Quinnipiac University released a poll of Ohioans last week that included the question: What do you think should be the top priority for Gov. Kasich and the state legislature in 2014? Thirty-four percent cited jobs and unemployment.
That makes sense. The Dayton Daily News reported last week that the state’s labor participation rate fell in 2013 to its lowest level in 34 years. Many Ohioans are underemployed, unemployed or have dropped out of the labor market.
The Quinnipiac poll found that 10 percent ranked education as the top priority. Seven percent pointed to the economy in general. Five percent tapped health care.
For his part, the governor argues that reducing individual income tax rates is key to generating the economic momentum necessary to address the jobs problem. At the Statehouse, Republicans in charge already have reduced rates nearly one-third, the most recent round currently in motion.
The governor recently told the Cleveland Plain Dealer and the Northeast Ohio Media Group that he wants “to get the income tax below 4 percent.” He is talking about the top rate, which is headed for 5.3 percent and for couples starts applying on income exceeding $204,200. At the same time, the governor reiterated that he wants to eliminate the state income tax: “That’s always been my goal.”
Bet that a re-election win, no matter its size, will be viewed by the governor as a mandate to keep pressing the case, even reach for his ultimate objective.
So do tax cuts deliver? The question belongs front and center in this election year.
The Center on Budget and Policy Priorities (www.cpbb.org) has pulled together the data and academic studies, assessing the performance of states that cut income taxes in recent decades. Six states, including Ohio, did so in the years just before the Great Recession. Three (Louisiana, New Mexico and Oklahoma) grew more quickly than the national economy. Yet that largely stemmed from good times for their oil and gas production.
The remaining three, Ohio, Arizona and Rhode Island, all lagged behind the country in job creation, production growth and income growth. Ohio scored the worst of the group. Its share of national personal income dropped 7.4 percent by 2011. Its share of national employment? Down 6.1 percent. Of the country’s gross domestic product? A decline of 11.2 percent.
In the 1990s, the five states with the largest reductions in income taxes added jobs at an average one-third the rate of the other states. They had slower income growth. In none of these states did personal income growth exceed inflation.
The report adds that these experiences reinforce “an important finding from a multiplicity of empirical academic studies conducted by economists over the last 40 years. The vast majority of these studies find that interstate differences in tax levels, including differences in personal income taxes, have little if any effect on rates of state economic growth.”
Recall that Ohio increased income taxes in the early 1990s, and by decade’s end reached a peak in job creation that it has yet to regain.
What is at work?
Taxes generate revenue for services and other items that support regional and state economies, from schools and universities to parks, roads and law enforcement. More, many factors define an economy, including the quality of the workforce, resources, changing trends, types of industries. Income taxes diminish in significance.
Ask entrepreneurs. Michael Mazerov of the Center on Budget and Policy Priorities recently highlighted a survey conducted by Endeavor Insight, a firm that looks at how entrepreneurs contribute to growth and job creation. The survey found that entrepreneurs put emphasis on access to talent and a high quality of life. Just 5 percent included low tax rates as decisive in choosing where to set up their company.
John Kasich often speaks loosely. Not too long ago, he proclaimed a “miracle” for Ohio. Now he talks about his policies requiring time to blossom. He declared at a recent Associated Press forum that he doesn’t “want to be where the president is where I have to spend all my time doing executive orders.” The president doesn’t have the luxury the governor enjoys, his own party in firm command of both legislative chambers.
Listen to the governor, and the impression forms that somehow cutting income taxes rates as a courageous act. Battling the monster of government? Actually, cutting taxes is the easy part, essentially telling people what they want to hear. The tough job is raising taxes, persuading people to support something they resist.
Which is the worry as the governor seeks a second term. What if he succeeds in taking the top income tax rate below 4 percent? Or even lower? Ohio soon could find itself lacking the necessary resources and stuck with the formidable task of recovering ground.
Douglas is the Beacon Journal editorial page editor. He can be reached at 330-996-3514, or emailed at email@example.com.