Don't let Kansas or liberals scare you away from tax reform
Liberals and progressives across the nation are celebrating a supposedly “victory” in the battle over tax policy when Kansas Republicans helped to reverse the state’s tax cuts. Kansas Republican Gov. Sam Brownback and the Legislature structured a series of tax cuts to lower the tax burden and create economic growth. Kansas has become a symbolic battleground over the economic philosophy of tax cuts.
The 2012 tax cuts passed by the Kansas Legislature and signed by Brownback simplified the income tax system and provided for small business tax relief. “The heart of the Brownback tax plan was to cut income taxes by 30 percent and zero out the tax on small-business ‘pass-through’ income, so as to encourage new enterprise,” noted economist Stephen Moore in the Weekly Standard. Although the “pass-through” exemption for small businesses is controversial, Moore argues that it did result in bringing in more business to Kansas.
The problem over the Brownback tax cuts occurred when Kansas started to see lower than expected revenues along with lower energy and commodity prices. This is a similar problem Iowa is facing today.
In addition, the Kansas Legislature did not control spending. “Even as the 2012 tax reductions were projected to let Kansans keep $4.5 billion more of their money, the state increased spending in 2012 by $432 million,” noted economists Jonathan Williams and Ben Wilterdink of the American Legislative Exchange Council.
The Brownback tax cuts were blamed for causing both a budget deficit and crisis in Kansas and liberals did not waste anytime pouncing on the “failed” supply-side experiment in Kansas. “Unions, liberal interest groups, and the media have made the Kansas fiscal saga a national cause, a case study in the supposed horrors of supply-side tax cuts,” wrote Moore. In addition, liberals argued that because of the Brownback tax cuts, state programs such as education suffered.
As Jonathan Williams and Ben Wilterdink noted, overall spending actually increased on education. “In 2017 per capita inflation-adjusted general fund spending in Kansas reached an all-time high and has soared 33 percent since 1997 and more than 10 percent this past decade,” noted Moore.
Even though his veto of the tax increase was overridden by the Legislature, Brownback is not backing down and is still fighting against the $1.2 billion tax increase. Brownback argues that this tax increase will not only hurt future economic growth and job creation, but also hurt families in Kansas.
The question must be asked whether the Kansas story is a failure in conservative/supply-side economics as the liberals claim or is it because the Legislature failed to control spending? The answer is that the Kansas tax cuts are sound policy, but since the Legislature could not control spending it resulted in a budget deficit. Tax reductions are fiscal policy tools to create not only economic growth, but also additional revenues. States such as Utah, North Carolina, and Wisconsin are seeing more economic growth because of lower tax rates. Kansas even has a low unemployment rate, which provides further evidence that the state has a spending problem.
Opponents of the Brownback tax cuts also do not take into consideration that states that have high levels of taxation, spending, and regulation are not doing well economically. As Moore wrote regarding the high-tax states of Illinois and Connecticut: “This experiment has been tested in nearby Illinois and in Connecticut with catastrophic results. Illinois and Connecticut both passed giant income tax hikes ‘on the rich’ at about the same time Brownback was cutting them. Today, these two blue states are fiscal basket cases with debt levels so high their finances resemble those of a Third World country.”
Liberals are hoping that the Kansas tax cut will discourage other states, including Iowa, from implementing fundamental tax reform.
Even on a national level liberals are using Kansas as an example to derail President Donald Trump’s tax reform agenda. Gov. Brownback should be applauded for his courage in defending and even trying to reform the tax cuts to make his state more economically sound.
It is true that tax cuts must be accompanied by spending reductions, but whether on a state or federal level the historical record demonstrates that lower tax rates have brought periods of economic growth. Liberals should be forced to answer the question: How many states or nations have taxed and spent their way to prosperity?
Gov. Kim Reynolds and the Iowa Legislature should not fall for the scare tactics and look to states such as North Carolina that have lowered rates and in the process are creating economic growth. The economic policy solution for both states and the federal government is to pursue tax reductions along with reducing spending, and this in turn will unleash economic growth and opportunity.
The Kansas story is not a failed tax cut experiment, but rather a warning about uncontrolled government spending.
• John Hendrickson is a research analyst with Public Interest Institute based in Muscatine