The strong showing by Ohio governor John Kasich in Tuesday night’s New Hampshire primary shouldn’t be dismissed. His second place finish behind the bombastic Donald Trump is the logical conclusion in what has become “a tale of two elections”—one sane, and the other not so much.
But does Kasich have what it takes to triumph over Trump’s big mouth and defend himself from the incoming barrage of attack ads to clench the Republican nomination?
To do that, he needs to win the hearts and minds of fiscal conservatives and moderate Republicans and prove to them that he has the experience to get the country’s finances back in order. This is no small task, but it is doable. In the end, it will come down to his record and his platform—both of which remain unknown to the vast majority of potential primary voters.
Kasich has been branded as a “compassionate conservative” for his moderate stance on a variety of social and economic issues. This type of conservatism aims to improve the general welfare of society as a whole, not just that of the 1% or the downtrodden. Kasich is often heard quoting Michael Novak, an American Catholic philosopher who is best known for his book, The Spirit of Democratic Capitalism. In it, Novak argues that democracy is essentially incomplete without a free market economy, but that this economy needs to be nourished by a moral and pluralistic liberal culture to function properly.
Kasich supports relatively moderate policies in a bid to balance the inherent selfishness and greed of unbridled capitalism, represented best by Donald Trump, with the utopian and unrealistic ideals of socialism (see under: Bernie Sanders). It is no surprise that Kasich finds himself in between the Republican and Democratic winners of New Hampshire—he is the third way, the moderate way. While Kasich cringes whenever he is referred to as a “moderate,” it is nevertheless why he has been so successful in navigating Ohio politics, one of the most “purple” states in the union.
Kasich is eager to talk about his record in government, and for good reason; he actually has one worth talking about. He is the only candidate who has served as both a member of congress, representing Ohio in the House for 18 years, as well as governor of a state, running Ohio for the past five years. When he was a congressman in the 1990s, he was the right hand man to former House Speaker Newt Gingrich, who appointed him as head of the important House Budget Committee. He was considered tough but fair and worked closely with the Clinton Administration to balance the federal budget in 1997 for the first time in nearly 30 years. This budget surplus would last until George W. Bush slashed taxes in 2001 in a bid to stimulate growth following the dot-com recession.
Kasich wants to balance the Federal budget once again, which, at last count, is around $500 billion in the red. President Obama’s 2017 budget proposal, which was unveiled on Tuesday, does not envision the U.S. realistically reaching a balanced budget within the next decade, based on a variety of assumptions regarding growth, entitlement spending, and future tax revenue. While the national debt would continue to rise in real terms, the White House projects that its size as a proportion to GDP would remain relatively unchanged over the next 10 years at around 75% of GDP. To maintain this level, though, the U.S. would need to take in around $4.5 trillion more over the next decade than it is currently expected to collect, according to projections from the Congressional Budget Office.
The Republican primary nominees each have a vague budget plan, most of which sees them not only erasing the budget deficit but also miraculously cutting the national debt, all while cutting taxes and raising spending on the military. Unless those tax cuts cause the U.S. economy to grow as fast as China in the next few years, which is highly unlikely, then pretty much all of the budgets put forth by the nominees would pull the country further into debt—far more than the depressing budget put forth by the White House on Tuesday.
But of all of the nonsensical budget plans out there, Kasich’s plan is perhaps the best among all of the bad. He isn’t promising a miracle, but things don’t add up nicely, either. Above all else, Kasich says he will balance the budget in a relatively doable eight years, as opposed to overnight like some magician. He also wants to keep government spending under control. For example, he is pretty much the only Republican candidate who hasn’t promised some massive increase in military spending.
Unlike many of his fellow nominees, he is not in favor of a regressive “flat tax." Instead, he wants to “simplify and cut taxes for Americans by reducing the number of brackets from seven to three,” and then slashing the top rate from the current 39.6% to 28%. His plan also vaguely calls for “cutting the other rates as well,” but it is unclear by how much.
Kasich wants to increase the Earned Income Tax Credit by 10%, cut the long-term capital gains rate from 20% for top earners to 15%, eliminate the estate tax completely, all while preserving the deductions for charitable donations and mortgage interest. But with the rich paying most of the taxes in this country, all of this would cause the budget deficit to pretty much explode, unless there was a commensurate increase in economic growth or an offsetting tax increase somewhere else.
Kasich believes he can achieve much of that growth by revamping the corporate tax code, something that has been talked about for years in Washington but hasn’t happened. He wants to cut the top rate from 35% to 25% and double the research and development tax credit for businesses bringing in under $20 million in gross receipts. He also wants to give a tax discount to American companies on income they earned abroad in a bid to repatriate some of the $2 trillion in untaxed profits that are stashed overseas. He would then shift the country to a territorial tax system where the government would only tax corporate revenue earned inside the U.S.
Now, Kasich does not say anything about closing loopholes that allow corporations to lower their tax rate. Few, if any, corporations pay 35% of their profits to the federal government. Indeed, over a five-year period, the average federal corporate tax rate for some of the largest Fortune 500 companies was around 19.4%, according to an analysis by the Citizens for Tax Justice. A lot of companies paid far less, including 26 that paid nothing at all over the entire five-year period, the group said. If the loopholes were all eliminated and a flat 25% tax was instituted, then U.S. companies could actually end up paying more in taxes than they otherwise would.
But while Main Street could actually end up paying more under Kasich’s tax plan, Wall Street probably won’t. Unlike Jeb Bush and Donald Trump, Kasich opposes the populist move to get rid of the carried interest rule, which allows the income earned by investment firms, such as private equity firms, hedge funds, and venture capital firms, to be taxed at a lower capital gains rate. Kasich believes removing the carried interest rule would lower risk taking and hurt investment.
Kasich may not be Wall Street’s best friend, but he isn’t its biggest enemy, either. While Kasich has said that the Dodd-Frank Wall Street Reform and Consumer Protection Act "went overboard," in regulating the trading activities of banks, he doesn’t want to totally rip it up, either, which is the position of most of his rivals, including Marco Rubio and Jeb Bush. So it is unlikely he will try to repeal all of Dodd-Frank.
After all, Kasich is the only candidate who truly worked on Wall Street. Following a super short presidential bid in 2000, Kasich left Capitol Hill to become a banker at Lehman Brothers, the notorious investment bank whose collapse spurred the global financial meltdown in 2008. While most politicians who make the transition to finance work mostly as “door openers” during their tenure on Wall Street, like Jeb Bush and his work at Lehman and Barclay’s, Kasich was fully invested in his career as a banker. "A lot of the things I learned on Capitol Hill are very applicable to Wall Street," Kasich told the The Plain Dealer in 2001. "It is about being creative, being aggressive, coming up with new ways of doing things. It will really round me out as a person."
In his nearly eight-year tenure at Lehman, Kasich worked on a multitude of deals and made a few million dollars, but he was "hardly a star" at the firm, a person with knowledge of the matter told Fortune. Nevertheless, he did play a key role in getting Lehman on the Google IPO deal back in 2004, thanks to his contacts in Silicon Valley. While Lehman was one of 23 firms on that particular deal and was not the lead book runner, it was still a big get for the baby banker.
While his Wall Street career was relatively innocent, it nonetheless was subject to attack when he ran for Ohio governor in 2010. He was quoted in 2001 saying that the bank’s villainized chief executive Dick Fuld was “an awesome guy” and “a great leader,” which didn’t really help him in his bid to distance himself from the financial meltdown that came amid Lehman’s collapse. While he wasn’t a member of the management team and worked mostly out of a two-man office at his home in Columbus, his opponent tried to pin the mortgage crisis on him and his supposed “greed.”
But while being a banker at Lehman certainly did not help his campaign, it didn’t kill it either. The race was close but the sad state of Ohio’s economy took precedence in voters' minds. In 2014, Ohio overwhelmingly reelected Kasich. With the financial crisis further in the past now, Kasich’s Lehman link is unlikely to make a big impact in his presidential bid, although his opponents, especially Donald Trump, have tried to resurrect the issue.
Kasich isn’t the most charismatic candidate out of the bunch, but he isn’t totally off his rocker, either. He is over-promising when it comes to tax cuts, but it isn’t as fantastical as the plans being touted by others. His ties to Wall Street are somewhat problematic, but few will really care, especially because the firm he worked at no longer exists. If moderate rivals such as Jeb Bush pull out and endorse Kasich relatively soon, he may have a real shot at stopping Trump's seemingly unstoppable momentum.