Ohio’s Republican gubernatorial candidate John Kasich is banking on a package of tax cuts to revive Ohio’s moribund economy. “Ohio’s high tax burden is hurting families, strangling businesses and stunting our ability to create jobs and revive our economy,” he claims.
Kasich’s plan is to entirely eliminate his state’s income and estate taxes, and he freely admits that he has no idea how much his plan is going to cost. “People want to know the details of my plan. I don’t have the revenues,” he said.
Not only will Kasich’s plan more than double Ohio’s budget deficit next year, but if history is any indication, that new budget hole will not by accompanied by any significant job creation. Policy Matters Ohio examined the effect of a 2005 cut in both the personal income tax and some of Ohio’s business taxes, finding that the result was billions of dollars of revenue loss and not very many jobs:
The premise of the tax overhaul was that it would spark Ohio’s economy. This was an unlikely claim to begin with, since taxes are not a key determinant of state economic performance…Sure enough, the tax cuts have not proven to be the magic potion for Ohio’s economy. Key measures of economic performance show the opposite: Ohio’s economy has produced relatively fewer jobs, fewer manufacturing jobs, less overall output and lower personal income growth than the country as a whole since the tax overhaul was approved in June 2005. Ohio’s share of the nation’s jobs has shrunk since then from 4.06 percent to 3.87 percent.
Plus, “Ohio’s real per capita Gross State Product stagnated when U.S. real per capita GDP rose.”
The tax cuts were not responsible for Ohio’s economic decline but, much like the Bush tax cuts of 2001 and 2003 at the federal level, they did not usher in the era of strong economic growth that their proponents suggested they would. This makes sense, as at the national level, job growth was stronger following President Clinton’s tax increase of 1993 than after either President Bush’s or President Reagan’s tax cuts.
So if history is any indication, Kasich’s job plan will be a dud, and simply bury Ohio in even more red ink, at which point Kasich will likely say that he has to cut services in order to balance the budget.