Kasich cut income taxes in Ohio but raised sales taxes

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December 21, 2015

As a presidential candidate, Ohio Governor John Kasich has proposed to cut individual and corporate income taxes. Kasich also championed income tax cuts in Ohio, and succeeded in enacting some of those proposals. And while these changes have clearly reduced Ohio’s taxes, he did pay for (part of) those tax cuts by hiking other taxes, sometimes incurring opposition from within his own party.

In his first term, Kasich (who took office in 2011) proposed and the legislature approved a budget that reduced all Ohio income tax rates by 10 percent. He also created (and later expanded) Ohio’s earned income tax credit, increased the personal exemption, and eliminated Ohio’s estate tax. To pay for some of those cuts, the governor and legislature also agreed to increase sales taxes, raising the rate from 5.5 percent to 5.75 percent, and increase the cigarette tax from $1.25 per pack to $1.60.

This year, Kasich and the legislature cut income tax rates again, bringing all rates down a cumulative 15.7 percent during his term. The top rate (on taxable income above $208,500), for example, went from 5.925 percent to 4.997 percent.

Kasich originally proposed larger consumption tax increases than those enacted in this year’s budget, including increasing the sales tax from to 6.25 percent, raising the gross receipts tax rate from 0.26 percent to 0.32 percent, and increasing the cigarette tax by $1 per pack.
 

Ohio’s Tax Changes (and Kasich’s Proposed Changes)

 

2011

2015

Kasich Proposal

Top Income Tax Rate*

5.925%

4.997%

4.1%

Sales Tax Rate

5.5%

5.75%

6.25%

Cigarette Tax Rate

$1.25/per pack

$1.65/per pack

$2.25/per pack

Gross Receipts Tax Rate

0.26%

0.26%

0.32%

*The individual income tax changes (and Kasich’s proposed changes) lowered all eight of Ohio’s tax rates by the same percentage.

 

He planned to use the additional revenue to pay for even bigger across-the-board income tax cuts—for example, taking the top rate down to 4.1 percent. But the legislature balked at the tax swap and instead enacted the more modest income tax cuts and a smaller cigarette tax hike.

Kasich also signed into law a controversial tax change this year—a 100-percent deduction on the first $250,000 in business income taxed as personal income (often referred to as “pass-through” income). This essentially eliminates taxes for smaller businesses, which he said would “free up nearly $950 million in new capital over two years for Ohio’s hometown businesses.” Critics warned the deduction would allow some wage earners to avoid tax by recharacterizing their current earnings as business income—as happened in Kansas when that state created a similar exemption

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Always zoom out to examine a governor’s economic record

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December 11, 2015

The Urban Institute’s new interactive graphics of historical state economic data provide an important tool for analyzing the records of governors running for president: context. A state’s economy depends on a lot more than what the governor does.

As a result, you should always keep (at least) three things in mind when you assess a governor’s economic record:

  1. The national economy
  2. The state’s long-term trends
  3. The governor’s limited ability to affect a state’s economy relative to other economic factors

State unemployment rates offer a good example of why you should always zoom out when considering economic data.

Lesson #1: The New Jersey and Ohio unemployment rates have dropped considerably since Governor Chris Christie and Governor John Kasich took office (in 2010 and 2011, respectively). But so has the national unemployment rate. Both governors’ terms began after the Great Recession, when unemployment was high, and both states followed the nation as the economy improved and unemployment dropped. In fact, the unemployment rate in both states has roughly mirrored the national rate for decades.

Christie Kasich unemployment record

Lesson #2: Maryland’s unemployment rate was below the national rate throughout former governor Martin O’Malley’s time in office—as much as 2.6 percentage points lower (in October 2009). But that was nothing new: the state’s rate was consistently under the national rate well before O’Malley took office.

O'Malley unemployment record

Lesson #3: Former governor Jeb Bush presided over the lowest unemployment rate (3.1 percent) in Florida’s history during March and April 2006. And for most of his second term, Florida’s unemployment rate was at least 1 percentage point below the national rate. But a year after Bush left office, Florida’s rate equaled the national rate, and a year after that it was 1 percentage point above it.

The big changes in unemployment were consequences of the national housing boom and bust, which affected Florida more than most states. In fact, Florida’s dip below and spike above the national unemployment rate closely mirrors its house price rise and crash during the same period.

Bush unemployment record

The takeaway from these three lessons is not that voters should ignore the economic records of governors. But voters should be leery of overhyped claims of success (or failure). Better yet, voters should look into something governors actually can control: policy decisions.

This is one in a series of posts from the Urban Institute’s State and Local Finance Initiative examining the records of current and former governors running for president.

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