John Kasich, Ohio's governor, delivered his state of the state speech this week.
To his credit, Kasich recognizes that cutting taxes for the wealthy doesn't pay for itself. Unlike Scott Walker, he's not willing to blow a $1.8 billion hole in the budget by simply cutting taxes at the top.
His solution, however, is to raise taxes on the majority of Ohio so he can still give tax cuts to those at the top.
The Cincinnati Enquirer is, surprisingly, the only media outlet I've seen to even hint at the implications of Kasich's plan: To cut taxes we must raise taxes!
Any guesses whose taxes will be cut and whose raised?
Here is how Kasich described his tax shift:
Look, no tax is great, but some are worse than others. I don't know if you've ever studied that some taxes have a greater drag on economic growth than other taxes. So if we're going to raise taxes -- or if we're going to have taxes - let's have the taxes that have the least negative impact on the private economy so we can create jobs.
A certain level of taxes -- of course -- is inevitable, to pave the roads, run the schools and care for the needy. The government's got to make that money go as far as it can. And those taxes must be generated in the least harmful way.
This means we must reduce Ohio's traditional overreliance on income taxes and lean more on consumption taxes.
Translation: Some taxes affect wealthy people more. We need to cut these taxes. In order to cut these taxes, we need to raise consumption taxes. These taxes are the taxes that impact average people in Ohio. To continue to cut taxes for our wealthiest, we must raise taxes on the majority of Ohio.
Here is the impact of the proposed tax shift from Policy Matters Ohio:
The top 1% gets to avoid nearly $12K/year in payments, while 60% of Ohio will pay more.
He's right. Some taxes affect the wealthy more.
When our country was first founded, there were no corporations. Why? Because we had just seen what a monopoly like the British East India Company could do in terms of influencing the English government.
We gradually came to allow corporate charters in our country when they would serve the common good. Railroads are a good example. These charters could be easily dissolved, however, if corporations grew too strong and went outside the boundaries of their charters.
Gradually, corporations became more prevalent but there was always an implicit agreement. The agreement was that we, the people, of the state of Ohio (and other states) would allow companies to incorporate to pursue a profit so long as these companies served a public good. Part of this agreement was that corporations would be good corporate citizens and pay back a portion of their profits. Companies that were the most profitable would pay more for the good of Ohio.
This is the idea behind a progressive tax code.
The state of Ohio would then use this money for the benefit of all Ohioans and to invest in the state of Ohio and create infrastructure for future companies and jobs.
States that are the most successful do this. States like California and New York and Minnesota and Massachusetts.
States that aren't, tend to be low tax states like South Carolina and Mississippi. People see little benefit from the most successful corporations in these states. They tend to have the lowest wages and the worst benefits. The only people who benefit are a few extremely wealthy owners.
Do we want a country where the only people who benefit are the owners?
Kasich gets it when it comes to fracking revenue
Governor Kasich wants to raise taxes on fracking drillers in Ohio.
Here is how he explains it:
The prosperity created by our oil and gas deposits can be great not just for shale country. This is not just for part of Ohio but for all of Ohio because it makes possible the income tax cuts that provide an economic boost statewide.
He had me until that last part about tax cuts. If he had left it at, "This is not just for part of Ohio but for all of Ohio," I would be right there with him. Ohio's oil should benefit all of Ohio, not just a few people who own the drilling companies. They will profit, but this profit should be taxed so the benefit of Ohio's natural resources benefits Ohio. Not just some wealthy drillers. Most of whom are from out of state.
Also, Kasich's statement should apply to all corporations. When a corporation succeeds, it should be good not just for the owners, but for all of Ohio.
This is why we have a progressive tax system. Because when corporations profit it should be great not just for those corporations, but for all of Ohio.
The problem is that corporate special interest groups want all of the benefit to go to a few owners, not all of Ohio. This is why they are paying lobbyists to influence Ohio's government to destroy the progressive tax system and put in place regressive consumption taxes.
When you destroy the progressive tax system, it's not great for all of Ohio. It's great for a few people in Ohio. It's great for everyone who get to avoid paying back $12K. It's not great for the 60% of Ohioans who will pay more in taxes.
Unfortunately, corporate special interests and the wealthiest in Ohio have decided that they do not want to pay for Ohio and they would be better off if they just took all of the profit for themselves.
This is unfortunate as our past shows us that individual companies do better when we do better as a nation or as a state. Corporations do better when people make more money and when there is more demand for products. We do better when there is less inequality, not more.
If we continue to shift costs to consumers and average Ohioans, this will reduce demand for goods and services and actually place a drag on consumer spending (70% of GDP).
What about the jobs?
Kasich believes that somehow cutting taxes for the wealthy creates more jobs.
High taxes, especially the income tax, punish a small business owner's willingness to take the risk to hire more people, to invest in improvements, and work harder to be successful. Lower taxes incentivize all of those things.
Except anyone who's ever taken even the most basic business courses knows that you hire people when there's an increase in demand. You don't hire people when someone hands you a check. You're also more likely to invest in your business if there's more demand.
I'm not saying it's never happened, but I'd be surprised if you could actually find anyone who hired just because they received a tax rebate. You might invest in making your business more efficient, but you don't hire people without an increase in demand.
Don't believe me though. I might be a liberal socialist. Ask a business owner if they ever hired someone because of a tax break.
Here's another way to check this weird supply-side theory.
If Kasich is right, with all the tax cuts in Ohio, we should be drowning in jobs, right? Ok, maybe not drowning. But we should at least be outpacing other states and the nation as a whole, right?
Unfortunately, Ohio is lagging the nation in job growth. Job growth in the United States is at 6.1%. Job growth in Ohio is at 4.8%.
From 2011 to 2013, job growth in Ohio was an even more anemic 2.7%:
Why?
Because tax cuts don't create jobs.
In fact, they're likely to reduce spending in the state. Ohio spends tax revenue in the state of Ohio. When you give to wealthy people all that means is that a few wealthy people in Ohio have more money. On average $12K more a year. There's no guarantee any of it is spent in Ohio on making Ohio a better place for Ohioans.
Coda
I think John Kasich's heart is in the right place. He seems like he wants Ohio to do well.
I just wish he'd talk to some economists and look around at what is actually happening instead of listening to corporate special interest group nonsense about the economy.
If we don't pay back and invest, we will only have the companies of today, not the companies of tomorrow.
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David Akadjian is the author of The Little Book of Revolution: A Distributive Strategy for Democracy.