Kasich: The Best Pick for Markets and the Economy
Governor’s plans on taxes, spending, trade, and other issues are far more sensible than Trump’s or Cruz’s.
By John Kimelman
For much of this presidential race, the popular Ohio governor with the common touch and a blue-chip political pedigree has been running at the back of the pack, although to his credit he has outlasted well-funded early favorites such as Florida’s Marco Rubio and Jeb Bush, and Wisconsin Gov. Scott Walker.
For investors, that looks like a good thing. Kasich’s policy prescriptions, experience, and temperament make him the GOP’s best bet to reassure a nervous marketplace.
Kasich wins high marks against Hillary Clinton, as well. We argued, in a cover story last month, that Clinton was the better choice for investors in a head-to-head matchup with Republican front-runner Donald Trump because she is a known quantity with moderate instincts (“Trump or Clinton: Who’s Better for Investors?” March 5).
But Kasich (rhymes with basic) outshines them both. And in the event of a contested convention, he has a powerful advantage: He’s the only GOP candidate who beats Clinton in a head-to-head contest in the polls. “With John Kasich, you have a candidate who lines up almost perfectly with many investors,” says Chris Krueger, a Washington strategist with Guggenheim Securities. “He has a track record as a pragmatist from his time as governor, and he knows the markets from his stint as an investment banker at Lehman Brothers.”
Unlike Clinton, Kasich has a sensible across-the-board tax-cutting agenda for corporations, individuals, and investors. And as a Republican president working with a presumably GOP-controlled Congress, he would be a more effective leader. After all, he spent six years as the chairman of the House Budget Committee, so he knows how to broker a deal.
“It would be marvelous if Kasich were in the White House and Paul Ryan is the speaker of the House,” says David Kotok, a Kasich fan who is chairman of Cumberland Advisors, a $2.4-billion-in-assets money-management firm in Sarasota, Fla. “You’d have two people who are bright and skillful compromisers who would get things done, as opposed to the obstructionist politics we’ve had for many years.”
Kasich, who spent 18 years in the House, appears to be sincere about reforming entitlements and other government spending. The bipartisan Committee for a Responsible Federal Budget has studied the numbers provided by each candidate and concluded that Kasich is the only one in the race who can lower total federal spending as a percentage of gross domestic product over the next decade.
By contrast, Trump and Cruz are troubling, based on some of their policy positions and statements on the campaign trail. As we’ve noted in past stories, including our Nov. 14, 2015, cover story, “Trump Is Wrong on China,” we are concerned about his talk about imposing large tariffs on China and other countries. Such a move could lead to a trade war and cripple the global economy, just as the Smoot-Hawley Tariff Act of 1930 helped plunge the world into depression.
Too, Trump’s policies could add more than $10 trillion to the deficit in the next decade, according to the nonpartisan Tax Foundation. This could potentially endanger the economy.
AS FOR CRUZ, a first-term U.S. senator from Texas, some of his more radical proposals include a flat 10% income tax for individuals, a 16% value-added tax on businesses, and a call for elimination of five federal agencies, including the Internal Revenue Service. That might appeal to voters who want to blow up the Washington status quo. But his tax proposal could add $768 billion to the deficit over the next decade, notes the Tax Foundation.
There’s the added concern that both Trump and Cruz would have a tough time working with Congress.
Trump is a career businessman who has never had to answer to any constituency. And Cruz is despised by politicians in both parties for leading the shutdown of the federal government for more than two weeks in October 2013 in an unsuccessful effort to defund Obamacare. Polls showed a large majority of Americans opposed the shutdown, viewing it as a symptom of the dysfunction in Washington, not a cure.
“Maybe Cruz is going to mellow, but his track record in D.C. has been one of obstinacy,” says Greg Valliere, Washington-based chief strategist for Horizon Investments.
Kasich is clearly a long shot in the Republican scrum. He has so far won only 143 delegates, compared with 736 for Trump and 463 for Cruz. A candidate needs 1,237 delegates to win on the first ballot.
But if the Stop Trump effort succeeds and Trump is denied the nomination on the first ballot, it’s conceivable that party leaders could turn to Kasich, if not on the second ballot, then somewhere down the line. Delegates, who are typically party stalwarts, aren’t bound to Trump or Cruz after the first ballot. The prize for Republicans, after all, is the presidency, not the nomination. And Kasich is the only candidate in the race who consistently beats Clinton in head-to-head polls.
According to the latest Real Clear Politics averages of recent polls, Kasich beats Clinton 48% to 42%, while Trump loses badly, with 39% of the vote to Clinton’s 50%. Clinton also beats Cruz, 46% to 44%.
It isn’t unprecedented for a candidate sharply trailing in the delegate count on the first ballot to eventually emerge victorious. It has happened more than a dozen times. In 1860, Abraham Lincoln was a distant second to New York Sen. William Seward after the first-ballot tally of delegates at the GOP convention. But Lincoln won the nomination on the third ballot and went on to become arguably the best president in U.S. history.
In one of the most famous brokered conventions, Republican Rutherford B. Hayes, who was in fifth place after the first ballot, won the nomination on the seventh and went on to win the presidency.
“Mr. Trump is probably correct that if he falls short on the first ballot by only a handful of votes, 20 or so, he is the likely nominee,” wrote Karl Rove, a seasoned Republican political operative and analyst, in a recent column for The Wall Street Journal. “But if he is down by a larger number, say 100 to 200, he could be in trouble.”
Recently, the Politico Website reported that in the event of a contested Republican convention, Kasich would be the most palatable candidate. According to a survey of political insiders assembled by the site, “Kasich has alienated fewer Republicans, and has thus far declined to participate in the personal back-and-forth that has defined much of the Republican race. That leaves him better positioned to court delegates who are supporting, or bound to, other candidates.”
SHOULD KASICH BEAT the odds and become the GOP nominee, Americans will learn more about a set of policy proposals that position him as an old-school Republican, with a few modern twists.
Less radical than the ideas offered up by Trump and Cruz, Kasich’s platform on issues of direct interest to investors seems more temperate and doable. He wants to simplify and cut taxes for Americans by reducing the number of brackets from seven to three, lowering the marginal top rate from 39.6% to 28%, and cutting the other rates, as well. He has also called for cutting the long-term capital gains rate from 20% to 15%, and eliminating the estate tax.
On the corporate side, Kasich would cut the top rate for corporate taxes from 35% to 25% and “establish a low tax rate” to repatriate the estimated $2 trillion in profits held overseas. A competitive corporate-tax rate would make it more attractive for large U.S. companies to remain in the U.S. rather than redomiciling overseas.
He says he would also launch a top-to-bottom review of the agency and the tax code to root out the barriers to innovation and small business start-ups, and “to end the IRS culture of bias, arrogance, and political favoritism.”
On the highly charged issue of trade policy, Kasich’s position is nuanced. “When American products and services are accessible around the world, American businesses benefit,” states his Website. But he adds that the U.S. must seek more-favorable terms in trade negotiations and “better protections against currency manipulation, intellectual-property theft, and cyberattacks.”
It’s unfortunate that politicians like Kasich are on the defensive for their support of free trade, a value shared by both Ronald Reagan and Bill Clinton, in part because the free flow of goods keeps nations from turning to war.
While Trump might win votes from angry blue-collar workers by holding free trade responsible for job losses, the major cause of a decline in U.S. manufacturing jobs is not free trade but technology-fueled productivity gains, and the fact that countries from the Far East to Latin America have emerged from economic darkness and joined the global economy. In other words, the rest of the world caught up with us, and their workers are just as smart and hardworking as ours. And they work for less money.
It seems that the wiser policy is not to abandon free trade but make sure that U.S. interests are better tended to in those deals. But that’s a hard story to spin for votes.
A BIG PART of Kasich’s appeal in the financial community is his record as a fiscal hawk both in Congress and in the Ohio statehouse. As chairman of the House Budget Committee, he is credited with being a leader in the fight to pass legislation in 1997 setting out guidelines to balance the budget by 2002. No doubt, that effort to eliminate the federal deficit for the first time in three decades was helped by a surging tech-fueled economy, but observers give Kasich his due for his grit and deal-making during the process.
Since becoming Ohio’s governor in 2011, he has helped turn an $8 billion budget shortfall into a surplus through lots of unpopular spending cuts and a highly controversial decision to shift costs from the state to local governments. And he pulled it off while also cutting Ohio’s income-tax rate.
During Kasich’s governorship, Ohio’s unemployment rate fell from 9.2% to 4.9% as of February. And the state has added about 400,000 new jobs. “Anyone can promise anything for investors,” says Kasich spokesman Rob Nichols. “Whose taxes have Ted Cruz or Donald Trump ever cut? Gov. Kasich is the only candidate that can point to a record of accomplishment.”
KASICH DOES HAVE some shortcomings.
As a communicator, he leaves much to be desired. Some of his debate performances have seemed unfocused and less than presidential—though at other times he has seemed like the only grown-up in the room.
And he hasn’t always been the folksy and amiable Happy Warrior that he appears to be in the debates. In Congress, he was often known for his impatience and sharp elbows; his tenure as Ohio governor has shown more of the same.
But there are some criticisms of Kasich that don’t wash. When he announced his candidacy last summer, opponents were quick to talk about his stint as an investment banker with Lehman Brothers, from 2001 through 2008, suggesting he was somehow complicit in the investment bank’s highflying ways and subsequent downfall.
Kasich has pointed out that as a Lehman Brothers managing director in a two-man office in Columbus, Ohio, he was far from the decisions that ultimately brought the company down, triggering the financial crisis. He has said that “blaming me for the collapse of Lehman Brothers is like blaming a car dealer in Zanesville for the collapse of General Motors.”
Actually, investors might see some benefits to Kasich’s years of working for a Wall Street firm that went from great to bankrupt: He presumably understands financial markets better than most politicians do, and knows how excess can lead to trouble.
Tim Pagliara, CEO of CapWealth Advisors, an investment advisory firm in Franklin, Tenn., attended a Kasich gathering last summer and came away impressed. “If you wanted to brainstorm and come up with the perfect candidate for president, with the right balance of experience and success, Kasich is it,” he says.
In a few months, we’ll learn if the Republican Party agrees.
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