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SLASHER: Kasich’s tax cuts are about more than dollar and cents.
Associated Press/Photo by Rick Osentoski
SLASHER: Kasich’s tax cuts are about more than dollar and cents.

State laboratories

Money | Unified governments are allowing states to chart bold new fiscal budgets

Issue: "Effective compassion," July 27, 2013

Elections do matter. If you don’t believe that, just ask the good folks of Indiana and Kansas. Since the election of tax-cutting Republicans (Mike Pence and Sam Brownback, both of whom likely have presidential aspirations), they’ve all seen reductions in the state income tax rate. 

But you don’t need a governor with eyes on the White House to get a tax cut. New Mexico’s corporate tax rate has come down. Oklahoma reduced its income tax rate by 0.25 percent. Tennessee, which already has a near-zero income tax, cut its sales tax. Ohio’s governor John Kasich has been the most recent to board the tax-cutting train, signing a two-year, $62 billion state budget on June 30, barely in time to take effect when the state’s new fiscal year began the next day. The budget reduces state income tax by $2.6 billion.

Fiscal troubles caused by the Great Recession may be generating this new economic conservatism. But John Hood of the libertarian-leaning John Locke Foundation says this trend is more likely a sign the country is becoming balkanized. “We now have 37 states with one-party control of both the legislature and the governorship,” Hood said. “That’s the most in 60 years.”

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To make his point, consider Hawaii. Democrat Neil Abercrombie is the governor, and the legislature is solidly Democratic. It passed a two-year budget in 2012 that included increased spending on infrastructure, education, and capital improvements—despite the fact that Hawaii has $36 billion in debt, the largest per capita debt burden in the nation.

So will this clear divergence in tax and spending philosophies give citizens a true apples-to-apples comparison of which philosophy is best? Possibly, but even when the choices are clear, Hood says it is often difficult to isolate the causes of economic prosperity. “Texas, for example, has no income tax and its economy is booming,” Hood said. “But Texans often forget to mention that the state floats on a giant pool of oil.”

And even when one party is in control, personal politics still matters. Louisiana’s Republican Gov. Bobby Jindal tried to eliminate the state’s income tax and replace the revenue with a sales tax, a strategy favored by most conservatives. Even though the Republican Party controls the Louisiana legislature, his proposal went down to defeat. “He had his head handed to him,” said Hood.

So for the foreseeable future, Hood thinks looking to Europe provides more lessons. “Overall, the countries that are better off are those that tax consumption, not income, and those that have lower tax burdens generally.” The Competitive Enterprise Institute released a study in early July that confirms that conclusion. “European governments that have cut both spending and taxes as part of their austerity programs have higher rates of economic growth than their neighbors,” the study concludes. CEI’s Matthew Melchiorre is clear: “European countries that have reduced the economic footprint of their public sectors have more prosperous economies.”

Budget bonus

The budget bill Ohio Gov. John Kasich signed into law on June 30 was about more than dollars and cents, it was also about life and death. 

The new budget eliminates state funding for Planned Parenthood, blocks public hospitals from arranging transfer agreements with abortion clinics, and requires abortion providers to provide ultrasounds on women seeking abortions. 

“Gov. Kasich enacted measures that prescribe medically unnecessary procedures, force doctors to mislead their patients and will force quality medical centers to close,” complained Kellie Copeland, executive director of NARAL Pro-Choice Ohio. But Mike Gonidakis, president of Ohio Right to Life, said the measures will protect women and save babies’ lives. —W.C.S.

Warren Cole Smith
Warren Cole Smith

Warren, who lives in Charlotte, N.C., is vice president of WORLD News Group and the host of the radio program Listening In. Follow Warren on Twitter @WarrenColeSmith.

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