New Book: Ohio Illustrated A Visual Guide to Taxes and the Economy

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Washington, DC (June 7, 2017) – Ohio’s tax code contains a number of provisions that may hinder its ability to compete economically with other states. A new book by the Tax Foundation, Ohio Illustrated: A Visual Guide to Taxes and the Economy–produced in conjunction with the Buckeye Institute–provides a detailed overview of the state’s economy and tax code and highlights areas of Ohio’s tax system that are most in need of improvement. 

Economically, Ohio has recently tracked the national average for unemployment, but the state is starting to fall behind in other areas, such as per capita income. An aging population and out-migration are shrinking Ohio’s workforce. To help the state bounce back, Ohio policymakers need to improve its uncompetitive tax code to make the state a more attractive place to do business. 

Key Findings

  • One of the worst business tax climates in the country: The Tax Foundation’s State Business Tax Climate Index ranks states by their tax structure, and Ohio’s needless tax complexity helps to drive its rank down to 45th in the country.
  • Economically detrimental gross receipts tax: With the commercial activities tax (CAT), Ohio is one of only four states that imposes a gross receipts tax, which means taxes are levied at each stage of production, not just on final consumption. This hidden tax leads to higher consumer prices, lower wages, and fewer job opportunities as the tax pyramids throughout the production cycle. This also leads to vastly different effective rates between different industries in Ohio.
  • Municipal income tax system is a mess: Ohio’s top state income tax rate of 4.997 percent is relatively low, but the state also has a complex web of local income taxes that makes Ohio’s personal income tax one of worst in the country. Hundreds of municipalities and school districts impose local income taxes based both on where taxpayers work and live. Businesses face extra compliance costs by having to manage tax withholdings. Some parts of Ohio have top combined marginal tax rates of approximately 9 percent, similar to high tax states like New Jersey and New York.

State policymakers need to consider not only tax burdens, but also tax fairness. With the CAT and administratively complex local income taxes, Ohio’s tax code imposes an additional burden on the economy. This book illustrates that lawmakers in Ohio could improve the state’s business climate by collecting tax dollars in a more efficient, fair, and transparent manner.

“Ohio’s tax code is needlessly complex and burdensome,” said Scott Drenkard, the Tax Foundation’s director of state projects. “With one of the worst municipal income tax systems in the country, the compliance cost for many taxpayers is higher than their actual tax liability. Additionally, the state’s Commercial Activities Tax is one of the most harmful tax types, leading to tax pyramiding and higher prices for consumers.”

Rea S. Hederman Jr., executive vice president at The Buckeye Institute, added:

“Ohio’s tax code contains too many provisions that hinder its ability to compete economically with other states. Ohio Illustrated shows how the state’s growing tax burden has resulted in slower economic growth over the past several decades. This new book shows precisely how tax policy affects families, businesses, and our state’s economic development.”

The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.

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