The following column was posted on the Roll Call website October 24, 2017:
Tax cuts in Kansas led to an economic train wreck
“Economic gold rush? Or fiscal wreck?” That was the question the Kansas City Star asked on May 23, 2012, the day after Gov. Sam Brownback signed a sweeping series of state tax cuts into law. Five years later, the Kansas tax cuts are looking a lot more train wreck than gold rush, with a $900 million deficit and Brownback’s fellow Republicans stepping in to reverse the cuts he pushed.
Kansas also offers an awfully timely cautionary tale for Washington lawmakers, who are hitting the gas on getting a tax reform package — any tax reform package — done by the end of the year in order to chalk at least one win on the board for 2017, but who don’t seem to be sweating the details just yet.
The Kansas cuts collapsed the number of tax brackets from three to two; zeroed out taxes on small businesses to make the state a more competitive business climate; eliminated a series of popular deductions; and cut personal rates on most incomes. Most importantly, there were no pay-fors built into the bill, thanks to Brownback’s argument that the legislation would essentially pay for itself by juicing the local economy.
The Trump plan, or what we know of it, also seeks to collapse the number of brackets, slash taxes on businesses to make the United States more competitive, eliminate some popular deductions and cut rates on most earners. Like the Kansas plan, these tax cuts have no agreed-upon measures to pay for them, with the White House arguing that the growth they’ll generate will more than make up the difference.
Promises, promises
When Brownback was selling his plan to his fellow Republicans, he predicted large tax cuts would “create tens of thousands of new jobs and help make Kansas the best place in America to start and grow a small business.” A longtime deficit hawk, he also argued in an op-ed that the tax cuts, even if not offset, would provide more resources for local schools while improving the state’s financial well-being. “Our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy.”
The arguments for the Trump tax cuts sound … familiar.
When Treasury Secretary Steven Mnuchin began to make the case for large tax cuts without offsets at the Aspen Ideas Festival last month, he didn’t say the tax plan would pay for itself — he said it would “not only pay for itself, but it will pay down debt” by generating $2 trillion in additional revenue through significant growth.
And much as Brownback promised his plan would create thousands of jobs and even more growth in Kansas, Ivanka Trump was on the road in Pennsylvania Monday making a similar promise. “There are many elements squarely targeted at creating jobs, creating growth, and offering relief to our middle-income families,” she said.
But the promises Brownback made did not lead to the results he had predicted.
When I covered the 2014 governors race, I spoke with a number of Republicans who, two years after the tax cuts were implemented, were anxious over the unfolding results. One said he felt that Brownback had used Kansans as “crash test dummies” in an grand conservative social experiment. Other critics began calling the state “Brownbackistan,” describing the slashed budgets for services as fit for a banana republic.
In the end, school funding was slashed so severely that nurses and janitors were eliminated from schools, leaving some teachers to vacuum their own classrooms during recess. Jobs in the state grew, but not by as much as Brownback had promised, and growth, while positive, lagged the national average significantly.
The state’s bond rating was downgraded because of its massive deficits, driven in part by the tax cut for small businesses, which ended up being abused as a loophole by tens of thousands of people looking to avoid taxes altogether.
Eventually, the Republican Kansas legislature voted earlier this year to raise taxes closer to the rates Brownback had cut in 2012. The governor vetoed the bill, but his legislature overrode him.
Brownback and others still defend the tax cut attempt by pointing to an unforeseen drop in commodity prices, which did hurt the economy, or to the state’s continued spending levels, much of which is federally mandated and cannot be cut.
A lesson to learn
But the lessons that Washington lawmakers should take away from Kansas before they dive headfirst into a tax cut debate of their own are pretty obvious. First, it would be irresponsible not to study and learn from what went wrong in Kansas before pushing a plan that looks so similar to the one Brownback pushed. How can they ensure that the outcome will not be the same?
Second, the Kansas tax cuts were supposed to pay for themselves. They didn’t. They were supposed to improve education while cutting spending. It didn’t happen. They were supposed to put the state on a new level of economic success, but instead left the state so depleted that the governor’s own party led the charge to raise taxes to get back to zero.
If states really are supposed to be the “laboratory” of democracy, Republicans have a lot they can learn from one lab test that has gone horribly awry before they try the same experiment, but on a larger scale, on the rest of us.
View the post here.