Rep wants end to Ohio’s cap gains tax; analysis shows it would cost $600M

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(The Center Square) – An Ohio state representative on Tuesday touted legislation to eliminate the state’s capital gains tax, saying it would increase revenue by encouraging new business creation and entrepreneurship in the state.

“If we want entrepreneurs to build here and we want retirees to stay here, and we want capital flowing into our communities instead of leaving the state, then we need to act,” State Rep. Tom Young, R-Washington Township, said at a news conference.

He has introduced House Bill 617, the Capital Gains Tax Repeal Act.

Cutting taxes can actually increase state revenue, the legislator said,

“We cut the income tax,” Young said. “What did we see? Increase in revenue.”

The reason revenue increased was the “dynamic and velocity” of money, Young argued.

“When you are putting more money into people’s pockets, they spend more, they invest more, they expand and they grow,” Young said.

However, a state fiscal analysis of the bill comes to a different conclusion.

The state’s nonpartisan Ohio Legislative Service Commission estimates a revenue loss of between $615 million and $645.6 million in 2027 and between $647.8 million and $679.8 million in 2028.

“The revenue loss is generally expected to grow over time, but capital gain income tends to fluctuate from year to year because it correlates with changes in financial markets,” the analysis said.

Some cities would also see lower revenues under the legislation because they have included capital gains in their municipal income tax, the analysis said.

“Similarly, school districts that levy income taxes using the traditional method, which is based on modified adjusted gross income, would see a reduction in income tax revenue under the proposed exemption,” according to the analysis.

Young countered, however, that the legislative analysis does not take into account the increased business activity that is generated when taxes are cut. It takes money out of the government’s coffers and puts into the much more dynamic private sector, he said.

“The government does a terrible job in spending our dollars,” he said. “I’d rather have it in the citizens’ pockets.” 

Currently, businesses can deduct up to $250,000 of business income from federal adjusted gross income, according to the legislative analysis of HB 617.

 “Among other things, business income includes the gain or loss arising from a partial or complete liquidation of the business as well as income from certain sales of equity or ownership interests in the business,” it said.

With more tax revenue, government only continues to grow larger and larger, Young said.

“The issue there is the interpretation of what is more important: the citizen and their pocketbook versus the expansion and growth of government, which I consider too big, too large,” Young said.