The 50 states may be “laboratories of democracy,” but sometimes their experiments go awry. Many of America’s newly elected governors will be inheriting severe budget deficits that demand root-canal fiscal adjustments. In several purple or blue states — including Michigan, Ohio, Wisconsin, and Maine — Republicans picked up the governor’s mansion and also gained full control of the legislature. The relative success or failure of the GOP governors in those states could have national implications. Here are four to watch. Rick Snyder (Michigan).
The 2000s were a lost decade for Michigan, a state that has become synonymous with Rust Belt decline. Prior to May 2010, it had registered America’s highest jobless rate for 49 consecutive months. Wolverine State policymakers cannot reverse the long-term structural forces that have reduced American manufacturing employment, nor can they undo the damage wrought by union excesses in the auto industry. But they can tackle the thorny issue of public-sector compensation — Mackinac Center scholar James Hohman and researcher Adam Rule have estimated that “Michigan’s state and local government full-time employees are getting $5.7 billion more in benefits than they would if they received benefits equal to those of private-sector employees” — and they can address the notorious Michigan Business Tax (MBT), which discourages investment.
Enter Rick Snyder, a wealthy venture capitalist who emerged from a crowded Republican gubernatorial field and then pummeled Democratic candidate (and Lansing mayor) Virg Bernero on November 2, winning election by more than 18 points. A moderate conservative who has jauntily labeled himself “one tough nerd,” the 52-year-old Snyder will take office with ambitious plans to transform the Michigan economy (and create “Michigan 3.0”) by promoting innovation and entrepreneurship. “He’s a businessman who knows how to delegate,” says veteran Michigan pollster Steve Mitchell. “He’s been very successful in everything he’s done.”
Snyder has proposed abolishing the MBT (which Mitchell calls “a really onerous tax”) and replacing it with a 6 percent corporate-income tax. “The MBT is a job killer,” he told the Detroit News
in September. “It’s driven a lot of companies out of our state.” Yet implementing such a bold tax overhaul will be complicated by Snyder’s most immediate challenge: fixing a deep budget hole. The state deficit for fiscal year 2012 is projected to be anywhere from $1 billion to $1.6 billion. If Snyder can plug Michigan’s revenue gap and also establish a more business-friendly tax regime, that would be a monumental achievement.John Kasich (Ohio).
Michigan isn’t the only Rust Belt state that needs to revamp its tax system and curb its public-sector unions. In the Tax Foundation’s 2011 State Business Tax Climate Index, Ohio places a dismal 46th. A separate analysis shows that Ohio went from having the sixth-lowest
combined state and local tax burden in 1977 to having the seventh-highest
burden in 2008. (And for most of that period, there was a Republican governor in Columbus.) “The tax burden is the single most important obstacle to economic growth that the state government can deal with,” says Ohio University economist Richard Vedder.
Governor-elect John Kasich has signed Grover Norquist’s Taxpayer Protection Pledge (thereby vowing not to support tax hikes), as has incoming Ohio house speaker Bill Batchelder. Both are rock-ribbed conservatives. Kasich, 58, first gained national recognition during his tenure as House Budget Committee chief during the Clinton years, and he later worked as a Fox News host. Addressing a luncheon of lobbyists and special-interest bigwigs just days after his election, he delivered a stern warning: “We need you on the bus, and if you’re not on the bus, we will run over you with the bus. And I’m not kidding.”