Gov. Kasich lays out his tax plan for Ohio

This is a rush transcript from "Your World," February 26, 2015. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: All right, now to CPAC, or is that really see every presidential candidate PAC? Because it`s day two of this conservative powwow. And they`re all there, all of them, that is, except this guy, Ohio Governor John Kasich, who has been working on other things, a tax offer for his state that he argues is too good for conservatives or liberals to refuse.

It`s the closest he comes to being Tony Soprano. Anyway, the governor is here to explain.

Governor, good to have you back.


CAVUTO: What is this all about? Because you`re looking at raising some taxes, cutting other taxes. Explain.

GOV. JOHN KASICH, R - OH: Well, Neil, here`s the thing.

I have the largest tax cut in the last four years in the country, $3 billion. And this would bring about a $500 million net tax cut. But, Neil, you know, governments have to raise some revenue, so I wanted to raise it in the way that is the least harmful to the private economy.

So, I`m trying to get Ohio to really reinvent itself. We have put in an income tax in years ago. I don`t think it served us well. And I want to move towards a tax system that encourages investments, risk-taking and, of course, the creation of jobs.

And in order to do that, we will need some tax reform. You know this from all the people you have on your show. And I would rather rely more on a consumption-based tax system, and reduce our income tax, so that all the successful rich people -- I wouldn`t say all of them, but many of them -- don`t go to places like Florida, where taxes are much lower.

And we need new industries, Neil. We can`t rely just on steel companies. We need to have cloud computing and data analytics and I.T. -- all kind of I.T. programs. So Ohio has to reinvent itself.

And I think we need to have a good national debate about the fact that income taxes are anti-growth and anti-job, by and large, and that we should rely on a tax that gives people more choice, which is a consumption tax.

So, I`m not only cutting taxes, and will have a net tax cut of at least $500 million added to $3 billion we have already done, but we also want to change the very way in which we operate, so we can encourage more economic growth, more new jobs, keeping more young people in the state of Ohio, because it...


CAVUTO: Where would those consumption taxes be, Governor? What would you slap the taxes...

KASICH: Well, one of them on big oil.

Right now, we tax big oil companies that take a lot of this value out of our state at 20 cents. You wish you would be taxed 20 cents on what you get paid, Neil, at Fox. I want them go to about 6.5 percent, which is very competitive.

And when you look at some of the biggest oil-producing states, like North Dakota, we would be lower. And so I think that, as they take our wealth out, they ought to pay us for that, and we can use it to cut everybody`s income taxes in the state.

Furthermore, we have had a tax system that has been very, very positive for manufacturing. We don`t want to get rid of that tax. But we want to raise it a little bit, so that our small businesses will pay no income tax at all up to $2 million, because I want to encourage entrepreneurship.


CAVUTO: This is very brave different kind of stuff, but true to form, you`re ticking off both sides here. A lot on the left are saying it`s regressive, what you`re proposing.

Those on the right, particularly business interests, say you`re going to scare businesses away. Chamber of Commerce in your state had been saying, if we have an anti-competitive tax climate, we`re not going to be able to grow the jobs.

What do you say that?

KASICH: Oh, Neil, Neil, Neil, Neil, when I -- when I came in, we were $8 billion in the hole and had 89 cents in the rainy day fund and we lost lot 350,000 jobs.

Now we`re up almost 300,000 jobs since I have come in. And we have got the largest tax cuts in America, and we`re running a surplus of almost $2 billion.

CAVUTO: So, I think what they`re saying is, don`t screw it up. You did a good thing. Don`t screw it up.

KASICH: Oh, Neil, Neil, Neil...


KASICH: ... Ohio needs to move to a tax system that encourages economic growth and new jobs.

Who blocks this stuff? Special interests. You report on it, your show, all the time. If you have got something, you don`t want to change, even if it`s going to benefit the broader group. And you know what? I`m not here to play patty-cake or be in a position of where I make all the special interests happy.

Over time, Ohio will do better. Ohio is doing much better than what we were before I came in here. So, we have got an additional plan, and we believe the additional plan will yield more growth.

So, I mean, anti-tax? I don`t know who is saying that. But get me their name. I`ll give them a call.

CAVUTO: All right, this was your Cincinnati Chamber of Commerce spokesman, all right?


CAVUTO: But, having said that, I want to ask you about the...


KASICH: Hey, Neil, let me ask you a question.

CAVUTO: Go ahead.

KASICH: Let me ask you a question. Don`t you think that you want to have a tax system that is the least amount of injurious to the private economy? And if you tax investment and risk-taking, -- and I will give you a good example.

I you live in Ohio and you worked a lifetime and you`re successful, and the time comes to cash in some of your stock, if you live in Florida, you pay the capital gains tax and nothing else.

CAVUTO: Right. Right.

KASICH: If you live in Ohio, you pay the capital gains tax and another 5.3 percent.

CAVUTO: No, no, Governor, you`re making a lot of sense. You`re making a lot of sense.

KASICH: That`s why people leave.

CAVUTO: But I -- here`s where your critics come...


KASICH: I know.

CAVUTO: Just hear me out.

They say, then, why don`t you first address government spending? Because they say, in your budget, it`s going to grow 11.5 percent this year, and that you`re not doing anything to control that, and first control that, and then come back to them with these -- with these other taxes.

KASICH: Neil, Neil, Neil, our budget grows in the first year by 2 percent and in the second year by 2.5 percent. We are structurally balanced. And I`m running a $2 billion surplus.

There`s not another state. I mean, most of -- almost half the states in America...


CAVUTO: So where are they getting...


KASICH: Wait a minute, Neil, Neil.

CAVUTO: Where are they getting -- the state spending is going up 11.5 percent?

KASICH: They`re probably taking it out of one piece of the budget, and -- but the overall budget, our budget for Ohio is only going up 2 and 2.5 percent.

But, Neil, we`re also putting $2 billion into our rainy day fund. So many of the states, as you know, are struggling just to balance their budget. It`s over 20 states that are running deficits. We`re not only not running a deficit.

CAVUTO: No, no, no. You`re absolute...


KASICH: We`re running big surpluses.

CAVUTO: But here`s what I cannot say -- because you`re a conundrum to a lot of folks in a good way.

I don`t mean -- not flattery, because you don`t espouse either one`s marching orders. But conservatives say, wait a minute, he`s really not one of us because, well, for one thing, Barack Obama likes him, recently credited you with embracing ObamaCare. What did you make of that?

KASICH: Well, first of all, I`m not for ObamaCare, because it doesn`t get to the fundamental problem, which is cost growth.

Our Medicaid program in this state when I came in was growing at 9 percent. In my first budget, we had it growing at 3. And in this budget, it`s like about 4 percent, which is lower than most states in the country.

Plus, we have a program to change the very way in which we pay health care providers, by pushing a program to get health care providers and insurance companies to work together to keep people healthy.

CAVUTO: Yes, but what he was saying, Governor...

KASICH: ObamaCare is top-down.

CAVUTO: What he was saying, Governor, is he credited you with expanding Medicaid to millions of people over the past two years.

KASICH: That`s different. That`s different.

CAVUTO: But he said, I think they`re due a recognition there that makes sense, that it`s bigger than politics.

That`s what he said of you.

KASICH: Neil, Neil, here`s the situation.

We are now in Ohio -- do what you want in these other states. In Ohio, we`re now helping the mentally ill and the drug addicted and the working poor. Now, let me just tell you. You know that 20 percent of the number of people in our state prisons have severe mental illness or some mental illness of some sort, OK?

What is better, put them in the prison at $22,000 a year or treat them and help them get on their feet? We have a lot of people who are nonviolent drug offenders in our prisons and in our jails. What`s better, Neil, put them there and not treat them, or try to get them on their feet. The working poor? What we have is a program now to say that when you go to get your food stamps or whatever, we`re going to train you for jobs that exist. And you need to break down the silos that prevent our people who are on -- who are dependent from getting independent.

We have got a whole reform -- welfare reform program. Guess what? I was involved in writing the first one. And now I`m at welfare 2.0.

Neil, let me go back. I was Budget Committee chairman in Washington. I was one of the chief architects of the first balanced budget since man walked on the moon. We cut the capital gains tax. I come into this job, we`re $8 billion in the hole. We`re $2 billion in the black, the largest tax cuts in the country and these surpluses.

So, Neil, where is that not conservative? And, by the way, helping people to get on their feet, rather than have them living under bridges and in our jails and prisons?

CAVUTO: All right. Fair enough.

KASICH: I think I have got the conservative position, I think they`re -- I don`t think they do.


CAVUTO: All right, you know that a lot of them, for some reason, don`t either trust you or even like you.

But to your credit, you do have incredible performance numbers as governor that a lot of your fellow governors who are entertaining White House runs would wish they had had. Chris Christie comes to mind. So, why don`t you take that as a presidential run and then compare yourself to all those guys? What have you done? What are your numbers? What is your unemployment rate? What have you done with your deficit to turn it around? What have you done to lift your people up?

You have a good, credible case to make.

KASICH: Yes. Well...

CAVUTO: But a lot of people have said, no, no, no, he`s not in our top tier of guys.


Well, first of all, Neil, I forgot to mention we have got the lowest unemployment rate here in Ohio in a decade. Look, all my options are on the table for whether I`m going to decide to run for president.

CAVUTO: Are you running? Then are you going to run? Are you going to run?

KASICH: No, I haven`t made -- I have made no decision. My options are on the table.

CAVUTO: Do you think a governor should have a record? Should a governor have a clear record of improvement if he or she is going to run?

KASICH: Look, well, you know the answer to that is -- of course, the answer to that would be yes. But let me just tell you, Neil. What`s it`s about is leadership.


CAVUTO: Does Chris Christie? Does Chris Christie, in your eye, have that?

KASICH: Chris is a great guy. If Chris wants to run for president, I`m happy about it.

CAVUTO: I didn`t ask you if he was a great guy. Do you think he has that record?

KASICH: Hey. Hey, Neil -- hey, Neil, I`m not in the media. You are. You do the analysis. I like Chris. I like all of our candidates. It certainly would be better...


CAVUTO: I didn`t ask that. Do you think that the record matters?


KASICH: Well, I`m not answering your -- guess what? Yes, it does.

And I think he also has a heavy Democrat legislature that makes it hard.


KASICH: But I`m going to tell you this.

CAVUTO: Real quick.

KASICH: I`m not -- I believe in Ronald Reagan`s 11th commandment. I`m not going to be criticizing, much of the time, other Republicans.


KASICH: I don`t want to do that, Neil.

CAVUTO: All right, Governor, always great having you.

KASICH: Much of the time, maybe not all the time.

CAVUTO: Come out of your shell. I don`t know what has happened to you.

KASICH: It`s always great to be with you.

CAVUTO: John Kasich, always good having you.

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