NEWS

Would John Kasich take controversial tax plan national?

Chrissie Thompson
cthompson@usatoday.com
Gov. John Kasich sought to woo South Carolina Republicans Wednesday as he considers a 2016 presidential bid. He's considering endorsing a plan for a flat federal income tax rate.

This article was first published May 28.

NORTH CHARLESTON, South Carolina – At first glance, the tax plan Gov. John Kasich is exploring for his possible 2016 presidential bid lacks the controversial tax hikes he's proposed as governor to help pay for income tax cuts.

Not necessarily, Kasich says – lest you think he's backing away from the clashes he's had with Ohio business groups and fellow Republicans over his tax plans.

"We need to get the corporate tax lowered," Kasich said Wednesday at a luncheon with 20 members of the Charleston Metro Chamber of Commerce. "If you're going to lower that tax, what (tax increase) is going to offset it? Everyone's going to go, 'I want a lower corporate tax, and by the way, don't tax me. Tax the guy behind the tree.' "

Instead of hikes like the sales tax proposals Ohio businesses have renounced, Kasich is considering a federal tax plan that would eliminate special loopholes for business groups.

"There's a difference between tax reform in Ohio and tax reform for the country," he told four reporters, including one from The Enquirer, who were covering his latest visit to this early-primary state. "In the country, if you go to a flat tax and you eliminate all the exemptions, that's basically tax reform." ("Tax reform" is a phrase Republicans use to reference increasing some taxes to help cut others.)

Kasich wants to cut the federal income tax for corporations and individuals. His preferred vehicle, he said, might be the plan championed by publisher and former presidential candidate Steve Forbes: a flat tax, rather than a system with higher tax rates for higher incomes.

What about Kasich's Kansas jabs?

But Forbes' proposal assumes the economy would improve from average lower tax rates, making up for some of the revenue lost in tax cuts – an approach called "dynamic scoring." Kasich and his Ohio staff instead have prided themselves on "tax reform," calling for increased taxes, such as those on smokers, to help pay for income tax cuts.

In 2016-related speeches in the South this week, Kasich boasted Ohio's rainy-day fund holds $1.5 billion in surplus tax revenue, while officials in at least 19 other states are scrambling to make up for shortfalls in tax revenue.

That's a not-so-veiled jab at tax cutters like Kansas' GOP governor, Sam Brownback. Kansas Republicans eliminated income taxes on hundreds of thousands of business owners, saying economic growth would make up for lost tax revenue. Instead, the state has faced budget shortfalls totaling hundreds of millions of dollars. Some school districts even had to close early this month, and lawmakers are considering reversing Brownback's signature cuts.

Kasich's latest proposal also would haveeliminated income tax for most business owners and lowered it for the rest of Ohio's taxpayers. But he'd have paid for those cuts in part by raising taxes on business revenue, cigarettes, and oil and gas obtained through fracking, along with increasing the sales tax and applying it to services such as lobbying and consulting.

Forbes, on the other hand, this week defended Brownback's extreme tax-slashing approach. Lower taxes "are starting to yield a bumper crop in prosperity," Forbes said, citing measures such as growth in non-government jobs.

'Pretty good answer for me'

Forbes has suggested a federal plan that would institute a 17 percent personal and corporate tax rate, with personal deductions that could keep a family of four tax-free up to about $50,000 in annual income. Kasich says he likes the idea that Americans could choose to stay in their current tax bracket or switch to the flat tax.

The flat-tax plan's math relies on the assumption of economic growth spurred by tax cuts. Kasich has questioned that kind of math, but said Wednesday he's open to it, on some scale.

"The economy has been restricted for so long, the opportunity to bring down lower rates, I think, would generate a significant amount of revenue in the early years, and then it kind of returns to the means," Kasich said. "That's a pretty good answer for me."

Kasich's Southern audience this week seemed more open to his controversial mix of tax hikes and tax cuts than Ohio businesses.

In Kasich's home state, the nine largest chambers of commerce said his plan could make Ohio "a less competitive place to do business." Ohio House Republicans rejected the tax increases last month – and, therefore, much of his tax cut – before sending the two-year budget to the Senate.

But the business leaders at the Charleston Metro Chamber are open to one of Kasich's favorite tradeoffs in Ohio, sales tax increases to help pay for income tax cuts, said chamber CEO Bryan Derreberry, who is a former state lobbyist for the Cincinnati chamber.

And a flatter income tax structure – even with fewer money-saving loopholes – may appeal to Charleston businesses, Derreberry said.

"Whatever allows it to be as readily interpretable for the business as possible, so they know where their tax-associated costs are coming from," he said. "It's such a complex system that it's hard to figure out."