Yesterday, Bloomberg reported that Governor John Kasich is still talking about phasing out Ohio’s income tax, which accounts for nearly half of the State’s general revenue funds. He basically said that once he believes the State reaches a structural balance, he’s going to start throwing it out of balance as he phases out the income tax—a tax that has already been cut 24% over the past four years. Kasich continues to maintain that Ohio must get rid of its income tax if it hopes to compete with the non-income tax states in job creation.
Kasich’s economic prescription for Ohio seems to be that Ohio’s unemployment is the direct result of three things:
- The existence of a progressive income tax structure that other States don’t have;
- Higher labor costs caused by collective bargaining that prevents Ohio from competing with right-to-work (for less laws) that effectively outlaw organized labor;
- The lack of sufficient venture capital.
We all know that John Kasich has a Florida fetish. We don’t know why.
Seriously, we don’t know why. Florida has nice beaches, but we’re pretty sure God just put them there so he could surround the State with water in order to contain the crazies south of the panhandle there from leaving. We’re talking about a State known for two things: blow and wrestling alligators, which I cannot believe is not somehow inter-related.
In an interview during the campaign, Kasich spouted off four States that he said Ohio should model. Four States that he said were the fastest job growth States in the nation: Florida, Texas, Tennessee, and Nevada. Unfortunately for Kasich, almost immediately after he gave this interview, Nevada overtook Michigan for the State with the highest unemployment rate in the nation.
But that was back in June 2010. How is Ohio stacking up to the no-income tax/Right to Work States ten months later?
According to the March unemployment rates for the States, the U.S. Department of Labor’s Bureau of Labor Statistics ranks the States Kasich named back in June 2010 as “leading the nation” on jobs as follows:
23rd: Texas (8.1%)
29th: Ohio (8.9%)
37th: Tennessee (9.5%) (tied with Washington, D.C. and Arizona)
49th: Florida (11.1%)
51st: Nevada (13.2%)
Even though Texas has a lower unemployment rate than Ohio’s, it’s not by much and not exactly leading the nation in low unemployment.
You know what else Nevada and Tennessee do lead the nation in? Bankruptcy filings per capita. Tennessee is also fourth in the nation in infant mortality per capita. Texas and Tennessee lead the nation in people living below the poverty line. Nevada and Texas is at the bottom in home ownership. Tennessee and Florida are behind in Ohio in median household income, too!
John Kasich sure knows how to pick a winning horse (and then bet against it.)
1. Hey, Ohio’s progressive income tax, it’s not your fault… hey, it’s not your fault.
There are nine States that have no personal income tax: Alaska, New Hampshire, Tennessee, Florida, South Dakota, Washington, Nevada
Texas, and Wyoming. Of those, four have an unemployment rate higher than Ohio’s. In fact, two are in the top three States for high unemployment and have been for about a year now. When nearly a third of a group leads the nation in the thing you’re trying to combat and half are doing worse than you are doing, perhaps that’s not a group whose economy you really want to imitate.
2. “Right to Work” laws don’t mean you don’t have the “right” to be unemployed, apparently
We keep hearing about how we need to lower the costs of government, get rid of prevailing wage, so Ohio can compete with “Right to Work” states in the South in job creation.
Well, according to the National Right to Work Legal Defense Foundation, here’s a map of the Right to Work States in the United States:
And, again, here’s a map of the States with unemployment rate’s higher than Ohio’s:
Again, eleven out of the twenty-two Right-to-Work States have a higher unemployment rates than Ohio a year and half after the recession officially ended. John Kasich likes to think about Ohioans are jealous of Georgia for taking NCR from us. What he leaves out that Georgia (10%) would gladly trade NCR back for Ohio’s unemployment rate (8.9%). Again, when half of the group you want to emulate is doing worse than you on the thing you say you’re trying to fix, you have to question your thinking.
Tennessee, Florida, and Nevada are among the five States that have no income tax and no collective bargaining. And Ohio’s outdoing them in spades.
So it would appear Ohio’s collective bargaining laws aren’t holding back Ohio’s recovery compared to Right-To-Work (for less) States.
3. Venture capital no key to solving unemployment, either.
A few days ago, the Cleveland Plain Dealer reported that the Governor Kasich admitted that JobsOhio is intended to emulate a venture capital firm, something we suggested was a horrible model for Ohio’s economic development efforts.
First, Ohio ranks 17th in the nation in attracting private venture capital. So, it’s not like we’re doing horrible on the front. Second, how perverted does conservative ideology get that you conclude that the private sector should compete with the public sector in running prisons and yet the public sector needs to compete with the private sector in the venture capital business? Kasich apparently believes the free market would do better running prisons than it does in the venture capital business. Why is that?
Third, and most importantly, venture capital investments is no factor in job creation over the long term. Again, here’s the chart of the top ten States in terms of venture capital, according to the Columbus Dispatch citing capital venture industry experts:
Again, nearly half of the top ten States in venture capital have higher unemployment than Ohio’s. In fact, the State that receives the most venture than any other state, nearly five times more than any other States, has the second highest unemployment rate in the nation. By adopting a venture capital model, Kasich is so narrowing the State’s economic development focus that entire sectors of the economy will be omitted from the State’s economic development philosophy.
Because Kasich has only a bachelor’s degree in political science, perhaps he should study the history of venture capitalism first to understand the narrow function such firms actually serve in the economy. Venture capital exists to fill the void traditional banking lending and State economic development agencies do not fill: start-ups that need high amounts of capital, have a potentially profitable, innovative product, but one whose value is more tied to intangible value like intellectual property than tangible value like the steel made in producing cars, for example. That’s why venture capital is heavily involved in computer software, IT businesses, and biotech.
Venture capital also doesn’t give a whit about job creation/retention or job creation/retention within a specified geographical area. That’s why for all the venture capital invested even in areas like Silicon Valley, we’ve seen no real job gains since the number of jobs there today than there were in the early 1990s. They’re interested in short-term profit taking. That’s it. If they cannot turn a profit in cashing out their equity within three to seven years, then they aren’t interested in investing in that company or sector. As a result, it’s generally considered that venture capital firms will invest in roughly one quarter of a percent (.25%) of the opportunities presented to it.
To a venture capital firm, there is no value in spending money to “raid” another State to bring its jobs to Ohio. Kasich once spoke of JobsOhio as making the State more nimble so it can act like the “Rhodes Raiders” of lore. But the reality is that JobsOhio cannot both be a venture capital firm and a “Rhodes Raider.” (It also ignores that “Rhodes Raiders” had few actual successes, and that Rhodes actually has the worst record for unemployment of any Ohio Governor since the Depression.)
Strike three, Kasich. In each area where Governor Kasich is transitioning Ohio to supposedly do better on the jobs front, half the States that already do what Kasich is pushing are doing economically worse than Ohio. We’ve had thirteen straight months of dropping unemployment, something virtually no other State (if any) in the nation can claim. Even the Governor’s own Office of Budget and Management says that Ohio did nearly twice as well as the rest of the nation in job creation last year under Governor Strickland.
John Kasich has to be the worst economist in the country. Yes, I’m aware he worked on Wall Street, but even his supporters who worked with him acknowledged he was more of a celebrity “rainmaker” who made sales than a serious economist or investment banker who understood complicated economic terms. His time at Lehman’s was, in reality, nothing more than a glorified sales job. He really has no real economic background to speak of, and it shows.
Time and time again, he’s picked policy cures that have already been adopted in States that are still doing substantially worse than Ohio. This isn’t a matter of a difference of opinion or a difference over political ideology. This is about objective facts. What John Kasich is pushing us towards is to model ourselves off the very States that are doing the worst economically right now.