The Great Ohio Tax Shift, 2026

Legislators make tax policy to benefit the rich and shortchange the rest of us

In 2026, millionaires in Ohio will pay the same 2.75% income tax rate as public school teachers, child care workers, firefighters or any Ohioan with income over $26,050. Twenty years ago, the Ohio tax code had nine income tax brackets; we taxed income over $200,000 at 7.5%.[1]

The “flat” income tax policy included in Ohio’s latest budget is the most recent step in a decades‑long pattern of tax cuts and loopholes that overwhelmingly benefit the wealthiest households while doing little or nothing for everyday Ohioans. The cumulative effect of these changes since 2005 amounts to a loss of several billion dollars in revenue every year.

Recent debates on property tax reform illustrate the impact of those losses: Ohio cannot equitably fund crucial services and infrastructure because our legislature has chosen to shift the responsibility for funding those resources onto low- to moderate-income families.[2]

Figure 1 illustrates the outcomes of significant tax policy changes since 2005, which have delivered large tax breaks to the wealthiest while requiring more from the lowest‑income Ohioans.[3] In 2026, one group will be paying more in taxes, on average, than they did 20 years ago: Ohioans with income below $26,000. This group — the lowest-income 20% — will see an average tax increase of $32.

In contrast, the highest-income 1%, those taking in more than $753,900 a year, will pay, on average, almost $69,000 less in taxes each year than they did in 2005. Ohioans in the middle three income groups will see modest tax decreases, averaging less than 1% of income for filers in the second lowest and middle-income groups and only slightly above 1% of income for those in the second-highest.[4]

For instance, Ohioans who earn close to the state’s median household income of $72,212[5] would see an average tax decrease of $459 a year—equivalent to just over $38 a month. By contrast, the top 5% of Ohioans are gaining tens of thousands of dollars annually from these cumulative tax changes.

Figure 1

These tax cuts come at a staggering cost: $17 billion in lost revenue a year.[6] That’s more than the entire $11.6 billion in General Revenue Funds that Ohio appropriated to K-12 education in fiscal year 2026, and over five times the $3 billion allocated to higher education.[7] These are some of the most significant findings of a new analysis conducted for Policy Matters by the Institute on Taxation and Economic Policy (ITEP), a non-partisan think tank with a long history of state-level tax analysis. ITEP used a sophisticated model of Ohio’s state and local tax system to estimate the impacts of major tax legislation since then-Governor Robert Taft’s 2005 state budget bill. These changes include adjustments to the state’s personal income taxes (including the recent move to a flat tax), the restructuring of in-state corporate taxation, and changes made to sales and excise taxes.

Legislators made Ohio tax policy more regressive

ITEP’s analysis examines two categories of changes to the Ohio tax code: changes made to personal income taxes and changes made to other types of taxes.

Income tax changes include adjustments to rates, bracket structures, exemptions, and deductions that apply to all forms of personal income (including business income) reported in annual tax filings.

The second category includes changes to sales, excise, and corporate taxation. (See appendix for a detailed list of changes included in ITEP’s model.)

Figure 2 shows the estimated impact of major tax changes since 2005 on Ohioans in different income groups, reflecting the combined impact of both categories of tax changes discussed above.

Figure 2

The disparities illustrated in Figure 2 primarily result from regressive taxes: taxes that take a larger share from those with the lowest incomes because they don’t factor in a person’s ability to pay.[8] The sales tax is especially regressive since people with lower incomes spend a larger share of what they earn — and more of that spending is on taxable items.[9]

In contrast, progressive taxes ask more of those who have more, ensuring that the wealthiest contribute a higher share of their income. The state income tax is Ohio’s only progressive tax, though for decades legislators have been making it less so.[10]

Figure 3 shows who in Ohio benefited from income tax changes since 2005 by income group. While each income quintile received an overall tax cut on average, the cut is not evenly distributed. For example, the lowest-income Ohioans, those making less than $26,000 a year, receive an average tax cut of $131 a year, just 1% of nearly $15.9 billion in income-tax cuts. That’s just under $11 a month. Two decades of massive income tax cuts have, on average, yielded the lowest-income Ohioan barely enough to buy lunch once a month.[14]

Figure 3

For the typical (median) Ohio tax filer, 20 years’ worth of tax cuts won’t even cover one month of living expenses. Ohioans in the middle of the income distribution, those making between $50,200 and $84,500 a year, receive an average income-tax cut of $821 annually. That’s an extra $68 or so in their pockets every month: enough to cover about a third of that month’s electricity bill,[15] but not enough to significantly increase financial security, especially considering that more than half of that cut will be absorbed by other taxes. 

By comparison, personal income-tax policy changes made since 2005 have resulted in the wealthiest Ohioans reaping windfalls worth thousands, if not tens of thousands, of dollars annually. As of 2026, households in the top 20% of Ohio’s income distribution, those with annual income over $140,000, average an annual income tax cut of $9,172 a year. This group captured a staggering 74% of nearly $15.9 billion in income tax cuts—leaving only about a fourth of the share for the rest of us.

Even among those who disproportionately benefit, the wealthiest of the wealthy take home an outsized share of these tax cuts. Those who make at least $753,900 — the highest-income 1% of Ohioans —captured over a quarter of the $15.9 billion in cumulative income tax cuts. That’s an average cut of $67,983 annually: more than enough to purchase a new Lexus RX 500h F Sport Performance every year. [16]

The “bottom” 80% — the vast majority whose annual income is under $140,100 — split the same share as the top 1%. In fact, over the past two decades, policymakers have given the highest-income 1% a larger monthly tax cut ($5,583) than the bottom 80% see in an entire year ($3,259).

Policymakers have a tool that could help reduce these stark disparities: Bracket indexing adjusts income‑tax brackets for inflation, so a simple cost-of-living adjustment won’t move a person with low income into a higher tax bracket.[17] Ohio has automatic bracket indexing built into the tax code, but legislators have suspended the practice since 2023,[18]  and recently voted to suspend it again for 2025 and 2026.

That means the amount at which Ohioans begin paying state income tax — $26,050 — will have gone unchanged for five years, during which time many working‑ and middle‑class households have faced tax increases despite stagnant or modest income growth.

For example: A person paid $26,000 in 2023 was below the state income tax threshold: They owed $0 in state income tax.[19] If their income increases to $27,000 over the next few years (much slower than inflation), they would have crossed the minimum income threshold and owe $342 plus 2.75% on the $950 of income over $26,050 (income above the taxable floor).[20] With bracket indexing, the threshold would have increased enough that they would still be exempt — which would be a good thing since, accounting for inflation, even their $27,000 would have less spending power in 2025 than $26,000 did in 2023.[21]

Of the $17 billion in annual revenue loss that has accumulated from tax changes in Ohio since 2005, the move to a flat tax represents a significant portion. The flat tax alone will cost the state approximately $486.2 million in fiscal year 2026 and $1.03 billion in fiscal year 2027.[22]

In addition to changing rates and brackets, the legislature created the Business Income Deduction (also known as the LLC loophole) further tilting the tax code in favor of the top 20%. The LLC loophole allows owners of many Ohio businesses to pay no taxes on the first $250,000 of business income and a 3% tax rate on business income above that.[23]

Not all changes have been regressive, though. Two policy shifts that have benefited low-income Ohioans are bracket indexing, which (when not suspended by the legislature) increases the threshold at which households begin paying state income taxes, and the creation of a 30% Earned Income Tax Credit (EITC).

Increasing the threshold at which households began paying taxes has meant that households with incomes under $26,050 do not pay state income tax.[24] These households do still pay sales and other taxes, so their overall taxes as a share of income is on average larger than higher-income households. The EITC helps qualifying low-income Ohioans reduce their tax bills, but because it is not refundable it doesn’t benefit households that are exempt from taxes (those with incomes under $26,050).[25]

Changes to Ohio’s sales, excise, and business taxes

For the lowest paid Ohioans, regressive changes in the tax code swallow up the meager benefits of state income tax cuts. The lowest-income 20% pay more in taxes than they did when the legislature began its tax cutting spree twenty years ago. Sales, excise, and business taxes now cost this group $163 more each year on average — exceeding the annual average $131 in income tax cuts this group saved from income cuts over the same period.

Ohio’s top 1%, who have an average annual income of $1.8 million, are paying $829 less than they did for these types of taxes in 2005 because of reductions in the business taxes that largely fall on them. Outside of this small group, every income group (99% of Ohioans) is paying more on average in sales, excise, and business taxes than in 2005. Figure 4 shows the impact of major changes to Ohio’s sales, excise, and business taxes made since 2005.

Figure 4

In 2005 the legislature passed H.B. 66, which fundamentally restructured and lowered corporate taxes,[26] shoring up the top 1%’s privileged position as the primary beneficiaries of these tax changes.

The bill repealed the Corporate Franchise Tax — making Ohio one of just six states that levy no corporate income tax on profits[27] — and the Tangible Personal Property Tax. In their place, legislators created the Commercial Activity Tax (CAT),[28] which they gradually weakened and reduced over time. Today, most Ohio businesses are no longer covered by the CAT, and so effectively pay no general business tax at all.

Originally, the CAT had a minimum annual payment and low exclusion amount, so businesses paid tax on a larger share of their Taxable Gross Receipts (TGR).[29] Then, in 2023, the legislature eliminated the minimum and raised the exclusion amount by nearly two thousand percent, from just $150,000 to $3 million in January 2024 — and doubled that to $6 million the following year.[30]

Today, businesses pay $0 in CAT taxes on their first $6 million of TGR a year, and just 0.26% after that. And the legislature crafted H.B. 66 to allow businesses to pass much of that on to customers by raising prices: Before 2005, businesses passed 17-19% of their Corporate Franchise Tax and Business Tangible Personal Property Tax costs on to the 60% of Ohio households with the lowest incomes. After the legislature replaced those taxes with the CAT, the tax cost passed onto these households increased to 30%.[31]

While Ohio businesses no longer pay a corporate income tax and, on average, face substantially lower overall state and local tax levels than businesses in most other states, they still contribute through property, sales, and other taxes. The broader issue is that Ohio’s tax structure asks comparatively little of businesses relative to national norms. And because the Commercial Activity Tax allows much of its cost to be passed on to consumers, a significant share of what businesses do pay is ultimately borne by Ohioans, especially those with lower incomes.

The legislature partially offset the revenue lost to business tax cuts by raising taxes on sales, gasoline, and cigarettes. These changes draw even more from those with the lowest incomes while also coming up short: Regressive changes generated an estimated $1.2 billion annually; business tax cuts alone cost $4 billion.[32]

Costs and consequences of Ohio tax changes

Legislators have long attempted to sell this tax strategy with promises of trickle-down benefits from the rich to the rest of us. The strategy has failed time and again at the state level and nationally. Twenty years into Ohio’s tax-cut campaign, the state continues to lag the nation in terms of economic growth and job creation.[33]

Figures 5 and 6 illustrate Ohio’s weak economic performance since 2005 relative to national averages, both in Real Gross Domestic Product and total employment.

Figure 5

Figure 6

Two decades of tax cuts have not worked — not for Ohio families, workers, or communities. They have allowed the wealthiest people and powerful corporations to take more and more from our state while contributing less and less — $17 billion less every year, as of this writing.

Ohioans could do a lot with all that forgone revenue. We could, for example, ensure every public school has the resources to meet every student’s needs by fully fundingthe Fair School Funding Plan.[34]

We could make high-quality child care more affordable and accessible in every part of the state — and ensure early childhood educators are paid a fair wage — by increasing funding for Publicly Funded Child Care.[35]

We could make pregnancy and childbirth safer, and make children healthier, by expanding Medicaid coverage for children and pregnant women in households with incomes up to 300% of the Federal Poverty Line.[36]

Further, we could provide targeted tax relief for Ohioans who need it — while maintaining revenue for crucial public services — implementing a property tax circuit breaker[37] and making the state Earned Income Tax Credit refundable.[38]

Ohioans all around the state are working to make these aspirations real. Organizations like Parents United for Public Schools, the Care Economy Organizing Project, and Northern Ohioans for Budget Legislation Equality are part of a broader movement to build an Ohio that works for everyone. That can only happen with a tax code designed to ensure everyone pays their fair share.

Appendix

The analysis presented in this report was derived from ITEP’s proprietary microsimulation tax model, which estimates the amount of federal, state and local taxes paid by residents of every state at different annual income levels under current law and alternative tax structures. The current iteration estimates the impact of Ohio’s major tax legislation since HB 66 in 2005 on Ohio tax filers. The model includes:

• Five personal income tax rate cuts (21%, 10%, 6.3%, 4%, and 3% reductions).
• Adjustments to bracket thresholds to account for inflation. (This has been suspended since 2022).
• Condensing income tax brackets (from 9 brackets to 2), including elimination of the top bracket and reduction of the top rate to 2.75% in 2025.
• Zeroing out tax for taxable income under $26,050.
• Enactment of Ohio’s 30% nonrefundable state Earned Income Tax Credit.
• Creation (and later expansion of) the Business Income Deduction covering the first $250,000 in passthrough business income and lowering the rate to 3% on business income over that amount.
• Limitation of the $20 personal exemption credit to those with Ohio Taxable Income of less than $30,000 a year.
• Expanding personal exemptions for those making $80,000 or less.
• Elimination of the annual Commercial Activity Tax minimum tax for tax periods 2024 and after.
• Enactment of the Commercial Activity Tax.
• Increasing the annual amount of taxable gross receipts excluded from the Commercial Activity Tax amount to $6 million in 2025.
• Means testing of senior and retirement income credits at $100,000.
• Increasing sales tax from 5% to 5.75%.
• Cigarette tax increases.
• Gasoline and diesel tax increases.
• Repeal of Corporate Franchise Tax.
• Repeal of Business Tangible Personal Property Tax.
• Repeal of 10% property tax rollback for commercial and industrial properties.
• Repeal of the Dealers in Intangibles Tax.
• Enactment of Financial Institutions Tax (FIT).

The model does not include estimates of the Petroleum Activity Tax. It also excludes the elimination of the estate tax, the taxation of casinos and sports gaming, and the new taxation on recreational cannabis sales. Further, it does not account for the recently passed property tax legislation.

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[1] Ohio Department of Taxation. Annual Report 2004. Page 71. (FY 2004).

[2] Policy Matters Ohio. Ohio’s tax system perpetrates inequality. January 9, 2024.

[3] Tax change averages are for income groups represented. Individual tax changes within each group may vary.

[4] Institute on Taxation and Economic Policy (ITEP), Sept. 2025.

[5] United States Census Bureau. 2024 American Community Survey 1-Year Estimates.

[6] Institute on Taxation and Economic Policy (ITEP), Sept. 2025.

[7] Legislative Budget Office of the Legislative Service Commission. Main Operating Budget House Bill 96 – As Enacted.

[8] Policy Matters Ohio. Four tax Policies for the people. April 15, 2024

[9] ITEP. Who Pays? 7th Edition, p. 33-35. January 2024.

[10] Ibid. Located after the appendix, see the State-by-State Tables for Ohio, focusing on the ‘State and Local Tax Shares of Family Income’ section.

[11] The income tax exemption for households with income under $26,050 — so far left intact by the legislature — is technically a progressive element of the tax code. See A budget for Ohio’s millionaires. June 12, 2025.

[12] Ohio’s transition to a flat tax rate included lowering the top rate from 3.5% to 3.125% in 2025, before the full 2.75% flat rate took effect in 2026.

[13] These figures combine costs to Ohio’s General Revenue Fund, Local Government Fund, and Public Library Fund. Ohio Department of Taxation and Ohio Office of Budget and Management. Impact of House Bill 96 (FY 2026-2027 state operating budget): As Enacted, After Vetoes. Page 2. July 29, 2025

[14] Institute on Taxation and Economic Policy (ITEP), Sept. 2025.

[15] In July 2025, Ohio’s average monthly residential electric bill was $214 according to testimony by Molly Bryden, Policy Matters Ohio, Oct. 8, 2025. 

[16] Cost of a new Lexus 2026 RX 500h F Sport Performance.

[17] See “What is bracket indexing and why does it matter?” in How Ohio’s income tax works – and how the House budget would change it (2023) to learn how suspending this policy impacts low-income Ohioans.

[18] The legislature suspended indexing in 2021 and resumed it in 2022 (LSC: Comparison Document, HB 110- 134 General Assembly, p. 874). They suspended it again for 2023-24 (Main Operating Appropriations Bill H.B. 33, p. 4.), and once again for 2025 -26: Ohio Legislative Service Commission. Comparison Document, HB 96-136 General Assembly. Page 1021. Oct. 2, 2025.

[19] They still paid all manner of other taxes, including sales tax.

[20] Ohio Department of Taxation. Annual tax rates. See “For taxable years beginning in 2025”.

[21] See the U.S. Bureau of Labor Statistics for a simple inflation-adjustment calculator.

[22] These figures combine costs to Ohio’s General Revenue Fund, Local Government Fund, and Public Library Fund.Ohio Department of Taxation and Ohio Office of Budget and Management. Impact of House Bill 96 (FY 2026-2027 state operating budget): As Enacted, After Vetoes. Page 2. July 29, 2025.

[23] Policy Matters Ohio. Ohio’s LLC loophole: Public dollars, private benefits. July 20, 2022

[24] Department of Taxation. Annual tax rates.

[25] Policy Matters Ohio. Pass a refundable EITC that supports working Ohioans. May 22, 2024.

[26] Policy Matters Ohio. Ohio needs a corporate profits tax. January 12, 2021.

[27] Smart Asset. 2025 Corporate Tax Rates and Brackets by State. May 8, 2025. 

[28] CAT is levied on gross receipts, whereas the previous tax structure was focused on profits and physical assets such as machinery and inventory.

[29] Ohio Department of Taxation. Commercial Activity Tax (CAT). 

[30] Ohio Department of Taxation. Changes to Ohio’s Commercial Activity Tax.  August 14, 2023.

[31] Institute on Taxation and Economic Policy (ITEP), Sept. 2025.

[32] Institute on Taxation and Economic Policy (ITEP), Sept. 2025.

[33] U.S. Bureau of Economic Analysis, SASUMMARY State annual summary statistics: personal income, GDP, consumer spending, price indexes, and employment. December 9, 2025.

[34] Policy Matters Ohio. The Fair School Funding Plan in Ohio. May 8, 2025

[35] Policy Matters Ohio. Ohio’s childcare crisis, 2025. April 15, 2025. 

[36] Policy Matters Ohio. Good, bad, and ugly budget outcomes for child care in Ohio. December 9, 2025. 

[37] Policy Matters Ohio, Ohio needs a property tax circuit breaker.  January 10, 2024.

[38] Policy Matters Ohio. Pass a refundable EITC that supports working Ohioans. May 22, 2024.