Into thin air.

Photographer: Andrew Harrer/Bloomberg via Getty Images

John Kasich's Voodoo Economics

Paula Dwyer writes editorials on economics, finance and politics for Bloomberg View. She was London bureau chief for Businessweek and Washington economics editor for the New York Times, and is a co-author of “Take on the Street: How to Fight for Your Financial Future.”
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If you're inclined to appreciate John Kasich's kinder, gentler approach to Republicanism, you might want to take a look at his tax plan.

In a meeting with the Washington Post editorial board on Wednesday, the presidential candidate who sells himself as his party's best bet against Hillary Clinton in a general election responded to challenges on how he would cut taxes and balance the budget at the same time.

His responses were fantastical, even by the standards of his two GOP rivals.

When pressed for details on the size of his tax-cut proposals, he couldn't answer. And yet the Ohio governor claims to be the only candidate who believes in fiscal responsibility.

Kasich has wanted to balance the federal budget since he first arrived in the U.S. House in 1983, and he has long favored a constitutional amendment to make that happen. He claims to have been a chief architect of the balanced federal budget in fiscal years 1998 to 2001, when he was chairman of the House Budget Committee and Bill Clinton was president.

But let's be honest: It was possible to balance the budget back then because the Cold War had ended and Pentagon spending could safely be curtailed. The U.S. economy was also going through a technology-driven, stock-option-fueled boom that raised new tax revenue but later collapsed. In addition, over Kasich's opposition, Clinton had increased upper-income individual taxes substantially in 1993.  

In any case, deficits had been shrinking by an average of 24 percent annually from 1992, when Clinton was first elected, to 1996, the year after Kasich became budget chairman.

What if Kasich's dream for a balanced-budget law had been realized? It would have prevented the government from using federal spending as a stabilizer during bad times. That power was crucial to the recovery from the 2008 recession.

Compounding the heedlessness of his balanced-budget idea is his belief that tax cuts, along with deregulation, stimulate economic growth so much they will offset any tax-revenue loss, and then some. Yes, voodoo economics. As he told the Post editors: “When there is certainty, both on the regulatory side, on the tax side, and on the spending side, you basically get economic growth."

But when tried in real life, supply-side tax cuts didn't perform as advertised. Investment growth was slower under Presidents Ronald Reagan and George W. Bush, both of whom adopted supply-side policies, than under Clinton. Employment and economic growth were also faster under Clinton. The U.S.'s fiscal health, moreover, suffered when supply-side tax cuts failed to produce promised new revenue, driving up the national debt. 

Kasich continues to envision huge cuts in individual taxes. He would collapse seven tax brackets to three -- 10, 25 and 28 percent. (The top individual rate is now 39.6 percent plus a 3.8 percent Medicare tax, for a total of 43.4 percent.) He would tax gains on long-term investments at 15 percent, down from today's top rate of 23.8 percent. And he would eliminate estate taxes.   

On the spending side, he would push many programs to the states, including those for income support, Medicaid and job training, in the form of block grants. There is nothing wrong with the idea of block grants, and some states would continue those programs and their spending levels, and possibly even innovate in the process. But other states would see block grants as an opportunity to cut and cut in a destructive way.  Kasich would also "Uberize" Social Security and Medicare, by which, columnist Paul Krugman says, Kasich means he wants to privatize them, but doesn't say so because it wouldn't poll well.

Kasich would require his Cabinet secretaries to propose budgets at 90 percent of the previous year's total. He also would eliminate regulations that are "crushing small business."

He claims the economy would grow by 3.9 percent annually, revenue would grow by almost $1 trillion over 10 years and, voila, a balanced budget would appear in year eight of his presidency. Yet he has released few details.  

Pressed on the size of the tax revenue losses, without factoring in his 3.9 percent growth projection (because the U.S. hasn't seen that much growth since 1999), Kasich said he didn't know. But a similar proposal by Jeb Bush showed a tax loss of $6.8 trillion over 10 years. Let's do the math: $6.8 trillion in lower revenue offset by $1 trillion in new revenue equals $5.8 trillion in losses.

Add in Kasich's promises of $800 billion in health savings, $300 billion in other domestic-program cuts and $400 billion in interest savings, and you still get $4.3 trillion in losses. Kasich would only repeat his mantra: "When the debt goes up, the jobs go down. When the debt goes down, the jobs go up."

But many times, deficits and debt have risen, while jobs have gone up. Since the Barack Obama administration piled on the debt to counteract the deep recession of 2008-09, the U.S. has added more than 14 million jobs, better than Reagan's eight-year record.

John Kasich has had a long and varied career in public service, and rightly says he is the most experienced candidate in the Republican field. The problem is that by offering unrealistic and irresponsible fiscal policies he can't claim to be more of a grownup than Donald Trump or Ted Cruz, let alone Hillary Clinton.        

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Paula Dwyer at pdwyer11@bloomberg.net

To contact the editor responsible for this story:
Katy Roberts at kroberts29@bloomberg.net