Archives Ohio Politics — 25 June 2012
Kasich and Ohio Legislature “spread the wealth around”

Before I delve into the new wealth redistribution scheme from the Kasich administration, the proposed 400% increase in Ohio’s severance tax, – in my last blog about Kasich going down hill, I linked the Fortune Magazine article titled: “A Republican governor’s Obama-like plan.”  This article likened Kasich policies to Obama policies on what was considered the hallmark of the Kasich campaign and first year in office – the creation of a quasi-public-private organization called Jobs Ohio.

Between Kasich’s support for Jobs Ohio and Third Frontier (the 3/4 a billion dollar bond on Ohio taxpayers), he is building the largest corporate welfare program in Ohio’s history all with taxpayer money.

Apart from the lack of transparency in Jobs Ohio as a private entity (just funded with taxpayer money), the really horrible part is that these Kasich endorsed programs pick winners and losers with your money every day. They give taxpayer funded loans and credits to business ideas and plans which the free market wouldn’t support. Ever hear of Obama’s Solyndra? This is exactly the same thing. State funding of private industry, or basically public risk with private benefit.

By definition, these programs inhibit the free market. These interventions mean Ohio is, as Veronique de Rugy of Mercatus Center so recently explained, full of the crony corporate programs which she calls “pro-business.” Meaning – business still doesn’t want to grow in Ohio – we are just trying to bribe them.

Ohio needs to be “pro-market” not “pro-business.” Apart from the waste of money and potential for corruption, these programs are also horrible because they give Kasich and legislators the ability to ignore the real structural problems facing Ohio today.

The Looming Disaster to “spread the wealth around.”

But it gets worse – much worse. As if a taxpayer funded interruption of the market wasn’t enough, Kasich’s latest plans take direct aim at the real job creators in our state – small business owners.

Kasich is pushing the legislature to QUADRUPLE the “severance tax.” This is a tax on businesses who “sever” oil and gas from the ground in Ohio, and Kasich wants to raise the current tax from about 1% to about 4% – a 400% increase on these businesses. This is in addition to the already deplorable personal and corporate tax environment that Ohio small business owners already face. So, you could be thinking – yeah, that’s wrong, but it’s not that big of deal, right?

Well, let’s take a look at a typical story for one of the 2,500 small business owners in Ohio’s oil and gas industry that would be crushed by this new tax. If you will – take a moment and imagine that you are a 2nd generation small business owner in South East Ohio. Your father set up a business with his savings, work ethic and a quest for his American dream. You know that he simply wanted to provide for his family, ensure his kids received a good education and maybe help his community that hasn’t done so well over the last few years.

Because he worked his butt off, things went pretty well for him. He was able to put aside some money for his family, hire 10 or 12 people to come work for him and he was getting by. He worked his whole life trying to secure a future for you, and it seems to be working.

You take over the business as he retires, and you are fortunate enough to have inherited his work ethic and a profitable operation. You’re surrounded by great co-workers – men and women who helped raise you over the last 20 years – men and women you respect and to whom you feel an obligation for their years of hard work.  With about a 7% profit left at the end of the day for all your effort, you aren’t getting rich but you are doing ok. Life isn’t perfect, but it’s ok.

In the last couple years, something truly unexpected happened – new shale discoveries and new technology have set up a potential boom for the business your family worked so hard to build. You can actually see some light at the end of the tunnel. It’s a moment full of promise for both you and your community. You can see other local businesses benefitting, property values going up, schools improving, and local population growing.  In such an environment, kids may actually stay home after they graduate from school and your local community can thrive once again. So many Ohio citizens in your part of the state are about to get a break. It’s so close you can almost taste it.

But, just as this new dawn is about to rise – a strange thing happens, the same John Kasich who campaigned on a low tax, pro-growth environment proposes a tax increase that will:

  1. Quadruple the existing severance tax on your gross receipts (that’s equivalent to a 40% income tax increase)
  2. Cut the profit margin in half for you and your fellow job creators in oil and gas
  3. Make Ohio less attractive for out of state investors (i.e. it takes $8,000,000 – $12,000,000 just to tap one new well). As proof – Ohio just dropped 12 spots on list of the best places for energy investment as a result of this tax proposal.
  4. Make Ohio less competitive when compared to foreign countries and other states enjoying similar shale discoveries

You look at what this change means to Ohio, to your industry, to your business and it hits you – your dreams are slipping away right before your eyes. What should have been the moment you began to build a real future for your family and your community is, instead, being destroyed just as it was taking shape.

So by now you’re probably wonder what is the justification offered by Kasich for increasing the tax rate on these business owners by 400%?  He says – this tax isn’t as bad as some other states, many of the companies are big, out of state corporations and he plans to give the money from the tax increase to Ohio families through a tax cut program. Not a permanent cut in the actual income tax rates mind you just a pure redistribution of wealth from those earned it, to everyone else when the funds are available.

Apart from the fact that this completely ignores the 2,500 small business owners already doing business in Ohio’s oil and gas industry – does this justification to raise taxes sound familiar? Take from the producers and “spread the wealth around.” Demonizing business owners? Using class warfare to justify wealth re-distribution? The only part missing is Joe the Plumber.

At what point is this right?

If Kasich wants to cut income taxes for all Ohioans – by all means, do it! I’m all for it. But taking from families who worked hard to earn their money and giving it to random Ohioans to the tune of about $46 (that’s the high estimate) for the average Ohio family – what the heck is going on in this state?

This is wrong on every philosophical and practical level. Philosophically, it is legal plunder and wealth re-distribution of the worst kind. On a very practical level, why in the world would you want to take away half the profits from the very sector that is projected to drive as many as 200,000 jobs to our state?

“If you want less of something, tax it.” – Ronald Reagan

You know what happens when you tax something? You get less of it. That means less money to hire people, fewer new jobs and fewer surrounding area businesses who would benefit from the potential boom. It means less of everything! See below from recent analysis on severance taxes.

 

Just when Ohio has a chance to be highly competitive and to lead the pack – the Kasich administration steps in and seeks to crush people’s dreams. Since it doesn’t make sense for any philosophical or practical reason, the process of elimination leaves us with a political reason. I believe this is being done so Kasich can sell the idea that he gave tax cuts (and I use that language loosely) to Ohioans going into an election year. This whole scheme is horribly self-serving and will have negative repercussions on real Ohioans for years to come.

As I’ve come to learn what is standard in both Columbus and DC, a politician dumps principles and common sense for politics and self-preservation – to advance his own career.

I’m not a partisan person in anyway, but if you are – ask yourself one last question. If this was Strickland (a Democrat) and not Kasich (a Republican) – what would you think about a wealth redistribution scheme which quadruples taxes on a single group of small business owners, decimates their lives, and destroys new job opportunities; while offering the plundered money to people who have nothing to do with the process?

This is an attempt to “spread the wealth around” in the worst way. Our Ohio House of Representatives has resisted Kasich’s attempt to move forward on this task so far, but the negotiations have started. Kasich has brought the big oil and gas companies to the table and they are trying to craft a deal right now. They can afford lawyers and accountants to lessen their burden. But, you know who isn’t at the negotiation table – the small business guy who can’t afford the best lobbyists and can’t afford to push the big money to candidate fundraisers – the guy who will never get the politicians in their pockets.

Don’t let this happen. Defend entrepreneurship and economic freedom in Ohio. Help save these American dreams.

Learn how to stop the Kasich proposed severance tax increase at ohiotaxpledge.org

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chrislittleton

(12) Readers Comments

  1. Pingback: Kasich’s biggest battle on turnpike could come from the Right

  2. You use strong language here, Chris. I followed your logic and your example story. But who actually pays the severance tax? You example used a mom-n-pop with 10 employees, but also admitted that it costs ~$10 million to start a new well. That tells me the big corporations are the ones drilling, and probably paying the tax. The small business owners are not. What evidence do we have to the contrary?
    Thank you,

  3. Pingback: Killing the American Dream | Ohio Tax Pledge

  4. Do you happen to have the contact info for the Governor and the House? Thanks.

    • For governor: http://www.governor.ohio.gov/Contact/ContacttheGovernor.aspx

      To look up and call your state representative: http://www.house.state.oh.us/

      Wrote this to someone above, but I think stage one is just getting your member of the House on the record – have them commit to not support a severance tax increase. Not a deal, not a variation – no increase. Get them to commit to voting NO on any severance tax increase. I’d love to hear the result.

      We’ll make a list and see who is willing to sign a pledge to not raise taxes.

  5. I have an idea for a plan of action here.

    I’m sure there’s probably something like a producer’s association in Ohio. They probably have a list of all the suppliers in Ohio and what their profile is – whether small and local or out of state.

    It’s not hard to put together a spreadsheet showing – telling the story – of what the impact to Ohio will look like as the charts above aptly show. Words are powerful but images provide unparalleled visual context that is often the tipping point for most people.

    A simple before and after pie chart is a good way to illustrate the change from 1% to 4% but it would be great if we had a pack of charts showing local vs. out of state so that the impact is quantified. Then a chart showing average profits vs expenses for those small local producers so that the portion of profit the tax taxes is understood.

    The 7% theoretical net profit compared to 4% gross tax increase is a story begging for a good clear picture showing what that actually means.

    Is there anyone with access to this data willing to share it so that the community of pro-market minded individuals can take it and turn out some good public education materials?

    Best regards,

    jc

    • All the data is already available. Unfortunately, its not that simple.

      The Kasich people and others supporting this have no desire to incorporate facts or logic in their decision making process.

      This is a purely political move.

      If it wasnt just political, they wouldnt be proposing a tax increase of any kind.

      You are thinking logically about economic impact. You’ve got to think like a politician – economic impact isnt important, just re-election.

      • You’re absolutely right. I was a bit groggy and forgot to finish my thought. Public education can be a powerful force when directed at politicians in office. I’ve seen it work in the past – when there is a clearly understood message communicated to a wide audience, people tend to take action when asked.

        I could be cynical and take the approach that sitting politicians will stay their course regardless of the noise issuing forth from the unwashed masses, but Ohio has had some good turns lately with public action. I think we have the ability, and the knowledge that we possess this ability, to raise a flag on this issue and get some traction with a change of course.

        I thank you for bringing forth what you have. I wish I had more time to track this down, but time is scarce. You’ve got my email – if you can lay your hands on reliable data and send it to me, I might have the time to take a shot at some PSA graphics.

  6. Action plan please. I have all the numbers and emails…I just need basic direction.

    • I think stage one is just getting your member of the House on the record – have them commit to not support a severance tax increase. Not a deal, not a variation – no increase. Get them to commit to voting NO on any severance tax increase. I’d love to hear the result.

      We’ll make a list and see who is willing to sign a pledge to not raise taxes.

  7. And what does Speaker of the Ohio House William G. Batchelder think of these proposals to Tax and Tax and Spend and Spend ?

    No matter how hard he tries, Kasich can not bring these bills to the floor for a vote. Only Batchelder can do that.

    If Batchelder is taking orders from Kasich on these things then we have to get us a new Speaker.

    • Kasich is pushing the idea, and word on the street is Batchelder is supportive.

      The Speaker obviously controls the administrative and legal means to get something to the floor, but never underestimate the power of money and promises of fame and fortune that any state’s governor can hang over the heads of the average legislator. They have tremendous power and influence.