Just one day after he proposed his two-year state budget, Ohio Gov. John Kasich sat down with 10TV's Capitol Square moderator Jim Heath for an exclusive interview.
Kasich was in Brooklyn Heights in northeast Ohio to talk about his budget plan with local small business owners. His budget will include over $1.4 billion in proposed tax cuts, including a sales tax reduction for small businesses.
"All small businesses up to $750,000 will have half of their income deducted, so in essence they'll have a 50 percent tax cut," Kasich said. "Lowering that rate for small businesses, and all Ohioans, is critical because when I go out and try to sell Ohio, and people are increasingly excited about Ohio, this is another bit of adrenaline in terms of telling them what we're doing."
Kasich said about 96 percent of businesses in the state earn $750,000 or less.
The governor's budget also calls for a sales tax cut of nine percent. But in order to pay for it, Kasich will put a state sales tax on services ranging from haircuts to movie tickets. Industries that will be taxed include architects, real estate, lobbyists and lawyers.
"When we created the sales tax in the 1930s, all we really thought about were goods, but the bulk of the economic activity in the state now, is services," Kasich said. "People need to think bigger than their own little world here. If Ohio can continue to grow, everyone does better. Accountants, lawyers, everybody gets in a position where they can have more business."
Kasich acknowledges there will be a strident lobbying effort at the statehouse to prevent any sales tax increase. He said he's not worried about political fallout.
"If you're an attorney and have more jobs in Ohio, you get more business," Kasich said. "The alternative is you keep a high income tax, and you don't help small business. The states that are lowering income taxes are experiencing faster growth."
Kasich added that a big chunk of his budget relies upon an increase in the severance tax on the oil and gas industry. Officials with ‘big oil’ have vowed to lobby vigorously against the increase.
"If you're a traditional oil and gas person in the state, you're not affected by that, it's the big out of state oil companies," Kasich said. "I talk to their executives. What they tell me is, these companies ought to thank you for a four percent severance tax. You look out at North Dakota where they're taxing eight or nine percent, they've got a giant boom. It doesn't make any sense for an out of state oil company to pay 20 cents on an $80 or $90 dollar barrel of oil, then take their profits back to another state."
In his last budget, Kasich slashed funding to local governments by nearly half. His new proposal slightly increases money to the local government fund.
"The counties are going to get some growth through our tax plan," Kasich said. "We're willing to pick up a few more dollars when it comes to some of their legal challenges that they have. We're not reducing the local government fund, and we've provided a lot of tools to help them achieve shared services to reduce their costs."
Kasich said the state’s "rainy day" fund will reach $1.8 billion by next year. Some of that will be returned in a form of a required tax cut, but he does not want to spend it.
"I'm worried about the national economy. It's likely to chug along at a very slow rate," Kasich says. "I don't want to, in the middle of next year, cut schools back or spring surprises on people. Ohio is growing. We've gone from $8 billion in the hole to nearly $2 billion surplus in two years. So, steady as she goes."
Kasich's budget plan does not cut funds to any school district in the state, but it does reduce disparity between districts, which is what some school superintendents have called unfair.
"We want to make sure that a student who comes from a district that's poor is going to have the same shot at a quality education as the kid who comes from some of the richest districts in the state," Kasich said. "When you're a wealthy district you have a greater ability to help yourself, but with the commitment we've made, which is a significant increase in funding for K-12; we should focus the dollars so that every kid has a chance."
Kasich's decision to expand Medicaid has been widely praised by groups including AARP, United Healthcare, Behavioral Health Providers and the Ohio Dental Association. The criticism to the expansion has come largely from conservatives and tea party groups who have called the decision an expansion of government.
"There are some people out there who, this is what they do, they spend their time in politics and that's fine," Kasich said. "Right now we have a big chunk of Ohioans who use an emergency room as their primary care. We all pay for that. There's $13 billion Ohio tax dollars we can bring back to make sure we can cover the working poor. And if we don't do it, the federal government will cut off reimbursement to those hospitals who are treating people who can't pay."
On other issues, Kasich said he has not spoken personally to Ohio Board of Education president Debe Terhar who generated controversy on her Facebook page linking president Obama to Adolf Hitler.
"She didn't apologize to me. She apparently apologized to the board. I mean, what she did was a terrible mistake and she apologized for it,” the governor said.
In wake of President Obama carrying Ohio for the second time last November, there has been talk Ohio Republican lawmakers may change the way it allocates electoral votes.
"I've not seen a compelling case on why we need to change it,” added Kasich.
On bi-partisanship, Kasich said he's worked with Obama and administration officials on numerous issues.
"It's hard. There's a lot of polarization, and everybody wants to get in their corner and take their position," Kasich said. "I have to tell you - we have to work together. We can have our philosophical differences, but at the end of the day we have problems we need to solve in America."
10TV’s Heath asked Kasich if he was eyeing a 2016 run for the Republican presidential nomination.
"Are you kidding me?" Kasich laughed. "I hope somebody, maybe Sen. (Rob) Portman could be president."