They cut taxes, and now a recession?

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They cut taxes, and now a recession?

The governor projects a recession for the state

By the Beacon Journal editorial board

Published: December 10, 2016 - 09:36 PM

John Kasich and his supporters hoped they now would be conducting a presidential transition. They would be looking back at a campaign in which the governor promoted his record in Ohio as an economic success story. Funny, then, that the governor started spreading the word last week that he sees the state “on the verge of a recession.”

During an appearance in the House chamber, he told lawmakers: “The future is going to be tough. … It is going to be tough.”

A recession is defined as two consecutive quarters of negative growth. The national economy continues an expansion that started in 2009 with the end of the Great Recession. That said, growth has been sluggish, if stronger than in peer countries. Ohio has fallen into line, steadily expanding, albeit at a slower average rate.

More, a survey of economists by the National Association for Business Economics, released last week, found an expectation for similar growth, at least until 2018. The Federal Reserve appears confident enough to raise interest rates.

What then worries the governor?

The state has experienced three straight months of job losses (though slight). The labor force participation rate has dipped, too. The recent news out of the budget office may be most notable for the governor. State revenues have fallen below projections for the year, missing by 2.8 percent, and by 5 percent for November, which makes for two months in a row.

That explains the governor warning lately that the next two-year state budget, now in the works, will be “tight.”

Yet there is another budget angle worth examining. For the past decade, Republicans at the Statehouse have been championing the potency of income tax cuts. They have reduced rates by roughly one-third. No one has been more ardent in his support of the reductions than the governor. He regularly makes the case that tax cuts generate jobs, that they are the centerpiece in energizing the state economy, providing the incentive for people to come and stay here.

By that logic, these should be the glory days of the Kasich tenure, six years into the job, having engineered a huge dose of tax relief for small businesses, designed to trigger risk-taking, investment and hiring. And now an Ohio that has failed to keep pace with the national average in growth and job creation faces its own recession?

What is the governor admitting?

Tally the impact of those tax cuts, back to 2005, and the state collects roughly $3 billion less per year. A fraction of that sum would cover the current shortfall in revenue. Reduce the tax reductions by half, and the state would have more resources available to invest in the foundation of a strong economy — in early education, in more affordable college tuition rates, in local services and learning in poor rural and urban classrooms.

Redirect the tax reduction, and the relief could skew less to the wealthy and more to those at lower income rungs.

So, when the governor talks about a looming recession, is he really seeking divert attention from what is becoming clear? He and other Republicans in command have cut taxes too much.

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