The nation is reminded of it every four years. Those who call Ohio home never forget: “As Ohio goes, so goes the nation.”
Since 1896, Ohio has voted against the eventual President only twice (1944 and 1960) and currently enjoys the longest perfect streak, having selected the winner in every election since 1964. Thus, it has become an entrenched part of the nation’s political folklore that Ohio is the holy grail of American politics, the key to the presidency.
Ohio’s role as a political bellwether is undoubtedly a source of Buckeye state pride. We revere our republic and our pivotal role in choosing her leaders. This privileged role results from the fact that Ohio’s characteristics closely mirror those of the nation as a whole. From her people to her major industries to her natural resources, Ohio is a microcosm of America. As MSNBC political commentator Chris Matthews declared at Ohio State’s May 4 commencement, which I had occasion to attend, “there’s nothing more American than Ohio.” Indeed.
There’s something else that contributes to our outsize importance in national politics: our outsize population. With more than 11.5 million people, Ohio has the seventh largest population in the country. If Ohio were just 582,658 strong, like Wyoming (ranked 50th), or even 4.4 million, like our neighbor to the south Kentucky (26th), it would still be a key indicator of electoral trends, but it would hardly be the coveted electoral prize it is today. Unfortunately, current population trends are not especially promising for our beloved state.
As a result of the 2010 census, Ohio lost two Congressional seats, which also means two fewer votes in the Electoral College. According to the U.S. Census Bureau, from April 2010 to July 2013, Ohio’s population grew just 0.30 percent, the sixth slowest rate in the nation. Even more telling is the fact that last year 23,094 more people left the Buckeye State than migrated from other states, a number which threatens to place Ohio in the unhappy company of states like California, Illinois, and New York, whose residents continue to flee in droves.
What’s causing the population to flock to states like Florida and Texas? Is it simply that people have become more averse to cooler climates? Or might there be something else at play?
As the mass migration from California to Texas suggests, the population shift can’t be explained by weather alone. And while globalization has certainly made Americans less provincial and increasingly mobile, even this doesn’t account for the particular domestic migration patterns observed over the past decade or so. So what does?
Consider one of the basic laws of economics: people seek to maximize utility, a fancy way of saying they make decisions based on what they think will enhance their quality of life. As Democratic strategist James Carville famously said during the 1992 presidential campaign, “it’s the economy, stupid.” The same is true for domestic migration. People move in pursuit of a better life, and most of the time, that means greater economic opportunity.
It’s worth pointing out that many domestic migrants belong to the swelling number of baby boomer retirees who are, in fact, lured south by the promise of sunny skies and balmy temperatures. But here again, they aren’t heading for costly California or Hawaii. They’re choosing Florida and Arizona and even Nevada, places where the cost of living is lower than the states they’re leaving behind. That’s because many retirees — like many working Americans — live on fixed incomes and, thus, have a real need to stretch their dollar as far as it will go.
Regardless of how they vote in partisan elections, then, retirees — like all domestic migrants — vote most convincingly with their feet. At a time when the choices they face are most black and white, most immediate, most in their control, domestic migrants send a clear message with where they choose to relocate. That message? Greater economic freedom. And the reasons are plain to see.
Consider the states rated by the Tax Foundation, whose ratings are cited by virtually every news organization in America, as most business-friendly for 2014. In addition to low tax rates, seven of the top ten have taken the bold step of eliminating one or two major taxes, such as the corporate, income, or sales tax, altogether. And the economic benefits of such low tax burdens speak for themselves.
Of the top 10 states, eight currently have an unemployment rate below the national average of 6.3 percent. Five have an unemployment rate below 5 percent, what economists consider “full employment.” Contrast these states with those the Tax Foundation rated as least business-friendly, which have complex, non-neutral taxes and comparatively high rates. Of this group, just five outperform national unemployment, while only two can claim to have reached full employment.
As the results show, the notion that business-friendly means family-unfriendly simply isn’t true. In fact, what’s good for American businesses is often equally good for American families, and vice versa. Low corporate and individual tax rates attract businesses and allow them to grow and innovate. These thriving businesses create jobs and opportunities for workers. More widespread employment and rising wages allow consumers to spend (and save) more, which, in turn, drives business. And the virtuous cycle continues.
Of course, there are certainly ways for lawmakers to provide special treatment for favored businesses and industries. But that’s not what we’re talking about here. We’re talking about genuinely free markets and economic opportunity.
With all this in mind, the administration and lawmakers in Columbus should be doing everything possible to make Ohio more attractive to families, taxpayers, and businesses alike. The Kasich administration and Republican-controlled General Assembly have taken significant steps in recent years to improve the state’s economic climate. From eliminating the estate tax to enacting 10 percent personal income tax cuts for all Ohioans, there have been notable achievements.
The state’s unemployment rate is currently 5.7 percent, 0.6 percent below the national average. And yet, there’s much more to do to keep Ohio’s momentum going, remain competitive with neighboring states, and buck current population trends. The state budget is one of the primary vehicles through which these goals can be accomplished.
Earlier this week, a House-Senate conference committee met to iron out differences between the House and Senate versions of the Mid-Biennial Budget and sent the finished product to the legislature for a vote. Despite its shortcomings, this bill is a significant improvement from previous iterations.
Perhaps the most promising feature of the final bill is some of the original proposals it leaves out, namely, the commercial activities tax (CAT) increase. Tax scholars are almost universally critical of gross receipts taxes, like the CAT, which apply to all transactions, including business purchases of supplies and equipment, regardless of profits or losses. The increased business costs that result from such redundant taxation inevitably get passed on to individuals in the form of more expensive consumer goods.
The mid-year budget proposal originally included an increase in the CAT from 0.26 percent to 0.30 percent. Fortunately, the current bill before the House and Senate this week does not include this provision. If anything, Ohio should lower, not raise the CAT tax rate. Ideally, this distortionary tax will eventually be eliminated altogether.
Another promising feature of the current bill is an acceleration of the phase-in of the previously enacted 10 percent income tax cut, which would allow the full cut to take effect this year rather than next. There’s also an increase in personal exemptions for those making less than $80,000 a year and a doubling of the state’s Earned Income Tax Credit (EITC) for low-income Ohioans, from 5 percent to 10 percent of the federal credit.
As a poverty-fighting tool, the EITC is far superior to raising the minimum wage because it not only incentivizes employment, allows workers to keep more of their hard-earned dollars, and stimulates the economy; it eliminates the need for businesses to lay off workers to cope with increased salary costs. A higher Ohio Earned Income Tax Credit would be a boon to workers, families, and businesses alike.
The mid-year budget bill before the General Assembly this week is not a perfect model for tax reform. There are still too many personal income tax brackets (nine), which create systemic complexity and labor distortions. And continuing to tax business-to-business transactions means that all Ohioans pay more than they otherwise would for consumer goods. Nevertheless, from income tax cuts to increases in personal exemptions and the EITC, this budget is a step in the right direction.
As Mr. Matthews affirmed in storied Ohio Stadium a few weeks ago, there’s nothing more American than Ohio. With the right mix of economic reforms, Ohio can continue taking steps towards becoming the best place in the country to live, work, raise a family, and yes, retire. Folks will vote how they will at the ballot box, but the ultimate vote is the one they make with their feet.
Brendan Shea is a financial analyst and founder and president of Madison County Right to Life. He lives with his young family in London and can be reached at email@example.com.