Tax Reform

Ohio State of the State

Governor Kasich offers limited policy solutions as his term comes to a close

Governor John Kasich delivered his final State of the State address in an optimistic tone, exclaiming “I believe the state of Ohio is stronger today than it’s been in a generation.” Available data largely backs up this claim. The recently-released 11th edition of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index illustrates Ohio leaping from 45th in economic outlook in 2009 to 21st this year. In the Forbes “Best States for Business” ranking, Ohio now sits at 14, up from 38 in 2010.

This success is largely attributed to reigning in spending, income tax reductions (specifically on small businesses), and regulatory reform. Indeed, the top marginal combined state and local personal income tax rate declined from 8.87 percent in 2008 to 7.5 percent in 2018, while the top marginal corporate income tax rate plunged from 10.5 percent in 2008 to just 3.67 percent in 2018. Property tax and sales tax burdens also fell along with the elimination of the state’s death tax during this stretch. Of important note, workers’ compensation costs were slashed in half, from 3.32 percent of payroll to just 1.45 percent.

Governor Kasich focused his address on what he believes are his biggest accomplishments over the course of his two terms in office, saying “much of what we have done in the state I like to think is a reflection of [Ohio] virtues and values.” Policies like expanding health care, improving the mental health system, stemming the opioid crisis, criminal justice reform, and putting a stop to human trafficking. He touched on job creation and stated Ohio must “have an environment where small businesses can work and where businesses can grow.”

The Ohio budget bill signed by Governor Kasich last year resulted in several tax reductions. While not all changes in the bill are commendable, such as targeted tax breaks, overall most Ohio taxpayers should have experienced a small net tax cut beginning in 2018. Governor Kasich initially intended to both consolidate the number of personal income tax brackets and reduce the rates, in exchange for a broader sales tax base; but the state legislature disagreed with this approach. The number of brackets were successfully consolidated from nine to seven, resulting in no state income tax on the first $10,650 of personal income.

Accomplishments aside, Kasich’s eight years in office have included a fair share of controversy. He faced backlash for turning away from fiscal conservatism on several occasions, most notably with his unsustainable decision to expand Medicaid. Additionally, the Buckeye State has one of the worst-funded public pension systems in the nation, according to the most recent edition of our ALEC report Unaccountable and Unaffordable. While these liabilities largely existed prior to when Governor Kasich took office, no substantial steps have been taken to address the problem. Ohio has more than $350 billion of total unfunded liabilities, an unfathomable $30,538 per capita. The Buckeye Institute has written several salient pieces this year with suggestions for how the state can be improved, including ridding the budget of pork projects and simplifying the tax code. My colleague, Joel Griffith, wrote about how Ohio must adopt right-to-work or risk being left behind in the Midwest.

Several of Governor Kasich’s economic policies have helped, in many ways, improve the state’s competitiveness, but backtracking on limited government, free market priorities he touted while running for office will surely complicate his legacy.

In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A…

+ Tax Reform In Depth