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Ohio lawmaker planning to push for flat income tax

On Behalf of | Dec 2, 2016 | Tax Law

There’s now little doubt that federal income taxes will change in one way or another under the new administration. But what about state taxes? One possible proposal to watch out for in Ohio is a move to a flat income tax.

Ohio State Senator Bill Coley says he plans to make good on his campaign promise to change Ohio’s state income tax to a one-size-fits-all approach, according to the Dayton Daily News. Coley is the vice chair of the Senate Finance Committee.

Flat taxes are often praised for their simplicity, though critics often argue that they disproportionately affect people making the least amount of money. A flat tax, as Coley is pushing, would make everyone’s state income tax rate the same, no matter how much they earn, compared to the current graduated rate system, where higher incomes are taxed at higher rates.

Comparing Ohio to other states

Ohio is hardly alone, however, in having a graduated rate. The Tax Foundation reports that 33 states have graduated income tax rates, and only eight have a single flat income tax rate. Seven states have no income tax, and two states only tax interest and dividend income.

Ohio’s top income tax rate has been decreasing in recent years, with the highest income bracket taxed at just under 5 percent, down from 5.333 percent last year. This puts it near the lower ends of states with income taxes – maximum income tax rates range from just 3.07 percent in Pennsylvania’s 3.07 percent to 13.3 percent in California.

Who could be affected by a flat tax?

What would a flat income tax mean for you? It depends on your current tax bracket, and many folks in middle brackets might not see significant changes one way or the other. But if you’re currently in a very low or very high income tax bracket, you might want to pay special attention as lawmakers begin discussing the state’s budget early next year.

It’s also important to remember that rates are only one part of the picture, and deductions and tax credits could also change next year.