Kasich and Quinn: Tale of Two Statesmen

Ohio Gov. John Kasich is making good on his promise not to increase taxes in the Buckeye State.  A raft of measures targeted at cost-cutting, privatizing government operations, and improving efficiencies is conceived to turn an $8 billion budget gap into a balanced budget for the next biennium.  

The other side of Kasich's blitz effort to turn the state around is the campaign to restore hundreds of thousands of jobs lost over the years. How can this be done with the paltry venture capital being invested in Ohio? In 2010 there were only 52 such investments totaling $157 million, according to the PricewaterhouseCoopers and National Capital Association's Moneytree Report.  Surprisingly, Ohio is 17th among the states in generating venture capital investment dollars.  But $157 million still doesn't sound like much, and it's still less than two percent (2%) of the $11 billion in venture capital invested in California businesses in 2010. 

Gov. Kasich wants to supplement existing credits available to investors in tech-oriented and R&D firms based in Ohio.  A change in the state's capital gains tax landscape could be on the table. 

But how does this idea play in the Ohio's overall budget mess, at least in the near-term?  Kasich's critics could point to the economic mess in California and ask rhetorically if venture capital is working magically for the Golden State.

More broadly, Kasich and the Ohio legislature are acting on themes grounded in low taxes, low spending, greater public sector efficiencies at state and local levels, and collective bargaining cutbacks for public employees.  Hopefully, these strategies will attract new business activity, reduce population attrition, and improve the state's competitive posture.  Will these strategies work?  Kasich is betting his (ambitious) political future on it, hoping that there will be a renaissance in Ohio, that the state will become America's poster boy of economic success.

In a more general sense, there's a savvy brotherhood of governors, politicos and economists out there who actually think that lower taxes and tax incentives actually harm state budgets.  Clearly, our state leaders must not be looking at the same econometric models in their proposals to straighten out their jurisdictional finances. 

It's apparent from Bloomberg.com, for example, that Illinois Gov. Pat Quinn would not see eye-to-eye with Kasich on the need to cut education and other public sector funding in order to balance Ohio's $8 billion budget deficit.  Quinn says higher taxes are the answer in Illinois.  Cutting public spending in Illinois is just not on the radar.  Like Ohio, Illinois is in the tank economically, and Quinn has no shortage of critics. To say the least, Illinois business interests and many others are incredulous.

Quinn is stuck on the "moral dimension" of government, quoting biblical passages with sincerity to make points about the active role government should play in the lives of Illinois citizens. John Kasich is just as passionate in his position that the need to reduce government involvement in people's lives is beyond compelling. Similar to Quinn, Kasich is not winning any popularity contests: Just a couple of months out of the gate, his job approval rating stands at a record low 30 percent.

Illinois and Ohio are just two of many "drama queen" states to examine in these tough times.  This is what makes state tax policy such an interesting subject nowadays. The state's are "all over the map," as it were, in adopting economic and taxation policies. The states look like a laboratory of economic experiments: Some will succeed and some will fail. Aside from the entertainment value that these contrasting dynamics bring to our nightly newscasts, real people will be affected in different ways by radical policymaking now in progress.  Who's right? For better or worse, the impact in the near term and in the distant future will be telling and far-reaching. 

Let's stay tuned.

RELATED LINKS: For insights on Ohio and Illinois tax policy, see:

• 1-6 Bender's State Taxation: Principles and Practice § 6.01 - Gross Receipts Taxes

• 1-7 Bender's State Taxation: Principles and Practice § 7.07 - Factor Representation of Foreign Dividends

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