The Kansas Experiment

[CharminTide]

It seems worthwhile to look at the effects of Brownback's failed tax reform efforts in Kansas, especially given that Paul Ryan has indicated that he'd like to implement something similar on a federal level.

Kansas’s conservative experiment may have gone worse than people thought

When Kansas Republican lawmakers voted to raise state taxes last week, they were not only rebuking their own governor, they were tacitly admitting that his tax cuts hadn't produced the economic boom their proponents promised.

It is not just that tax cuts didn't achieve their purpose, though. New research suggests that the cuts were, in fact, counterproductive.

A working paper by economists at Oklahoma State University suggests that cutting taxes actually may have damaged Kansas's economy, resulting in fewer jobs, reduced incomes and a slower pace of growth.

Brownback brought down taxes beginning in 2012, allowing wealthy taxpayers to pay the same marginal rate as the middle class by eliminating the uppermost of the three brackets in Kansas's income-tax scheme. He also allowed taxpayers to exempt income from small business, with the goal of fostering entrepreneurship in the state.

The governor and his Republican allies said that these changes would have benefits for ordinary Kansans.

“Our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy,” Brownback wrote in 2012.

Since then, however, Kansas's economy has consistently lagged behind that of neighboring states and the country as a whole.

Gross state product — a measure of the overall size of Kansas's economy — increased about 7.8 percent less than it would have had Gov. Sam Brownback (R) not cut taxes, according to the paper, which is being reviewed for publication. The number of Kansans working has increased 2.6 percent less than it would have otherwise, the results suggest. Brownback's policies also reduced the share of the state's population participating in the labor force.

Reduced taxes forced the state to spend less, which could have brought down the overall level of demand for goods and services in the state, the economists believe. At the same time, concern about whether the state would be able to balance its budget might have deterred businesses from making major new investments.

Economists were not surprised by the results of the research. As the government in Kansas was forced to reduce its expenditures, the state's employees, suppliers and contractors had less money to spend. That, in turn, limited overall demand in the state.

 

[CharminTide]

From the CBPP:

Massive tax cuts Kansas enacted in 2012 were among the largest ever adopted by a state, and delivered lopsided benefits to the wealthy. Key architects of Kansas’ tax cuts, including Governor Sam Brownback and long-time tax cut advocates Stephen Moore and Art Laffer, are urging federal lawmakers to mimic Kansas’ plan.

But the Kansas tax cuts are a cautionary tale, not a model: promises of immediate economic improvement failed to materialize; revenues plummeted, causing cuts to services, delays to road projects, and underfunded schools; and proponents used inaccurate and misleading economic data to defend poor outcomes. Recognizing that the tax cuts had led to financial crisis and budget shortfalls, lawmakers on a bipartisan basis reversed them in 2017.[1]

President Trump’s campaign tax plan (which Moore and Laffer helped design) and the House GOP “Better Way” tax plan adopt key elements of the Kansas plan: large income tax rate cuts, and a special, even lower tax rate for “pass-through” business income.[2] Art Laffer says Trump’s plan will generate economic “nirvana,” with economic benefits that will “trickle down” to ordinary workers. The results of the Kansas tax-cut experiment show that these claims are highly dubious.

 

[TIDE-HSV]

Something from nothing has always been a fairy tale, something real financial conservatives have always believed. Balanced is balanced. Hard facts do it. Cotton candy of the future doesn't count...

 

[seebell]

Kansas cuts taxes and growth falters. California raises taxes and growth surges.

http://www.msnbc.com/rachel-maddow-...r-california-raised-taxes-and-kansas-cut-them

The Washington Post reported the other day:

California grew just fine in the year the tax hikes took effect… California’s economy grew by 4.1 percent in 2015, according to new numbers from the Bureau of Economic Analysis, tying it with Oregon for the fastest state growth of the year. That was up from 3.1 percent growth for the Golden State in 2014, which was near the top of the national pack.
​

At the same time, Kansas Gov. Sam Brownback (R) slashed taxes, leading conservatives to predict great things for the state’s economy. And yet, here we are.

The Kansas economy, on the other hand, grew 0.2 percent in 2015. That’s down from 1.2 percent in 2014, and below neighboring states such as Nebraska (2.1 percent) and Missouri (1.2 percent). Kansas ended the year with two consecutive quarters of negative growth – a shrinking economy. By a common definition of the term, the state entered 2016 in recession. […]
So


Trump is going to cut taxes on the wealthy and he expects growth to average 4% or more? duh...
​

 

[Bamaro]

Kansas cuts taxes and growth falters. California raises taxes and growth surges.

http://www.msnbc.com/rachel-maddow-...r-california-raised-taxes-and-kansas-cut-them

The Washington Post reported the other day:

California grew just fine in the year the tax hikes took effect… California’s economy grew by 4.1 percent in 2015, according to new numbers from the Bureau of Economic Analysis, tying it with Oregon for the fastest state growth of the year. That was up from 3.1 percent growth for the Golden State in 2014, which was near the top of the national pack.
​

At the same time, Kansas Gov. Sam Brownback (R) slashed taxes, leading conservatives to predict great things for the state’s economy. And yet, here we are.

The Kansas economy, on the other hand, grew 0.2 percent in 2015. That’s down from 1.2 percent in 2014, and below neighboring states such as Nebraska (2.1 percent) and Missouri (1.2 percent). Kansas ended the year with two consecutive quarters of negative growth – a shrinking economy. By a common definition of the term, the state entered 2016 in recession. […]
So


Trump is going to cut taxes on the wealthy and he expects growth to average 4% or more? duh...
​

Reaganonimics supporters

 

[Tidewater]

Gross state product — a measure of the overall size of Kansas's economy — increased about 7.8 percent less than it would have had Gov. Sam Brownback (R) not cut taxes, according to the paper, which is being reviewed for publication. The number of Kansans working has increased 2.6 percent less than it would have otherwise, the results suggest. Brownback's policies also reduced the share of the state's population participating in the labor force.

Not sure how you can say what would have happened had Kansas not cut taxes. There are a lot of variables.

Reduced taxes forced the state to spend less, which could have brought down the overall level of demand for goods and services in the state, the economists believe.

What percent of the Kansas GSP is from Kansas state government spending? $14.4 billion/In 2016, Kansas current-dollar GDP was $153.3 billion so less than 10%. By the way, per my link above, in Kansas in fiscal year 2014, 53.0 percent of total tax revenues came from sales taxes and gross receipts. Income taxes accounted for 38.7 percent of total tax collections.

An econ professor at Va Tech shared a joke:
A business executive interviewed three candidates for the position of quantitative consultant to his company. One was a mathematician, one a sociologist, and one an economist. He invited them one by one into his office, saying he wanted some insight into how they’d perform on the job and had a question for them: "What’s two plus two?" The mathematician answered, "Why, four, of course." The sociologist responded, "Well, it all depends. We have to look at the context of the question, its antecedents, the general view in the population as a whole of this sort of question, and many other things." The economist locked the door, closed the shades, moved close to the executive and in a furtive voice said, "What do you want it to be?"

 

[IMALOYAL1]

Not sure how you can say what would have happened had Kansas not cut taxes. There are a lot of variables.

Are you denying science?

 

[rgw]

There are a lot of variables confounding the California tax hike "miracle" too. I'm the unabashed leftist here but it just isn't that simple.

 

[Jon]

it's OK, in politics you get to fail up

http://www.kansascity.com/news/politics-government/article156682119.html

just like Mike Pense, your state hates you go Federal. Should see Chris Christy soon too I'd expect

 

[CharminTide]

There are a lot of variables confounding the California tax hike "miracle" too. I'm the unabashed leftist here but it just isn't that simple.

Not sure how you can say what would have happened had Kansas not cut taxes. There are a lot of variables.

Absolutely. The authors admit as much in my first link, and anyone who's interested in how they tried to control variables can read the paper here: Link

A better controlled comparison might be Minnesota vs. Wisconsin. Here's a data summary: Link

Despite all the sound and fury from hardcore conservatives, I've never seen compelling data that shows trickle down tax cuts actually working as promised, or wide-scale industry deregulation actually improving working conditions for people living in the state. More and more, we're seeing examples of the opposite being true.

 

[CharminTide]

it's OK, in politics you get to fail up

http://www.kansascity.com/news/politics-government/article156682119.html

just like Mike Pense, your state hates you go Federal. Should see Chris Christy soon too I'd expect

Amazing.

 

[92tide]

who could imagine that they could freak out in kansas.

 

[NationalTitles18]

Useful for supposition. I suppose I'm not an expert in the field but the data appear to paint a mixed picture overall.

 

[Displaced Bama Fan]

But of course, spending cuts is typically not in the plans. My God, a government that "cuts" spending and fat? Unheard of. Government exists to serve itself...and it gets worse every day.

 

[CajunCrimson]

Useful for supposition. I suppose I'm not an expert in the field but the data appear to paint a mixed picture overall.

Unemployment rate is low.....4.2%

A stagnant economy should see a rise in that rate. Booming Cali on the other hand is 5.2%.

I guess sometimes statistics lie.

 

[Tidewater]

Something from nothing has always been a fairy tale, something real financial conservatives have always believed. Balanced is balanced. Hard facts do it. Cotton candy of the future doesn't count...

True. I remain convinced that controlling governmental outlays is the secret to balancing the budget, not increasing governmental receipts. If the Federal government were to confiscate all income nation-wide, spendthrifts in Congress would say, "Hey, great! Now I have more money to give out goodies to ensure my re-election!"
Here are some data from the Reagan budgets (since Bamaro brought Reagan up):
Federal receipts: 1982: $1.21T
______________1989: $1.55T (inflation adjusted)

Federal outlays: 1982: $1.46
_____________1989: $1.79 (For the record, Federal outlays dropped only one year: 1986-1987, by $140B, then yearly increases came back.)

So, if Federal outlays had merely kept up with inflation, the Federal surplus would have been $90B in 1989. Instead, Federal outlays grew even faster. I believe you can't tax your way to solvency. I believe you can only not-spend your way to solvency.

For the record, the same source shows GDP growth:
GDP 1982: $6.49T
GDP 1989: $8.71T (or 3.75% growth on average over the eight years, which is not too shabby, and that included a recession in 1983).

 

[bamachile]

You know, it's too bad we don't have some sort of controlling document lining out the areas of responsibility for federal and state governments. You know, something that would give us a guideline on which entity should be legally and fiscally responsible for each budget. Having such limitations in place should be of itself an effective safeguard to overtaxing and overspending. Of course, each state would have to have their own document to separate and delegate the appropriate responsibilities to the state and municipal governments as well.

Oh, well. It's just too bad our founding fathers never thought of this.

 

[TIDE-HSV]

True. I remain convinced that controlling governmental outlays is the secret to balancing the budget is controlling spending, not increasing governmental receipts. If the Federal government were to confiscate all income nation-wide, spendthrifts in Congress would say, "Hey, great! Now I have more money to give out goodies to ensure my re-election!"
Here are some data from the Reagan budgets (since Bamaro brought Reagan up):
Federal receipts: 1982: $1.21T
______________1989: $1.55T (inflation adjusted)

Federal outlays: 1982: $1.46
_____________1989: $1.79 (For the record, Federal outlays dropped only one year: 1986-1987, by $140B, then yearly increases came back.)

So, if Federal outlays had merely kept up with inflation, the Federal surplus would have been $90B in 1989. Instead, Federal outlays grew even faster. I believe you can't tax your way to solvency. I believe you can only not-spend your way to solvency.

For the record, the same source shows GDP growth:
GDP 1982: $6.49T
GDP 1989: $8.71T (or 3.75% growth on average over the eight years, which is not too shabby, and that included a recession in 1983).

I haven't looked up the numbers from Kansas, but my impression has been that they slashed revenue without decreasing spending materially. That won't work. Magic won't cut it...

 

[Tide1986]

If only Kansas would aspire to Illinois-level taxation...

 

[RammerJammer14]

Man, who knew you could tax your way to prosperity. Might as well take it all then!

(For the record I believe there is a balance somewhere to be struck)