An Economy Based On LeBron James

In the viral “Hastily Made Cleveland Tourism Videos” of the Great Recession era, comedian Mike Polk provided a panorama of his faded hometown. The scenes were of “crippling depression,” the opportunity to “buy a house for the price of a VCRVCR
,” urban redevelopment looking like “a Scooby-Doo ghost town,” and the downtown perches where one could watch “poor people all wait for buses.” Hey but “at least we’re not Detroit!”

Ohio like Michigan adopted a state income tax about fifty years ago, in 1971. In so doing it sealed its fate as a charter member of the Rust Belt. As I’ve been writing lately, the states that in the 1960s and the 1970s added an income tax, including every one from New Jersey across to Illinois, turned out to be precisely coextensive with the Rust Belt that emerged and settled in for good in the 1980s.

Cleveland’s claim as the forge of the American industrial revolution is as strong as anybody’s. Rockefeller’s decision to locate in that city during the civil war sealed its fate. The founding of Standard Oil in Cleveland in 1870 comprehensively transformed the American economy for good. Here was a business that would redefine quality control, customer service, and the practice of management, let alone the accumulation and deployment of profits, creating a new level of ambition of what companies could aspire to as enterprises useful to the public. The immense economic-growth decade of the 1880s saw phenomenal expression in Cleveland, which among other innovations pioneered swell living in the suburbs.

Old timers from Cleveland recall that as of the 1940s, the arc swinging from Buffalo around through Cleveland, including Pittsburgh, Detroit, and Chicago as well, accounted for a wildly disproportionate share of world economic production. The geographic center was Cleveland.

As of the early 1930s, Ohio had neither a sales nor an income tax. After local property taxes clocked property owners in the early years of the Great Depression, Ohio adopted a sales tax in 1933. Miami University tax professor George W. Thatcher contemplated his Ohio as of 1952 with these words:

“A study of the expenditures of the state of Ohio shows a rapid increase since 1931. Total state expenditures….amounted to a rate of increase for the state of Ohio from 1931 to 1950 [of] 669 percent while for the nation as a whole the rate of increase was only 426 percent. The per capita expenditures of the state of Ohio increased 642 percent from 1931 to 1950 while for the United States the increase was only 440 percent….The state, since 1932, has assumed greater responsibility for welfare….Again, there was increased financial participation by the state in public education and highways.”

1880s, huge private wealth creation inclusive of mass public services and amenities; mid-twentieth century, creeping state takeovers of all sorts of functions including—touché Rockefeller—transportation.

In 1952, as the worthy Thatcher reported these data, Ohio had barely contemplated the fiscal implications of the baby boom. The voters would let officials know how they felt. In a remarkable essay in a recent issue of the Journal of Policy History, Josh Mound has tallied the collapse of public support for school-bond issues in Ohio—particularly in the smokestack city of Youngstown—in the 1950s and 1960s. We call on Mound’s work in our new book on the history of the income tax, Taxes Have Consequences.

Place after place in Ohio in the post-World War II era tried to raise their property tax rates. The rates. Huge post-1945 economic growth raised the value of property immensely. Taxed at the same rate, there would have been (there was) a harvest of new revenue for governments. Ohio tried again and again in the 1950s and 1960s to raise property tax rates.

The failures became so epic—they chuckled about it on national TV, on Laugh-In—that new Ohio governor John Gilligan pushed through a state income tax in 1971. He was a one-termer, ushered out of office in the vicious stagflation recession of 1975. In New Jersey, “One-Term Byrne” Brendan Byrne was supposed to meet the same fate after he started an income tax in 1976. Somehow he got re-elected.

The point of Ohio’s income tax, like Pennsylvania’s of the same year, was to cover expansive education spending from pre-K all the way through college. Kent State was going to get a facelift. The problem is that you need young people for such plans. Since 1971, Ohio has lost badly in its share of national population and national income. I offered Michigan’s horrendous statistics on this score last week. Ohio’s are only a little better—see the chart in Taxes Have Consequences.

The top rate of Ohio’s income tax started out at 3.5 percent. Within ten years it was 9.5 percent. Over the last dozen years, the top rate has come down by a third, from 6 to 4 percent. Ohio has miles to go before it thrives.

Columbus is supposed to be the up-and-coming Ohio city, the tech hub and incubator of the future. How did they get IntelINTC
to commit there recently? Tax abatements (plus visions of a federal subsidy). Have a burdensome tax rate, and the exemption from it becomes valuable. Intel’s stock has not moved in this millennium. This is the kind of outfit ready to do business in Ohio. In Rockefeller’s day, the place attracted visionaries before they started something.