When DHL Express pulled out of Wilmington during the throes of the Great Recession in 2008, the Mayor said the city took a “gut punch.” That story is one of the big reasons Governor Kasich decided to take his annual State of the State speech to Wilmington. He wanted to highlight the difference his policies are making for Ohio and why the General Assembly should follow through on his latest biennial budget proposal. The Governor is right that many Ohio policies, specifically its troublesome tax code, hurt economic growth and prosperity.

While The Buckeye Institute did find some promising policy recommendations in the budget, there are numerous areas where improvement is definitely needed in order to turbo-charge Ohio’s recovery. Nothing that the Governor said in last night’s State of the State alters the following observations that we made in our overview of the budget when it was released earlier this month:

• “Efforts to continue reducing the personal income tax (PIT) and shift to consumption-based taxation should also be applauded from a long-term perspective. However, several of the mechanisms chosen to offset revenue losses will counter-act some of the positive impacts from the PIT reduction and violate the principle of tax equity. Among these are increases to the Commercial Activities Tax and the Ohio severance tax. Both will be harmful for businesses and should not move forward. The proposed tobacco tax increases will also lead to smuggling and evasion, thus not yielding the revenues projected by the Administration while also singling out a single class of taxpayers and violating the principle of tax equity. Further government spending restraint should form the basis of eliminating the income tax prior to any other increases.
   
• Education spending continues to grow rapidly despite little academic evidence that increased budgets benefiting bureaucracy yield significant academic gains.
   
• Medicaid continues to be what former Governor George Voinovich called the “Pac-Man” of the state budget, especially after the expansion. However, the Governor is wisely seeking to impose limited personal responsibility requirements on those over 100% of the Federal Poverty Level (FPL).
   
• The state is wisely continuing a reduction in revenue sharing by further reducing reimbursements to local governments for tangible personal property and kilowatt-hour taxes.
   
• Overall state spending is increasing faster than can be justified through either inflation or population growth. The largest increase comes from moving the Medicaid expansion costs back onto the General Revenue Fund (GRF) books. However, state-only GRF spending also eclipses inflation.”

Adhering to good tax policy of the kind we outlined in our Tax Principles report will move Ohio into a continuously improving economic condition. All reforms should be simple, transparent, pro-growth, and fair and equitable. Unwise tax shifting undermines some of the salutary effects of things like the large reductions in the personal income tax, including the elimination of that tax for many small businesses.