New study finds that eliminating Ohio’s capital gains tax would spur $1.15B in growth and add 1,400 jobs in first year

Eliminating Ohio’s capital gains tax would generate more than $1.1 billion in economic growth and 1,400 new jobs in the first year, according to a new policy brief from a Columbus-based free-market think tank.

In “Unlocking Capital,” The Buckeye Institute’s economic modeling examined the effects of removing the tax on realized capital gains, which Ohio currently includes in its ordinary personal income tax base and taxes at the flat 2.75 percent rate. The analysis used STELA, a dynamic-scoring model developed by economists at The Buckeye Institute, to estimate impacts on the state’s businesses, families, economy, and revenues.

“Any economist will tell you that taxes on investment impede economic growth,” the paper’s co-author Rea S. Hederman Jr., executive director of the Economic Research Center and vice president of policy at The Buckeye Institute, said. “But Ohio has available options to cut taxes and grow Ohio’s economy. While the ultimate goal should be to eliminate the state’s income tax, the first step should be eliminating the capital gains tax, which, according to The Buckeye Institute’s economic modeling, would lead to $1.15 billion in economic growth.”

According to the brief, STELA showed that in the first year after implementation, Ohio would see $1.15 billion in economic growth, $730 million in business investment growth, $110 million in consumer spending growth, 1,400 new jobs, and a $650 million decline in state tax revenue.

The findings, which come as lawmakers consider House Bill 617, the Ohio Capital Gains Tax Repeal Act, acknowledge the Legislative Service Commission’s static revenue-loss estimates as a trade-off that would strengthen incentives to invest while reducing revenues.

“House Bill 617 presents Ohio with a clear tax policy trade-off,” the authors wrote. “Exempting net capital gains would reduce a volatile, realization-based tax burden and strengthen incentives to invest and move capital to more productive uses. Still, it would also create a recurring reduction in state revenue. That fiscal cost should be treated as a real budget constraint, not as something economic growth will automatically replace.”

The model, calibrated to Ohio’s economy and tax structure, draws upon those static revenue-loss estimates from the Legislative Service Commission for House Bill 617, which projected roughly $615 million to $646 million less in personal income tax collections for the 2027 tax year.

The brief ties these projected gains to reduced “lock-in” effects that can discourage taxpayers from selling appreciated assets and reallocating capital toward more productive uses.

In Ohio, the cost of inflation is not accounted for in capital gains taxes.

“For example, an Ohio taxpayer who buys stock for $100,000 in 2020 and sells it for $150,000 in 2025 realizes a $50,000 capital gain. But if overall prices rose 20 percent over that period, roughly $20,000 of the increase would reflect inflation, leaving a real gain of about $30,000,” the paper explains. “Under current Ohio law, the taxpayer would still be taxed on the full $50,000 nominal gain.”

The paper emphasizes that this creates a “lock-in” incentive to hold appreciated assets rather than reallocate them. While noting that capital gains income is volatile, the modeling indicates that lower taxes on investment returns support broader private investment and economic activities.

HB 617, the paper argues, would exempt net capital gains from both state and municipal income taxes, freeing up more than $1 billion in capital for new business ventures.

Hederman Jr. co-authored the analysis with Sai C. Martha, an economic research analyst at the institute.