July 3, 2025

Ohio’s New 2.75% Flat Tax Puts Pressure on Other States

30-Second Summary:

  1. Ohio has enacted a major income tax reform, reducing its top rate to 3.125% in 2025 and transitioning to a 2.75% flat tax in 2026—the second lowest flat tax rate in the nation.
  2. The move aligns Ohio with other states like Mississippi and Oklahoma, which are also pursuing bold, growth-oriented tax reforms tied to revenue triggers and long-term elimination goals.
  3. As flat tax policies and even complete elimination become more common across the country, states like Iowa must stay proactive with further tax reductions and spending restraint to remain competitive.

Ohio Governor Mike DeWine recently signed a budget that includes significant income tax reform. Under the new law, the Buckeye State’s top income tax rate of 3.5% will be reduced to 3.125% in 2025, and starting in 2026, Ohio will adopt a flat income tax rate of 2.75%. This will make Ohio’s flat tax the second lowest in the nation—behind only Arizona, which currently has a flat rate of 2.5%.

A flat tax system—where all income is taxed at a single rate—offers numerous advantages that extend beyond any one state. By simplifying the tax code, it enhances transparency and predictability, making it easier for individuals and businesses to understand their obligations and plan ahead. A uniform rate eliminates distortions caused by multiple brackets and special exemptions, encouraging work, saving, and investment by reducing penalties on productive economic activity. Moreover, because everyone pays the same rate, flat taxes eliminate the political wedge of class warfare found in progressive tax brackets and help prevent the spread of hidden tax subsidies—resulting in a fairer and more accountable system.

This year, several states joined Ohio in reducing income tax rates, and some have gone even further by passing reforms aimed at gradually eliminating their income taxes altogether. Prior to Ohio’s action, Mississippi and Oklahoma took bold steps to reduce their income tax burdens. Mississippi’s legislature approved a phased elimination of its flat tax, reducing the current 4.4% rate to 3.0% by 2030, with further reductions tied to revenue growth and a target of full repeal by 2040. Meanwhile, Oklahoma enacted tax reforms using similar revenue triggers, boosting its regional competitiveness. These reforms reflect a national trend toward simpler, growth-focused tax systems that promote transparency, fiscal discipline, and economic competitiveness.

Iowa has been a leader in the flat tax movement since 2018, enacting multiple rounds of tax cuts that culminated in the state’s new 3.8% flat tax, effective this year. But what was once considered bold policy is quickly becoming the national standard, as other states adopt even more aggressive reforms.

This should serve as a wake-up call for Iowa policymakers: complacency is not an option. While Iowa’s fiscal foundation remains strong, continued progress will require renewed commitment to spending restraint and further income tax reductions.

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John Hendrickson
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Let’s be honest, big government is big bureaucracy, and common sense tells us big bureaucracy is ineffective. That’s why ITR Foundation works to:

  • Research principled solutions
  • Educate Iowans about our solutions
  • Activate Iowans in support of our solutions

By applying the principles of limited government, free enterprise, and the rule of law to public policy, we can ensure all Iowans will have the opportunity to succeed.

ITR Foundation set the policy groundwork for many recent taxpayer victories in Iowa:

  • Increased property tax transparency and spending restraint
  • A 3.8% flat individual income tax rate
  • Elimination of income taxes on retirement income
  • Elimination of inheritance tax
  • Creating a path to reduce corporate income tax to 5.5%
  • Phasing-out special tax incentives in the corporate tax code
  • Banning local universal basic income programs