Employment Effects of Reducing Capital Gains Tax Rates in Ohio

By Ike Brannon, Willam Melick, Eric Andersen

Executive Summary

Entrepreneurial activity is a key driver of job creation, and entrepreneurs and their financiers are especially sensitive to capital gains taxes. As a result, a cut in the capital gains tax rate stimulates job creation. We measure the magnitude of this effect by examining the treatment of capital gains by state over roughly the past 40 years. Our results suggest that a complete elimination of the taxation of capital gains realized by Ohio taxpayers would lead to the creation of 40,000 new jobs. Applying this estimate to proposals currently under discussion suggests a somewhat smaller effect.

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