News Release: Phasing Out Ohio's Income Tax

posted August 25, 2008

Columbus - Ohio could significantly boost its economy by phasing out its income tax, according to a study released today by the Buckeye Institute, a Columbus-based free-market think tank.  The report provides state lawmakers with a road map to phase-out Ohio's economic growth-hindering state income tax over a 10-year period.  It is available online at http://www.buckeyeinstitute.org/docs/incometax.pdf.

"Ohio's economy is anemic, ranking near the bottom of most lists on job creation, new investment and business climate," said report author Dr. Eric N. Fisher, a Buckeye Institute adjunct scholar and former professor of economics at Ohio State University. "The state, not surprisingly, is also ranked among the most heavily taxed. It's time for Ohio policymakers to consider dramatic steps to reverse its long-term decline by creating an investment friendly business climate. Abolishing the state income tax, while politically bold, should be near the top of their agenda.

Dr. Fisher's analysis found that Ohio's high and complicated income tax system puts the state at a competitive disadvantage. His research suggests that eliminating the state income tax would increase Ohio's long-run annual rate of per capita economic growth from around 2.1 percent to near 2.5 percent. Dr. Fisher's findings indicate the change makes the difference between Ohio continuing to lose ground to other states and holding its own in an increasingly dynamic, globally competitive American economy. Further, his study found that abolishing the income tax would allow the state to double its standard of living in 28 years, five years sooner than under current trends.

"Our plan will revitalize the state's crumbling economy and usher in a new era of economic prosperity, and truly turnaround Ohio," said Buckeye Institute President David Hansen.  "State Representative John Adams and others have already introduced a bill to eliminate the state income tax.  Dr. Fisher's research proves their bold step will improve Ohio's business climate and enable a job-creating economic environment."

In the report, Dr. Fisher suggests lawmakers eliminate the income tax in steps. The first step continues to phase in the reduction of income tax rates by one-fifth over the next five years, as planned under the current law. Then law makers should accelerate phasing out of the remaining four-fifths of the income tax between fiscal years 2013 and 2020.

"If Ohio holds the line on spending and completely phases out the income tax, I actually project large budget surpluses in the years after the income tax starts to be phased out. Revenues from the CAT will be much higher than Ohio's Office of Budget and Management has forecast," added Dr. Fisher.

Dr. Fisher is a professor of economics at California Polytechnic State University specializing in macroeconomics, international economics and trade, and money and banking.  Dr. Fisher earned his Ph.D. in economics from the University of California at Berkeley.

The Buckeye Institute for Public Policy Solutions is a nonpartisan research and educational institute devoted to individual liberty, economic freedom, personal responsibility and limited government in Ohio.