What’s the Matter with (Tax Cuts) in Kansas?

June 29th, 2014 at 11:05 am

Well, how about that?  Cut taxes and you end up with less tax revenue.  That’s the punchline of this important piece by Josh Barro over at the NYT on the outcome of recent tax cuts in the state of Kansas.

Barro does a fine job on the forensics at the crime scene, dissecting the ways in which tax cuts in Kansas have reduced revenue even more than projected, failed to generate the promised jobs boom, and in some cases, not even cut individuals’ tax liabilities (this occurs in cases where the taxpayer no longer gets a credit for the tax that’s been cut against some other tax still in place).  But he misses the larger movement afoot in which Kansas is but one victim.

To do a bit of detective work on the large picture, ask yourself whether this all sounds familiar: cut taxes on the wealthy and you’ll unleash enough growth to more than make up the difference.  Investment will flourish leading jobs, wages, and productivity to accelerate.

It’s plain old vanilla trickle-down, supply-side economics.  That is doesn’t work is as well established as the fact that if I eat ice-cream sundaes all day, I won’t lose weight.  It would surely be a nice trick if we could just pay less taxes, eat more junk, and be better off and thinner too.  But we can’t.

Now, remember the guy behind this trickle-down fairy dust?  That’s right, Art Laffer.  And while he’s basically lost at the national level—Mitt Romney ran on trickle down and nobody bought it (though congressional R’s still push it, of course, as in Rep. Ryan’s budget)—he’s now working with the group the American Legislative Exchange Council (ALEC) to spread his gospel to the states.  (Full disclosure: Art is an old friend, a guy I’ve known for years and like a lot; his economics, OTOH, I consider to be bonkers).

In fact, as my CBPP colleagues point out in this detailed analysis of this destructive movement: “In 2012, Governor Sam Brownback hired ALEC’s Arthur Laffer to design and help sell a tax plan for Kansas.  A version of Brownback and Laffer’s proposal became law.”

It’s not like there wasn’t any pushback at the time.  Retired Wichita State University economist William T. Terrell tried to pull the curtain back on Laffer’s Wizard-of-Oz economics, writing after a January 2012 presentation by Art in the state:

“It’s amazing that economist Arthur Laffer is having a great impact on attempts to alter Kansas individual income taxes, and that neither Gov. Sam Brownback nor Revenue Secretary Nick Jordan has arranged for a critical review of Laffer’s empirical work. … The Laffer claim [that repealing the income tax will help the state economy] is empty.”

But his and others warnings were ignored.

Barro documents the revenue mismatch and notes that the jobs haven’t followed either.  Since 2012, employment is up 3.1% in Kansas, 4.2% in the nation as a whole, and 4.6% in the states that surround Kansas (MO, OK, CO, NE).  None of that’s the final word, of course, and believe me, we’ll be tracking these variables as time unfolds.  But these facts are entirely consistent with the Laffer/supply-side record: cut taxes and you can surely count on less revenues while you decidedly can’t count on better economic outcomes.

When the tax cuts are regressive, as is also part of the Laffer canon, you also get higher after-tax income inequality (to the extent that ALEC/Laffer recommend getting back some of the revenue lost through high-end tax cuts, they call for higher sales taxes; i.e., replacing a progressive revenue source with a regressive source).

So let’s definitely tell the story at the crime scene but let’s not lose sight of the syndicate behind the local perps.

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11 comments in reply to "What’s the Matter with (Tax Cuts) in Kansas?"

  1. Robert Buttons says:

    The Tax Cut bill (S Sub HB 2117) took effect 1/1/2013 (On and after January 1, 2013, K.S.A. 39-7,132 is hereby
    amended to read as follows: 39-7,132, etc etc). What time course should we expect for jobs improvement???

    For comparison, QE1 started Nov 2008 and we are STILL waiting for the jobs to show up.


  2. Robert Buttons says:

    As I have said, science is about predictions. Here is arch-Austrian Peter Schiff predicting the 2008 crash and making Art Laffer look silly:

    http://www.youtube.com/watch?v=T67keZzv3Tc


  3. jeff says:

    Laffer has a job and is still reputable, as is ALEC despite some stumbles, so one can’t really fault Kansas. If economists can’t police themselves then don’t expect Brownback too.


  4. Tom in MN says:

    And here are the results of the reverse experiment:

    http://www.michiganfuture.org/06/2014/minnesota-report-2014/

    Us “poor” folks in high-tax Minnesota are also doing much better than WI too. But I would also say we could do a lot better. Our U has about $2B of deferred maintenance and the MN DOT has a $21B shortfall over the next 20 years just to maintain what we’ve got and needs another $30B to stay competitive, just to quickly name a couple of weaknesses.


  5. TomL says:

    Great article.
    Don’t forget grammar: fewer taxes, lower taxes, or less tax. Never less taxes.


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