Ohio hands out $12 billion in annual tax breaks with little to show for many, study says
Ohio hands out $12 billion a year in tax breaks, mostly to wealthy individuals and big corporations. Yet the state’s economy continues to lag behind the national average, a report released earlier this month says.
In all, Ohio has 177 tax exemptions or deductions worth $20 million a year or more. In its last session, the General Assembly limited or eliminated nine, but it increased the cost of others, the report by Policy Matters Ohio said.
Tax breaks on certain people and businesses are effectively tax increases on everybody else. That’s so because government services have to be paid for, and those who remain on the tax rolls have to bear the burden.
“Unproductive tax breaks that favor corporations and wealthy Ohioans have riddled the state tax code for years,” the report said.
At more than $8 billion a year, the state’s biggest cuts are those to businesses.
The biggest single tax break — costing $2.5 billion a year — primarily targets supplies to manufacturers in an attempt to avoid taxing them repeatedly through the process.
The state seems to have something to show for it. Ohio has the third-most manufacturing jobs in the U.S., and the sixth-most per 100,000 residents.
However, other such tax breaks have long raised questions. One is the LLC tax break, which costs nearly $1 billion a year. Sold in 2013 as a way to spur job creation, it greatly limits taxes on income run through limited liability companies.
“Wealthy individuals benefit most from the LLC loophole,” the Policy Matters report said. “In (fiscal year) 2023, a majority of filers claiming the deduction claimed less than $20,000 and received 6.9% of the total value of such deductions. Meanwhile, the 8.3% of filers who claimed $240,000 or more received 41.1% of the deductions.”
The state has given up billions in revenue on that deduction and paying for the private agency JobsOhio on promises they would supercharge the job market to everyone’s benefit. But more than 25% of Ohioans are poor enough to be on Medicaid, and the state has consistently ranked in the top 10 in unemployment this year.
Ohio also lags in a broader economic sense. Last year it ranked 28th in terms of per-capita gross domestic product.
That might mean that other business breaks also aren’t helping most Ohioans.
Unlike most states, Ohio has no tax on corporate profits. It taxes gross receipts under its “Commercial Activity Tax” instead.
In 2023, the legislature raised the threshold at which companies had to start paying it from $1 million a year to $6 million, and it eliminated certain minimum payments. Since most businesses were already paying the minimum $150 a year, more than half the benefit of the higher threshold went to businesses large enough to take in more than $6 million annually.
That tax break costs the state $1.5 billion a year, the Policy Matters report said. The increased thresholds will grow the fastest of any over the next two years, it added.
The report also faulted Gov. Mike DeWine for vetoing a measure in the state budget that would have stopped new data centers from getting tax exemptions. Such centers employ few people, and they’re being blamed for rapid increases in Ohioans’ electricity bills.
“The sales tax exemption for data centers, one of the state’s fast-growing tax breaks, will be worth $289.9 million over the FY 2026-27 biennium, according to the Tax Expenditure Report, and probably a lot more if more recently announced investments were included,” JobsOhio researchers wrote. “In many cases, the exemption amounts to as much as $1 million for each data-center job created.”
The tax breaks persist even as lawmakers plead poverty when it comes to funding public education. Abandoning an earlier commitment to pony up at least $666 million more for education over the next two years, the budget DeWine signed slashed that amount by about two-thirds. Meanwhile, the legislature found $600 million to help the billionaire owners of the Cleveland Browns build a new stadium outside the city.
The Policy Matters Ohio report said the legislature opted to look past evidence that some tax breaks weren’t performing as promised. In 2016, the General Assembly passed a bipartisan bill to create a Tax Expenditure Review Committee.
“However, lawmakers found living up to the promise of good government harder than anticipated,” the report said. “They eliminated the (review committee) in the 2022-23 budget bill, after a weak review of 15 sales-tax breaks and failing to carry out its mandates at all in the 2020-21 budget period.”
That and other factors mean that once tax breaks are signed into law, reform is “excruciatingly difficult,” the report said.
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