State tax receipts have fallen more than half a billion dollars short this year in Ohio, raising questions about whether billions in tax cuts made under Ohio Gov. John Kasich have left the state better off.
Those cuts were supposed to grow the state’s economy, Republicans have said, by encouraging businesses to grow. But by many measures, Ohio’s economic performance is lagging behind national averages.
The shortfall comes as lawmakers and Kasich work through the state’s budget process, hoping to get to a finished spending plan by June. That budget could see big cuts to state programs, though lawmakers may also tap the state’s $2 billion rainy day fund to shore up part of the upcoming two-year, roughly $71 billion spending plan.
“We’re going to look at all the options,” Kasich said during an April 13 news conference about the budget in Columbus. “Everything has to be under the microscope.”
Tax receipts for March show the state about $203 million behind projections — almost half of that gap from income taxes.
The leaner-than-expected tax revenues are a continuation of a longer trend. The state has taken in $615 million less than expected in taxes for the year. The gap has helped blow a $400 million hole in the state’s budget. State officials say slow economic growth and larger-than-expected tax refunds are responsible for that gap.
Conservative lawmakers who have cheered Kasich’s supply-side approach to the economy point to some positive indicators: rising wages and some 460,000 new jobs over the governor’s tenure. In a statement about his budget proposal, released earlier this year, Kasich doubled down on his approach.“
Making Ohio more competitive... means we must make our tax code friendlier to job creators and entrepreneurs,” Kasich said.
But critics say the governor’s approach isn’t working and howled at the recent announcement that cuts may be necessary.“
Even before Kasich announced this cut, the executive budget wasn’t investing enough in programs Ohio needs,” said Zach Schiller, research director at liberal-leaning think tank Policy Matters Ohio, in a statement. “We’re not generating enough revenue. Our tax system is off-kilter, with the wealthy and special interests getting big breaks at the expense of the poor and middle class.”
It’s no secret Ohio’s economy is lagging of late. The state ranks 36th in the nation for job growth, adding jobs at a rate of .85 percent per year — much lower than the national average of 1.66 percent per year. Since the Great Recession began in 2008, the state has seen jobs grow at a rate of 2.5 percent — again much lower than the national rate of 6.1 percent.
The state’s unemployment rate — 5.1 percent — is also above the national average of 4.7 percent. And though average weekly wages have increased at a rate somewhat higher than the national average, Ohio ranks 32nd among states for median household income, which has fallen 10 percent since its peak in 2000. Many of the jobs the state has added are in low-paying service and hospitality sectors, according to federal data.
Kasich and Republican lawmakers have advanced big cuts to income and corporate taxes year after year — to the tune of $5 billion during the governor’s tenure — saying they would spur the economy, create new jobs and fill the state’s coffers with taxes from increased productivity. However, other states that have tried this approach have not seen that happen.
In Kansas, GOP Gov. Sam Brownback has taken an increasing political drubbing for advancing a similar approach to the state’s finances. This year, that state is facing a $350 million budget shortfall in the aftermath of a tax overhaul that Brownback once called “a living experiment” in conservative economics.
That overhaul gave deep cuts to affluent residents and businesses and eliminated taxes on small businesses altogether. About 330,000 small business entities took advantage of the tax immunity — far more than the 200,000 state lawmakers estimated. The state has exhausted its reserves, diverted money for infrastructure to keep the state government running and cut education to the point that the Kansas State Supreme Court had to step in, saying the cuts violated the state’s constitution.
Earlier this month, Kansas lawmakers, including many Republicans, tried to repeal a key portion of Brownback’s plan — the loophole eliminating taxes for small businesses — but narrowly failed. That repeal would have netted the state more than half a billion dollars by next year if it had passed.
In some ways, Ohio seems to be on a similar path. In an effort to shore up Ohio’s budget, no cuts are off the table, according to Kasich and Republican lawmakers, including funding cuts to education or relying on state reserve funds.
Kasich has revealed that he thinks efforts to curb Ohio’s opiate addiction epidemic will be spared slashes, however.
Democrat lawmakers blasted Kasich for the shortfall and potential budget cuts.
“We were promised that deep cuts to communities, deep cuts to schools, privatizing job creation and shifting taxes to give millionaires breaks would grow our economy and create jobs, but [the potential cuts are] proof Gov. Kasich and other leaders have broken that promise,” said Democratic State Rep. Jack Cera, who serves on the State House Finance Committee. ©
