“The Largest Tax Hike in Kansas History: Now What?” That was a title of the talk given by Jonathan Williams, from the American Legislative Exchange Council (ALEC), when he spoke to the Wichita Pachyderm Club on July 28.
When the title of the talk is misleading, then what?
In 2012, Kansas Gov. Brownback tried Laffer’s theory by cutting the income tax rates and exempting 330,000 businesses from paying taxes on pass-through income, called the LLC loophole. Because of the decline in tax income, Kansas cut school funding, deferred payments to the states pension fund, and borrowed heavily from the highway fund. To fill the budget holes, the legislature in 2015 increased sales taxes and cut state income tax deductions. The state’s major newspapers labeled that tax increase as the largest in state history.
After Gov. Brownback’s experiment with Arthur Laffer’s trickle-down theory left the state’s finances in shambles, the 2017 Legislature restored the taxes to their 2012 level and overrode Gov. Brownback’s veto of the budget. Mr. Williams claimed that was the largest tax increase in Kansas history. Is restoring taxes to a previous level actually a tax increase? When someone in the audience pointed out to him that Kansas’ major newspapers labeled the 2015 sales tax increase as a largest in state history, he disparagingly commented, “First of all, I don’t put a lot of stock in the state's newspapers.” He should.
The failure of Gov. Brownback’s tax experiment has been of great concern to ALEC, who represents the interests of Corporation and the wealthy. Laffer’s trickle-down theory has been one of ALEC’s main justifications for cutting state taxes in ways that benefit corporations and the wealthy. ALEC had hoped to persuade more states, and even the federal government, to try Laffer’s tax cuts. Did he not realize that Kansas just tried cutting taxes, with disastrous effects?
According to Mr. Duane Goossen, a previous Kansas state treasurer, “ After five years of the Brownback experiment in Kansas, we know the real result. Kansas has an anemic economy and one of the lowest rates of job growth in the nation. A dramatic drop in revenue broke the state budget, wiped out reserves, significantly boosted state debt, and put public education at risk. And that part about everyone benefiting — well, it turns out that the bulk of the benefits went to the wealthiest Kansans while the tax bill to low-income Kansans went up.”
Mr. Williams apparently wanted to convince us that states with low taxes experience revenue growth, job growth, and a growing economy. To that end, Mr. Williams referred to Laffer’s research which claimed that the nine states that have no income tax had the highest rates of job creation. But most of the growth was in Texas and in a carefully chosen time period when job growth was strong because of oil revenues and population growth. Besides carefully picking his data, Laffer also ignored other economic indicators – and didn’t do a comparison with high tax states. If Laffer were correct, the nine States with the highest income taxes should have failing economies. However, that is not the case, as shown below:
The nine states with high income taxes had higher economic growth , a much smaller decline in household income, and almost exactly the same unemployment rate. Laffer’s research was biased and would never stand up to peer review, yet many states have used it as a justification for income tax cuts for the wealthy.
When Gov. Brownback’s experiment was failing, he paid Arthur Laffer $75,000 in consultation fees to help him find what went wrong. Mr. Laffer’s advice was to just keep on with the experiment. Kansas did, and the budget deficit just got worse. It was also Mr. Williams’ opinion that we had not tried the tax cut experiment long enough. But did we need to? Laffer convinced Reagan to cut taxes, and much of our current national debt can be traced back to then, as in the graph below.
While the link between tax cuts, economic growth, and revenue growth is tenuous, there is certainly a link between tax cuts and public debt. Kansas proved that.
Note to BryanRJ who commented "Kind of funny how the graph conveniently stops in 2006." Please note that the cumulative National debt is different from the deficit. Here is the graph which extends into the Obama administration: