Kansas Tax Cuts Lead to Financial Crisis Instead of Growth

Alessandra Kelley · Nov 7, 2015

In 2012 Governor Sam Brownback (Republican) of Kansas slashed Kansas state taxes on personal income and eliminated the income tax for "small business owners who file as individuals."

The idea was that tax cuts on income and businesses would spur economic growth in the private sector. Sadly, not only did this not happen, the lack of income tax revenues is crippling the state.

In his State of the State speech in 2013, Governor Brownback said

Where others choose to raise taxes, we will lower them so our people have more money, not the government.

Where other governments expand, we grow smaller.

Where others choose to grow spending, Kansas grows jobs.

...

When I started as governor, we had the highest state income tax in the region, now we have the 2nd lowest and I want us to take it to zero. Look out Texas, here comes Kansas!

...

Last year the Kansas Legislature passed the largest tax cut in state history. Tonight we are here to take another step on our path to no state income tax. This will create jobs and opportunities in our state that the current generation has left for Texas or Florida to find.

By making government more efficient and growing our economy, we can keep the sales tax flat at its current level and cut income taxes on our lower income working families to 1.9 percent and drop the top rate to 3.5 percent. This glide path to zero will not cut funding for schools, higher education or essential safety net programs.

Unfortunately, the policy has led to financial crisis. "The new fiscal forecast projects the state will collect $354 million less in revenue from now through June 2017 than the old forecast had predicted." (The old forecast had already been a downgrade from earlier expectations.)

Last spring Governor Brownback raised state sales taxes (which impact most upon the poor, unlike Brownback's personal income tax cap reductions, which mostly benefit the rich). Now the Kansas government has announced it is transferring the funds of the Transportation Department and the Children's Initiatives Fund to other areas to plug some of the gaps.

A 2014 report by the governor's own council of economic advisers showed Kansas lagging behind every one of its neighbors -- Arkansas, Colorado, Iowa, Missouri, Nebraska, and Oklahoma -- in employment growth, population growth, GDP growth, personal income growth, private industry wage level growth, and new business formation.

Kansas Republicans deny that the tax cuts are responsible for the budget shortfalls.

GOP leaders blamed national economic trends, not the 2012-13 income tax cuts, for the budget troubles.

"I am confident we would be in far worse shape had the tax cuts never happened," Senate President Susan Wagle, a Wichita Republican, said in a statement.

Introversion · Nov 7, 2015

Alessandra Kelley said:
Kansas Republicans deny that the tax cuts are responsible for the budget shortfalls.

Yeah, they probably just need to cut taxes deeper. I mean, that's usually how the world works: If something you're doing doesn't have the expected results, just do it some more. Right?

Maxinquaye · Nov 7, 2015

What low taxes seems to mainly do is to reward hoarding-behaviour. Hoarding in an economy is the main reason for rising inequality. Without the blender that taxes are stuck into the main glop of the economy, people end up saving too much. First, because society deteriorates and create insecurity, and second, it increases rent-seeking. With loads of cash, people put money on things that will provide a rent income. Stocks, houses, whatever. That takes away capital from production. And it exacerbates hoarding.

robeiae · Nov 7, 2015

Introversion said:
Yeah, they probably just need to cut taxes deeper. I mean, that's usually how the world works: If something you're doing doesn't have the expected results, just do it some more. Right?

Well, that how we ended up with a seven-year "recovery," no?

Introversion · Nov 7, 2015

robeiae said:
Well, that how we ended up with a seven-year "recovery," no?

Yup. Can't be spending no Federal dollars to jazz up a recessionary economy, when we all know that only deeper tax cuts do that.

I'm guessing that worked out pretty well for Europe.

rugcat · Nov 7, 2015

robeiae said:
Well, that how we ended up with a seven-year "recovery," no?

Except it is a recovery, without the quotation marks.

Jobs growth strong in October; unemployment at seven-year low

http://chicago.suntimes.com/busines...th-strong-october-unemployment-seven-year-low

We could have easily slipped into an economic meltdown similar to the Great Depression. It took a lot to pull us out of that ditch, and if the Tea Party adherents had gained economic control that's where we would have remained.

We haven't bounced back to the good old days of the Clinton years, for sure. But unlike conservative predictions, the country has not sunk into the disaster they hoped for.

The great thing about blind ideology is that you can never be wrong. In Kansas, where policies have been an abject failure, the conservative line is that without those policies it would have been far worse. (Despite better results in neighboring states.)

Under Obama's economic policies, we've averted disaster and made some significant gains. But the line is, of course, that all the progress has been despite Obama's policies, and if only we'd had a conservative hand at the helm, we'd be in much better shape.

It's an unanswerable argument, because actual outcomes don't matter. If they're good, they would have been better under conservatives. If they're bad under conservatives, they would have been worse under the opposition.

Heads I win tails you lose.

robeiae · Nov 7, 2015

rugcat said:
The great thing about blind ideology is that you can never be wrong. In Kansas, where policies have been an abject failure, the conservative line is that without those policies it would have been far worse. (Despite better results in neighboring states.)

Correct. And that's exactly true of your position on the current state of affairs in the country at large, isn't it? Without the policies under the Obama administration, things would have been far worse:

Under Obama's economic policies, we've averted disaster and made some significant gains.

Are you even aware you just did that?

Regardless, as concerns Kansas, I'd agree as a matter of course that cutting taxes does not automatically lead to economic growth (a point lost on the payroll tax holiday crowd, no?) At the same time, a tax cut is also not automatically the cause of budget shortfall.

But whatever. Let's keep it in dumbed down land and assume simple cause and effect relationships in sound bite form for the purposes of, as you say, blind ideology.

rugcat · Nov 7, 2015

robeiae said:
Correct. And that's exactly true of your position on the current state of affairs in the country at large, isn't it? Without the policies under the Obama administration, things would have been far worse:

No, it's not the same thing. The same thing would be if we were currently worse off economically than when Obama took office, and I insisted that we would have been even worse under a different administration.

Under Obama's economic policies, we've averted disaster and made some significant gains.

.Are you even aware you just did that?

Yes, I'm aware that I stated two facts. We did not fall into disaster, and we have made significant gains.

If you want to believe we would have done better with different policies, feel free.

The facts remain: The country is better off than it was. Kansas is worse off than it was. The economic policies of the two are polar opposites. No one can prove cause and effect, but it certainly can be seen as indicative of which policies produce better results in the real world. Actual outcomes are the only way we have to judge the efficacy of policy decisions.

Kansas Tax Cuts Lead to Financial Crisis Instead of Growth

Alessandra Kelley

Sophipygian

Introversion

Pie aren't squared, pie are round!

Maxinquaye

That cheeky buggerer

robeiae

Touch and go