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Capital gains income, which disproportionately flows to the wealthiest taxpayers, is taxed at lower rates than “ordinary” income like wages under the federal income tax. This is unfair for all sorts of reasons, and the unfairness is amplified in the eight states that provide additional, substantial breaks for capital gains. Ohio could soon add itself to this ignominious list.

Ohio Governor John Kasich said this week, “We should not be taxing our capital gains as regular income.” Meanwhile, a new proposal in the legislature (House Bill 98) would offer a tax break for elderly Ohioans with unearned income. Policy Matters Ohio (PMO) and the Institute on Taxation and Economic Policy (ITEP) worked together to analyze the impact of changing how capital gains are taxed and the impact that passing HB 98 would have on Ohio’s tax structure.

Policy Matters Ohio concluded, “Cutting the Ohio income tax on capital gains would be costly and most of the gains would go to the most affluent Ohioans, while 92 percent of Ohio taxpayers would get nothing at all.” ITEP found that the cost of HB 98 would be staggering — about $325 million annually.

Though no tax break on unearned income was included in the budget plan presented earlier this week by Governor Kasich, his statement suggests that he supports legislation like HB 98. His budget does, however, make significant cuts to K-12 and higher education, which, coupled with a possible break for capital gains income, would result in a significant shift of priorities away from ordinary Ohioans in favor of the well-off.