxable income over $100,000, according to an Ohio Legislative Service Commission (LSC) final bill analysis for House Bill 33, which was passed during the 135th General Assembly and which reduced the brackets from three to two.

HB 386 would reduce the tax rates to 2.73% for the $26,050 to $100,000 bracket and 3.10% for the over $100,000 bracket for 2025; 2.70% for both brackets for 2026; 2.03% for both brackets for 2027; 1.35% for both brackets for 2028; and 0.68% for both brackets for 2029. The bill would completely get rid of the state income tax for 2030 and forward.

HB 386 was introduced Jan. 24 and referred to the House Ways and Means and the committee has held two hearings on the bill so far on April 9 and May 14, according to the Ohio Legislature’s website, and only supporters of the bill spoke at the committee meetings.

Its current status is still referred to committee.

The bill would also repeal the CAT by 2030, which is a tax on the gross receipts of business that are more than $3 million, according to an LSC Bill analysis of HB 386.

This threshold for when the CAT applies to business receipts will be raised to $ 6 million in 2025 based on a previous bill and HB 386 would keep this threshold until the repeal of CAT in 2030, the LSC analysis said.

“The bill’s phase out of the state income tax and CAT would reduce state revenue by an estimated $13.6 billion in 2031, with $11 billion being associated with the repeal of the state income tax and $2.7 billion associated with the repeal of CAT,” according to an LSC fiscal note and impact statement for HB 386.

The revenue reductions associated with phasing out the state income tax and CAT would be felt the most by the state’s general revenue fund with losses totaling $13.2 billion in 2031, followed by the local government fund and the public library fund losing $0.2 billion each in 2031, according to the LSC fiscal note and impact statement.

A portion of general revenue fund tax collections are distributed to the local government fund and the public library fund and through them to counties who then distribute the money to local governments and public libraries respectively, according to the Ohio Department of Taxation website.

SB 216 would do the same thing as HB 386, lower the tax rate for both brackets year after year until the state income tax is zero in 2030, but the amounts are different. It would lower the rates to 2.73% for the $26,050 to $100,000 bracket and 3.1% for the over $100,000 bracket for 2025; 2.7% for both brackets for 2026; 2.03% for both brackets for 2027; 1.35% for both brackets for 2028; and 0.68% for both brackets for 2029, according to an LSC bill analysis for SB 216. SB 216 would treat the CAT the same way as HB 386.

SB 216 was introduced by Lang and Huffman Jan. 23 and was referred to the Ways and Means Committee Jan. 24. The Ways and Means Committee has held no hearings yet and the status of the bill is still referred to committee.

SB 216 would lead to similar general revenue fund losses as HB 386, according an LSC fiscal notes and local impact statements for SB 216. The losses would total $13.68 billion in 2031, with $11.02 billion being associated with the phase out of the state income tax and $2.66 billion being associated with the CAT phase out. The statement does not give specific figures for how much the local government fund and the public library fund would lose.

Mathews described Ohio’s standing in regards to taxes compared to other states.

“Ohio’s taxes by themselves, any one of them is not really that bad … Putting all of them together, we do all of these taxes that cause them to be less business friendly than it needs to be,” he said.

He said states like Indiana are doing better economically and are growing faster than Ohio, even though they are a similar state to Ohio, because of their lower taxes.

Ohio needs to “regain its foothold as an economic engine of the Midwest that we used to be.”

He acknowledged that there will be less general revenue fund tax collection, putting the number at $8 billion as opposed to $11 billion due to about $3 billion a year in tax collections being sent back out to constituents as tax credits.

He suggested the state could make up that $8 billion through increasing natural gas drilling, saying a single access point for natural gas is worth $1.2 billion. When an unnamed attendee asked what he meant by an access point Mathews described it as “there’s state lands that have access to the natural gas and so drilling or having access, that’s one access point, so using one piece of state land would do that and there’s numerous (ones) throughout Ohio.”

He suggested another way to get the $8 billion would be to reign in spending and he pointed out the last state budget was $86 billion but in the 2010s the budgets were around $60 billion. He said specific cuts would be determined by the state legislature when they work on future budgets over the next six years of the tax phase out. He also said that once economic activity increases less money will be spent on services due to the situation in Ohio getting better, but they would not reduce the amount of money spent per person.

He also addressed the effect the decrease of general revenue fund tax collections might have on local governments. He said that if the state mandates things that must be done by local governments then the state should pay for those things, such as indigent burials, public defenders and maybe things like foster care and services for people with developmental disabilities. He said local governments should pay for things like parks, schools and roads.

He said if the revenues don’t come in as they expect over the next six years, the legislature will hold where they are on phasing out the taxes and take a look around and make sure everything is going well.

He also said while they are phasing out the taxes they would use information from the budget office about revenue coming in to have the LSC tell them what their revenue targets should be.

Getting rid of the state tax on personal income and the CAT will make Ohio a “beacon in the Midwest that we are open for business,” Mathews said.

Ohio House and Senate Bills can be searched and tracked on the Ohio Legislature website at https://www.legislature.ohio.gov/.

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