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More at OHEA.org Republicans say the capital gains tax kills economic activity, but opponents say cutting it only benefits the richest people in Ohio.

Both sides of that debate this weekend.

The state of Ohio.

Welcome to the state of Ohio.

I'm Karen Kasler.

The issue of affordability will play a big role in the race for governor in Ohio this year, with candidates from both parties already talking about tax policies that they say will help.

Though neither leading Republican or Democratic candidate is giving specifics on how they pay for their plans since he launched his campaign last year, Republican candidate for governor Vivek Ramaswami, has talked about some specific tax cuts, specifically the income tax and the capital gains tax, or the tax on profits from sales of real estate stocks and other investments.

He spoke at a Turning Point USA event at Ohio State University on April 21st and vowed he would eliminate the state income tax, which became a flat tax in the budget signed last year, as well as the capital gains tax both in his first budget as governor.

I will give you this by the end of 2027.

We win this election big in November.

I take the oath of office in January of 2027.

By the end of 2027, high paying jobs will be moving back to Ohio because we're ending capital gains, taxation and eventually income taxation in the state.

But all that doesn't come without a cost.

And an analysis from legislative researchers shows around 81.5% of the more than $600 million benefit goes to Ohioans making over $200,000 a year, and 55% of the overall total benefit goes to people in the million dollar plus bracket.

Legislative researchers say the revenue lost to the state is generally expected to grow over time, but capital gains income tends to fluctuate from year to year because it correlates with changes in financial markets.

The idea has already been proposed by Republican Representative Tom young, who says he's done the math a bit differently.

I asked him why he thinks scrapping the capital gains tax is a good plan.

The entire idea about this is that.

The flow of money and capital investment, and to incentivize people who want to continually invest in Ohio with their own capital, to expand their business, to make payroll, to buy capital, equipment and things like that, it opens the door because most of those are one time transactions historically.

And my feeling is, is that for why should the government punish people who own a small business or a large business?

And let's be clear.

It's the capital gains tax.

It does go to the upper tier mostly, but it does involve also retirees, small business owners, family business owners as well.

So it's a much broader picture than just looking at one group or whatever.

So this is about incentivizing capital investment for people to invest in Ohio.

Keep the money in Ohio.

And that's really the key to this.

The fiscal note from the Legislative Service Commission said it costs the state between 615 million and 640 5.6 million in 27 and 28 those tax years, and 67 679.8 million the following year.

Now you had different numbers because you said you did dynamic scoring, and those numbers range from like 185 million all the way up to maybe 650 million.

This seems like it's a very movable target here in terms of what revenue the state would be counting on or losing.

How do you how does the state budget for for this, if they don't know how much they're going to lose?

Well, the the number from LLC is a static number like I brought brought up.

But you know, in my opinion, governments like a vulture.

And it's it's it.

Why should our focus be on how much the government's going to get versus how much the taxpayer is going to receive, because they took all the risk they used after tax dollars?

In most cases, they've already been taxed once, and they're investing capital and creating jobs in Ohio.

And it's a retiree who has to take a distribution and they have to be taxed on the income.

But if they have a non-qualified account and it's stock, then they have to pay capital gains, which affects them as well.

After they've already paid taxes on the initial investment in the first place.

But it's more dynamic than that.

You you you the timing of a sale is important.

We I looked at that.

I also looked at the fact that in most cases it's a one time transaction.

I also looked at the migration of money and funds.

Those are really important aspects of of what happens with the money.

Once you grow your assets and you sell that.

So there are many, many other aspects that I put into my dynamic scoring per capita income classifications, how many businesses, how many people filed for capital gains that would have the capital gains tax in Ohio in the last tax period, let's say 2324.

But let's look at it this way.

I believe in 2020, and you'll have to correct me on this.

I think I may have it here, but I believe it was 2020.

Three.

I think the gross what would be the gross taxable income tax was around $40 billion or something like that.

But in 2022 we had a market correction and it was about half that amount of money.

So it shows you the volatility range of what capital gains could be.

Now, I've seen two Legislative Service Commission analyzes of this.

One showing 81.6% of the overall benefit would go to Ohioans making more than $200,000 a year.

There's a second analysis I obtained that had a more detailed breakdown, showing 55.6% of the benefit would go to people making over $1 million a year, which is around 15,000 Ohioans who are in that category.

That means people under $200,000 a year are getting just 18.4% of the benefit.

People want under $100,000 a year, get 7.3% of the benefit.

I know you said that this really is about businesses and higher income people, but it could cause the state this much money and so few people would potentially benefit.

Well, you're arguing that that the state is should be the beneficiary of the tax.

And I'm arguing and believe that the beneficiary should be for the people.

The state has no investment in this.

They have no risk.

No responsibility.

These are after tax dollars in most cases already.

These are capital investment.

Let's let's look at farming.

One out of eight people in Ohio or affected by farming.

It's the largest employer we have.

So if if we just take farming just as one small piece, I think it's about 3 to 5% of our gross GDP in Ohio.

Well, that's capital intensive.

It's tractors, it's grain.

It's whatever occurs in those things in those situations.

Well, why shouldn't farmer or the farming industry and those affected by that have the have the full responsibility of those assets working for them?

And when we're talking about capital gains, like I said before, governments acting like a vulture here, they have no right to that money in my opinion.

Why?

What have they put in?

They haven't built a road.

They haven't taken taken any risk whatsoever.

And the goal is to not penalize the citizens of Ohio in this broad range.

It includes it's inclusive of everyone.

And like I said before, it does affect the top end of people.

But that's not the total answer here.

It's the reinvestment of capital.

We want people to stay in Ohio.

We want that migration not to leave Ohio.

We want it to stay here and get reinvested.

When that happens, more people come.

And I've heard Republican candidate for governor, Vivek Ramaswami, talk about eliminating the capital gains tax, as well as eliminating the income tax and doing a rollback on property taxes to pre-COVID levels.

Can the state afford to do all of these things, I mean, and still be able to pay for its obligations to what is obligated to?

Well, I again would say this.

It's time to look at how we're doing government in Ohio.

And I believe that representative de Villa has a bill in regards to how to how do we look at the taxes in the future?

How do we do that?

And the question is, how much should government pay for?

And when?

I'm meeting with people now because of the concern on the property tax issue.

And here's what I'm saying.

Look at zero based budgeting, right?

If we were starting Ohio over again today, how would you do it?

Because we are caught in this repetitive commitment to things that now we're exposing fraud.

That means to me, government's too big, there's too much, there's too many people involved in the process, very little oversight, technology that doesn't talk to each other.

So what are we doing here?

So I say start over again.

Zero based budgeting.

Build your budget from scratch and find a way to not ask for any more money.

How are we going to do it now?

Because if we're wasting billions of money, right.

Billions of dollars.

And the quote was, that's the cost of doing business in Ohio.

Fraud.

Wrong answer, wrong answer, wrong answer for me.

So the idea is how big should government be?

Should the legislature they'll be doing this as opposed to offering property tax relief, which people keep saying that's what they want more than anything else.

Well, I agree with them.

We need to have property tax relief.

This is a challenge that we have in Ohio.

And you know how you've been in many hearings, many meetings.

It's highly complex.

We have a structure of government in Ohio.

It's multi-tiered.

In my county alone, 98 taxing entities in Montgomery County, 9899 Corvi taxes on soil 99 different.

That's astounding to me.

And we've set up a a system that has local control, which is fine.

But then when you do local control, local control controls how much your tax load is on your properties.

So we're trying in the legislature to do some very strong pieces of legislation, some of them that didn't get passed because of veto.

But we're doing the best we can with what we have.

It's just the clock's ticking for us to be able to do a comprehensive approach.

I've heard a lot of Republicans talk about Ohio should be more like Florida should be more like Texas, no income tax, no capital gains tax.

And even Vivek Ramos Swami's talked about, if we get rid of these things, our population could grow to 15 million.

And that kind of economic activity could really spark a lot of growth in Ohio.

But 15 million, that's like 26% growth.

I mean, that's more than any other state is done.

Is that realistic?

Is it realistic to to talk about all of this when we've seen other states do something similar and it hasn't paid off like we expect it will here?

Well, when we are compared to other states, I try not to look at that in all honesty, because it's a it's a different economy.

Texas is totally different than Florida.

We we're not a place where people come year round by vacation homes and we don't have to have energy.

Right.

And so my feeling is this if we're really going to do the right thing for Ohio, we are touching on the most important aspects.

One, when a business, when I'm talking to business people, their first question is not give me a tax break, a tax abatement.

No, they're looking for, first of all, human capital, right?

They need workers.

That's what we're trying to achieve.

Secondly, they look for infrastructure.

Right.

And that's what we're trying to to do in Ohio where our own game here.

Right.

We're control.

We're in control of our own destiny.

I can't waste time seeing what Florida is doing, what Texas is doing, because the people of Ohio.

Absolutely.

This is where manufacturing began.

This is where Tom Watson worked for NCR and came up with the idea of IBM, the Wright brothers.

I mean, we are a state that at one time had more patents.

In Montgomery County than all the all the states combined.

And so that's where that's our core, right?

That's where we build on.

Again, Vivek Ramos has talked about exactly this is this bill.

Was this his idea?

Did he come to you and ask you to carry this bill forward?

No.

Actually, the first time I ever had any contact with him was he must have seen the press conference.

And it was probably one of your great questions.

And he texted me and said that he was really excited about the bill.

617 how do you sell this bill to people who are in that under 200,000, under 100,000 who won't see a benefit from this?

How do you sell them on this is a good idea when the benefits going so dramatically to people at the top end.

Well, I don't think it takes a sales job.

I believe that re instituting that that money into the economy helps expand jobs.

And one of the things that we're seeing, of course, you know, I'm a huge advocate of literacy and the science of reading is we're starting to see improvement there.

And we've made a huge commitment.

But when you give a person a job, it totally changes their life.

And it has to be the right job and it has to be.

We have to train our people and educate our people, and we're doing that with stackable degrees and stackable certificates and earning earning their way through the process to be prepared for anything that happens.

to do if the state keeps cutting income taxes, eliminating capital gains taxes, rolling back property taxes, how do you invest in the infrastructure you need for a workforce and to bring in business?

Like you just said earlier, got to find a balance.

You got to find a balance.

And I don't believe you're going to have to cut some things.

You're going to have to cut some things.

But I don't is cut the right word or looking at the budget realistically and right sizing, right sizing, what government should be and what government should be doing and truly what their role is.

When you have to build, when you're building a house or you're putting a fence into your community, or you have anything going on around you, and the first call or the first question you ask is, we got to check with government.

Wrong answer.

Seriously.

But critics say eliminating the capital gains tax is again to one specific group of people, the wealthiest Ohioans.

That is, according to analyzes from the legislature's own researchers at the Legislative Service Commission and tax policy researcher from the Progressive Research Organization.

Policy Matters.

Ohio.

So the top 1% of Ohioans will receive 61% of the net capital gain currently received, 61% of net capital gains in the state.

And by cutting this tax, they will be seeing a tax cut on average of $6,424, almost $6,500, while the bottom 60% of Ohioans just received currently 3% of the state's capital gains.

And, you know, this cut will be having them see, you know, very minimal kind of benefit.

And for the bottom 20% of Ohioans, they'll be seeing no benefit, $0.

And so it's quite stark in terms of who is actually going to be benefiting from this.

And this is just a continuation of, you know, 20 years of policy within Ohio that has continuously benefited the wealthiest.

When I talked to representative Tom young about his bill, he confirmed that he's aware that it goes mostly to the wealthiest Ohioans, the upper tier.

But he said it also involves retirees, small business owners, family business owners.

And he says it's broader than just the super rich.

Is that what you have determined?

This does sometimes end up going to folks that are maybe not in the top 1%, but ultimately it's still even if it is those folks, they are still heavily concentrated and having incomes above 100,000.

I mean, the income for the top 1%, the average income is 1.8 million.

And I mean, it's really stark when 61% of that benefit is going towards them.

So even if it does go through other groups, there's still incredibly wealthy.

And this is at a time that Ohio is going to be seeing, you know, cuts from federal funding to Medicaid and Snap.

So this is incredibly fiscally irresponsible to be going, you know, towards this type of policy at a point where we can't guarantee services for everyday Ohioans.

And the flat tax that we passed last year is already expected to see us lose.

You know, I believe like 486.2 million in fiscal year 2026 and one over 1 billion in fiscal year 2027.

And so we're already making these tax cuts.

We're seeing the service and provision of things that go towards everyday.

Ohioans already be impacted, and we don't know how we're going to pay for them in the future.

It's fiscally responsible, and it's the same groups, retirees and small business owners that benefit from a state that can provide those services.

And so I would argue that cutting these, cutting this particular tax is going to have an impact for broad groups.

And, you know, they will be seeing the service laws.

While the benefit again, goes to overwhelmingly the wealthiest Iowans.

And if the state does turn to something else to raise revenue, you've predicted that they might be turning to taxes that really could be more regressive.

That's absolutely correct, Karen.

So sales taxes is another kind of large pot of money that goes into the GRF.

And that is a very regressive tax, meaning it takes more like a larger percentage of income from lower earning Ohioans than it does from more wealthy Ohioans.

And it's, I believe, like a 5.25% rate for the state of a different kind of levels locally.

But we're seeing discussions that, for example, if the property tax gets changed, that might already be changing.

And so, yes, we will see kind of a rise in regressive taxes.

And there's already things that are making that more of a reality.

We don't need to be pushing that further.

Young and other Republican leaders who support eliminating the capital gains tax say the state shouldn't be benefiting from this because the state didn't invest, the didn't do the investment, the state didn't take the risk, the state didn't assume the responsibility, and that those who are benefiting from the capital gains tax actually did.

So.

That's why they should get to be able to keep that money.

They have benefited from the investments, but they are still living in the communities that they are in.

And again, what gets invested into our GRF goes back into the communities of Ohio, into our roads, into our schools, into our services.

And so maybe the state didn't make that investment.

But in order for Ohio to continue to be an appealing state that people want to live in and prosper, we have to make those investments and we have to make it broadly.

And the truth is, our means to do that is diminishing, and we are continuously pulling money from the sources that allow us to do that.

And so I think, like we need to ensure the prosperity of all of our citizens.

And the way to do that is to ensure a fair and equitable tax system, especially through the progressive taxes that we can do.

I also ask Representative Young, how do you do things that he talked about being good about Ohio, for instance, workforce and infrastructure.

How do you do those things if you are cutting all of these other taxes?

And he said, it's just a matter of balance.

What do you think about that?

I'm not sure what he means by a matter of balance.

If we don't have that funding, I don't know how we pay for that.

And the thing is, for things like workforce training and whatnot.

The the end goal, again, is to bring in businesses to make an educated workforce.

But what we're seeing broadly is that while tax cuts are a part of what might make a business want to move to a state, it's actually not that significant businesses really care to be in states that invest in their infrastructure and their people and their services, and are good places to live.

So even if you are able to somehow make this balance and do all of this, you're not bringing the business to the state.

You're also, again, I don't really know what he means by balance, because if there's not that pot of funding, I'm not completely sure how he needs to balance that budget.

There is no other money.

Do you expect that if this would happen, that there would be more of a push down to the local level to I mean, we've seen that kind of tax shift going on for several years.

Do you expect that that kind of thing would continue?

Absolutely.

Yeah, I think like the increase, increased dependance on property taxes for things like schools and local services is in part because of the reduced share that the state pays towards those services.

There was a report by Brad Browning and Flatter earlier last year.

Greg.

Yes, yes.

And I believe it showed that like in 2003, Ohio paid like was 35th in the nation for its state share towards K through 12 funding.

And then more recently in 2023 it set 45th.

And so we've been seeing that reduced.

And you know people want these services.

They care about their community and they want to see their schools thrive.

Their fire and EMS services continue on.

And the services that take care of their vulnerable members of the community be present.

And it's just having to depend on property taxes, which, again, don't have the ability to necessarily look at what a person's earning they are in a form, a regressive tax, one that's needed, but one that could be having reduced responsibility if the state stepped up and paid his fair share through equitably taxing those who can pay more.

Policy matters.

Ohio notes that since 2005, $15.9 billion in revenue that would have been collected under the tax rate starting then has not been.

And the researchers maintain that because of that, the costs of services are going up across Ohio.

And that is it for this week for my colleagues at the state House News Bureau of Ohio Public Media.

Thanks for watching.

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Support for the Statehouse News Bureau comes from the law offices of Porter, Wright, Morris and Arthur LLP.

Porter Wright is dedicated to bringing inspired legal outcomes to the Ohio business community.

More at Porter Wright.com.

Porter Wright.

inspired every day.

And from the Ohio education Association, representing 120,000 educators who are united in their mission to create the excellent public schools every child deserves.

More at OHEA.org