A Project of The Annenberg Public Policy Center

Distorting Kasich’s Tax Plan

An ad from a conservative group attacks Ohio Gov. John Kasich as an “Obama Republican,” and misleadingly claims his budget “raised taxes by billions, hitting businesses hard and the middle class even harder.” The ad only tells half the story.

The TV ad from American Future Fund ignores that while Kasich in early 2015 proposed billions in tax increases — mostly from sales and cigarette tax hikes — the very same plan proposed an income tax cut and other tax relief. Overall, the plan called for a net tax cut.

The ad’s small print cites a Feb. 2, 2015, story in the Columbus Dispatch. We found a story on the governor’s tax plan — “Kasich’s tax cut depends on raising others” — posted on the paper’s website the night before. That story notes that Kasich’s proposal for an across-the-board income tax cut was offset in part by a sales tax increase. But the planned tax cuts exceeded the tax increases by about $500 million, the story stated.

Kasich’s proposal called for about $4.9 billion worth of tax increases in fiscal years 2016 and 2017 combined. But his plan also called for a little more than $5.7 billion worth of tax cuts. That’s a net tax reduction of just over $800 million over two years. (See table B-2 on page B-7.) The Legislature ended up making significant changes to Kasich’s proposal, and the final version it approved — and Kasich signed — called for an even bigger net tax reduction than Kasich had originally proposed.

In Ohio, the governor submits a biennial budget proposal every two years. Kasich took office in January 2011, and so the fiscal year 2016-2017 budget proposal was the third of his governorship.

An analysis by the nonpartisan Urban Institute of Kasich’s tax policy as governor of Ohio notes that Kasich has long been a champion of reducing the state income tax. Indeed, the budget plan in 2013 included a 10 percent personal income tax cut. In 2013 and 2014, Kasich also created an earned income tax credit, increased the personal exemption and eliminated the state’s estate tax. But in order to pay for some of those revenue cuts, he also raised the sales tax rate from 5.5. percent to 5.75 percent and increased taxes on cigarettes by 35 cents per pack.

Taxes will be reduced by a net of nearly $5 billion between 2012 and 2017, according to estimates from the Ohio Office of Budget and Management, which is run by a Kasich appointee and the governor’s chief financial officer.

Although the ad doesn’t specify that it is referring only to the 2016-17 budget plan, the ad’s citation makes that clear. The plan Kasich unveiled in early 2015 again called for rolling back the personal income tax. However, Kasich also proposed increasing the sales tax by 0.5 percent, increasing the commercial activity tax from 0.26 percent to 0.32 percent, and increasing the cigarette tax by another $1 per pack.

In 2015, Kasich also proposed to eliminate income tax liability on the first $250,000 in so-called “pass-through” income, business income taxed as personal income. The Urban Institute said the measure “essentially eliminates taxes for smaller businesses.”

The budget proposal submitted by Kasich shows his plan was estimated to result in a net tax cut of about $366 million in 2016, and another $443 million in 2017.

Indeed, the group Americans for Tax Reform says Kasich has kept its Taxpayer Protection Pledge to “oppose and veto any and all efforts to increase taxes,” because the governor’s plan resulted in a net tax reduction.

“The governor’s pledge is a commitment to veto any net tax hike,” John Kartch, a spokesman for Americans for Tax Reform told us via email. “He has honored that commitment. The overall budget was a net tax reduction on Ohio citizens.”

The conservative Club for Growth says in a white paper on Kasich that “[a]s governor, John Kasich has a mixed record on taxes. He has repeatedly signed into law budgets that include cuts to the state income tax.” But it goes on to list some of the offsetting tax hikes Kasich has supported as well. “While Governor Kasich’s budgets have typically been proposed and passed with net decreases in overall taxation, he has also proposed numerous new taxes and tax increases,” the analysis states.

As for the ad’s claim that Kasich’s plan “[hit] businesses hard, and the middle class even harder,” some have argued it has.

The left-leaning Policy Matters Ohio concludes that the sum of Kasich’s tax changes disproportionately benefits the wealthy. It says that “middle-income Ohioans will see small tax cuts, averaging $94 a year. Those lower down on the income scale will see even less, while some of the poorest Ohioans will have to pay a little more.”

Kasich’s plan also drew criticism from some in the business community. A coalition of Ohio Chamber of Commerce groups in March 2015 came out against his proposal — the one cited in the ad — saying it “may make the state a less competitive place to do business.” Likewise, the Ohio Manufacturers’ Association in March said there were “significant problems” with the proposal.

Norton Francis of the Tax Policy Center, a joint project of the Urban Institute and Brookings Institution, said it isn’t clear how the tax plan would have affected businesses and the middle class.

“It’s a tough call,” Francis told us via email. “Kasich’s proposal increased the sales tax both in rate and base and the Commercial Activities Tax (CAT) to pay for reductions in the income tax. Businesses and middle class will be affected by both and it’s unclear (without a lot of data) where those will come out.”

Ultimately, the state Legislature passed a budget that was much different than Kasich’s original proposal. It scaled back income tax reductions and, for example, called for a smaller cigarette tax hike. The Legislature also skipped an increase to the CAT, Francis said. “So the proposal (which netted out to about $400 million in tax reductions [for one year]) was very different than the final bill,” Francis said.

In fact, according to the Office of Budget and Management, the 2016-17 budget that ultimately passed — and that was signed by Kasich — resulted in a net tax cut of nearly $2 billion, more than double the amount of net tax cuts originally proposed by Kasich.

No matter how the tax cuts affect businesses and the middle class, the ad only tells half the story by only mentioning the tax increases, and not the cuts, in Kasich’s proposal.