The Kansas Experiment is Over. Kansas Lost

Every year, right after the April 15 tax deadline, the U.S. Census releases its data on the prior year’s state tax collections. It is a fascinating document, filled with great data points for tax and policy wonks. It reveals a good deal about the state of local economies, economic trends and results of specific policies. In broad terms, the financial fortunes of the states are improving.

A quick excerpt:

State government tax revenue increased 2.2 percent, from $847.1 billion in fiscal year 2013 to $865.8 billion in 2014, the fourth consecutive increase, according to the U.S. Census Bureau’s 2014 Annual Survey of State Government Tax Collections.

General sales and gross receipts taxes drove most of the revenue growth, increasing from $258.9 billion to $271.3 billion, or 4.8 percent. Severance taxes increased 6.0 percent, from $16.8 billion to $17.8 billion, and motor fuel taxes increased 3.4 percent, from $40.1 billion to $41.5 billion.

You can read the full press release here or access all of the data directly from the Census.

There are some truly fascinating data points in the report:

• North Dakota had the biggest percentage increase in revenue, a gain of almost 16 percent, from $5.3 billion to $6.1 billion, as drillers and workers flocked to the region to participate in the fracking boom.

• Alaska had the largest decreases in revenue, a decline of $1.7 billion (34 percent), from $5.1 billion to $3.4 billion, as royalties from oil and gas leases plummeted.

• Kansas also had a big decline in revenue, falling 3.8 percent, from $7.6 billion to $7.3 billion. (Delaware had a 5.1 percent decline, second to Alaska in percentage terms, on revenue of just $100 million.)

Let’s focus on Kansas, because of all the states its tax data reflects conscious policy choices as opposed to larger economic forces, such as falling oil prices.

Under the leadership of Republican Governor Sam Brownback, the state radically cut income taxes on corporations and individuals. Going on the assumption that this would generate a burst of economic growth and higher tax revenue, no alternative sources of revenue were put into place. Similarly, the state failed to lower spending.

Alas, reality trumps theory. As we have seen almost every time this thesis has been put into practice, it fails. The tax cuts don’t magically kick the economy into higher gear and the government ends up short of money. Remember former President George W. Bush and his tax cuts? Same deal.

Much of the intellectual heft for this theory can be traced to economist Arthur Laffer, a former member of President Ronald Reagan’s Economic Policy Advisory Board who is sometimes referred to as the father of supply-side economics. To cite just one example: Laffer, along with Stephen Moore, expounded on this thesis in a September 2012 report, “Taxes Really Do Matter: Look at the States.”

Now it is true that excessively high tax rates can cause economic harm. For those of you old enough to remember, think about when the Rolling Stones decamped from the U.K. to France in response to Britain’s 98 percent wealth tax; more recently the band U2 shielded some of its assets by shifting them from Ireland to the Netherlands.

The argument goes that cutting tax rates would have led these big earners to stay, and that capturing a reduced amount of revenue is better than losing the potential revenue completely.

Nor is anything wrong with the underlying premise of supply-side economics per se: We can increase economic growth by lowering barriers for producers to supply goods and services and make capital investments. A greater supply of goods and services at lower prices benefits all consumers, helping to expand business activity, hiring and spending. All of that naturally leads to higher tax revenue for the government.

And yet some economic radicals have taken the supply-side theory to absurd places. Perhaps the most radical is Grover Norquist, the promoter of the “Taxpayer Protection Pledge.” Norquist opposes any and all increases in taxes, and has persuaded many politicians and almost all Republicans to sign the pledge.

While serving as Kansas’s U.S senator, Brownback signed the pledge, and was a central player behind putting the theory into practice in the state. Unfortunately for Kansas, the real world has a tendency of introducing frictions that theory often ignores. Kansas now is confronting annual budget deficits, severe cuts in education and road maintenance, and credit-rating downgrades.

Ideally, states should be looking for the optimal point where tax rates produce the greatest revenue with the lowest burden. The range includes value choices between somewhat more revenue versus somewhat lower taxes.

Now, after Brownback’s supply-side experiment, Kansas has become a sort of mirror image of the high-tax nation that the wealthy like Mick Jagger and U2 tend to flee. Those in the middle class in Kansas might like to leave for a state with services that aren’t starved for money. But like many people of modest means, they aren’t especially mobile, and often have deep roots in a community: They own homes, have family and friends nearby and have children in the local school system. Picking up and moving a small business or residence to the next state is harder than it sounds.

The bottom line: The results from the economic laboratory known as Kansas are in. Supply side theory — and Kansans — lost. The only question is whether those like Brownback have learned anything.

 

Originally:  Supply-Side Doom in Kansas

 

What's been said:

Discussions found on the web:
  1. RW commented on Apr 17

    Good article but a little too gentle on the Brownback administration: The vulgar version of supply-side economics promoted by Laffer et al and adopted by austerity freaks is just another cover story for deep antipathy to enlightenment principles and just governance.

    The comments you get at Bloomberg were rather amusing though: Reading comprehension problems and logical fallacies were prevalent of course but several also included the stuff of which dicks, tools and assclowns are made.

  2. reedsch commented on Apr 17

    Aren’t you assuming that you can apply facts and logic in a discussion with people who believe that Jesus is coming back sometime before 2050? In a heads-up competition with reality, make-believe often wins.

  3. rd commented on Apr 17

    You just misunderestimate the power of “The Think System” in macroeconomics. It just takes time before the full beneficial effects are felt unlike leftist, socialist Keynesian economics which has clearly failed even before it is implemented.

    http://en.wikipedia.org/wiki/The_Music_Man

  4. Whammer commented on Apr 17

    I’m thinking “Dicks, tools, and assclowns” is the new “lions, tigers, and bears” 😉

    Honestly, nothing is going to get some of those “25%” or so people to budge from their “cut taxes all the time and things will work out magically” thinking.

    I keep wishing we had a functioning press in this country, but even if we did, facts have a well-known liberal bias — some nuts just won’t crack.

  5. 4whatitsworth commented on Apr 17

    The Kansas government let the working people in Kansas keep 500M of their own money. 500M is difference Individual Income Taxes revenue. How dare they!

    • willid3 commented on Apr 17

      didnt they say that doing that would lead to more jobs? seems that didnt work out that way at all. course the tax cuts that were implemented werent for every one, just a select few. most werent even workers as most of us would define them

    • DeDude commented on Apr 18

      Brownback basically hurt the future of Kansas’s middle and lower class citizens by cutting education and investments in infrastructure. In return the government gave the ordinary people enough tax cut money to buy a handful of useless Chinese trinkets – and the rich got enough to buy another BMW. Talk about handing the people a brown bag (or a bag full of brown stuff). What’s the matter with Kansas is that the low and middle class people actually elected this Clown rather than just laugh at him and the funny curves on his economic advisors. That handful of shiny Chinese trinkets was so much easier to comprehend, than the impact of public education quality on their children’s ability to compete in the economy of the future (another failure of the edumacation system in KS?).

    • bear_in_mind commented on Apr 18

      He’s playing-up fearing the “others” and lying in the service of pleasing his .05% funders who pay billions to maintain the status quo. And they keep doing it because it works.

      The Nordquist’s and Luntz’s have clearly, unambiguously shown they use decades of cognitive science research and successful propoganda campaigns to mislead and/or bully citizens into changing their thinking. They use lies inserted into half-truths to mobilize conscious and unconscious biases to trigger fear of ________ (insert choice of the moment). It’s done with ongoing study groups to determine which language “works” to manipulate citizens in the direction of the policies they want to implement. So, blaming the citizens in Kansas is recognizing only a small part of the overall problem.

    • 4whatitsworth commented on Apr 18

      Total tax revenues were off 3.75% so what happens now is that all the government gamesmanship starts. Everyone is going say schools, parks, and public restrooms are going to close (Everything that people actually use). In truth there is not a state government in the country that couldn’t operate with a 5-10% efficiency. I looked for some distribution of the ordinary income tax category I suspect that it is not as top loaded as you are saying here.. If you find something post it.

  6. Alex commented on Apr 17

    I take issue with your identifying Grover Norquist with supply side economics. One of the big intellectual dislocations in the Republican Party is the two schools of thought about tax cuts – the Laffer school says tax cuts cause revenues to go up, and you can have your cake and eat it to. Norquist is one of the leaders of the other camp, the “Starve the Beast” camp, which says that tax cuts are nice because you get to keep more money, but the real benefit of them is that they give the government less money to do the kinds of (harmful) things that governments do.

    All the Kansas experiment has done is put the Norquist group more in the ascendant.

    ~~~

    ADMIN: The article identifies Norquist as an economic radical:

    “And yet some economic radicals have taken the supply-side theory to absurd places. Perhaps the most radical is Grover Norquist,”

  7. farmera1 commented on Apr 17

    Kansas the land of OZ. I most remember Kansas as the place that was selling itself as a tech haven, a place for new tech companies to sprout. At the same time they were passing laws to require teaching creationism in the public schools. I’m so sure all those creative tech types wanted to come to a place that
    required people to study creationism. That would be a big selling point, no?????

    • DeDude commented on Apr 18

      Yes, the problem with creationists is that they scare away all the creative people.

      The people creating the next economy do not want to live in a society that disband facts. They care to much about their children. Whereas Laffer is right that lower taxes can be an attractive incentive for rich people to move to a state, its is only the most self-absorbed of them (like Laffer himself) that makes that the exclusive criteria for where they want to live. There is a reason that all these rich celebrities have not moved to Kansas or other cultural dumpsters, even if they could save a lot in taxes by doing so.

    • bear_in_mind commented on Apr 18

      I generally agree with your sentiments, however, I think your assessment is flawed when making the statement, “The people creating the next economy do not want to live in a socety that disband facts.”

      I recognize that the context upon which you’re referring is likely the Millennial generation who are tech-savvy and seem to be progressively-minded. What your assertion misses is that the moneyed elite who are opposed to progressive ideas and policies aren’t going to suddenly disappear into the ash heap of history. If anything, they’re redoubling their efforts to influence thought and policies to mirror their conservative silent majority ethos.

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