Noted for Your Afternoon Procrastination for June 15, 2015

State-Level Fiscal Policy: Tyler Cowen's Language Strikes Me as Somewhat Aesopian...

Over at Equitable Growth: The sharp Tyler Cowen writes:

Tyler Cowen: Has fiscal conservatism met an impasse at the state level?: "The latest from Louisiana is that taxes are going up...

...but in a strange way that won’t be called a tax increase.... It is even weirder than that sounds.  Combine that with the recent fiasco in Kansas.... Fiscal conservatism has been stymied at the state level... for many other states, especially those governed by Republicans.... Trying to cut taxes at the state level doesn’t seem like a useful or productive way forward. If you have a better revisionist take on Louisiana and Kansas, please do put it in the comments, I would gladly read it, and if you have something really good I will pass it along.  But I see myself as stating what has to be the default hypothesis for the time being--should we not all come out and admit this? READ MOAR

There were always three arguments for aggressive state level revenue-cutting (including the cutting of money flowing into the state from the federal government by taking advantage of John Roberts's empowering states to reject the ObamaCare Medicaid expansion while keeping standard Medicaid, and including dragging your feet on ObamaCare Exchange outreach). They were:

  1. Lower state tax rates/avoiding the ObamaCare morass would unleash a wave of entrpreneurship and enterprise within your state that would quickly produce higher revenues to keep state budgets in shape.

  2. Lower state tax rates/avoiding the ObamaCare morass would attract entrepreneurship and enterprise from neighboring states (in Kansas, cough, from across State-Line Road) that would quickly produce higher revenues to keep state budgets in shape.

  3. Once the tax cut was in place, politicians would find that those crying against the cuts would have less political weight and actually care less than those benefitting from the tax cuts. (Though it was never clear whether the argument was that programs could be cut without actually losing much in the way of value because (a) government spending at the state level was massively inefficient, or because (b) government spending at the state level went to people who were now politically powerless).

I thought that, while (1) and (3a) were certainly false, (2) and (3b) were likely enough to be true that the Brownbacks in Kansas and the Jindals in Louisiana would be able to claim political and budgetary victories even as their policies lowered societal welfare in Kansas and Louisiana.

Now when Tyler Cowen writes:

Trying to cut taxes at the state level doesn’t seem like a useful or productive way forward...

He is saying: (1), (2), (3a), and (3b) have all failed to materialize, in such a way that Kansas and Louisiana are now deeply embarrassing for even semi-technocratic small-government advocates nationwide. And the only remaining question is which of the implementers and their ideologues--Jagadeesh Gokhale, Michael Cannon, and company at Cato; Arthur Laffer; Stephen Moore at the Club for Growth; and the others cranking up the noise machine; and Brownback, Jindal, and company in office--were in on the con, which were simply deluded, and how far do semi-technocratic small-government advocates need to distance themselves from the crew in order to maintain political and policy credibility?

This is actually surprising to me: I would have bet a decade ago that the combined probability of either (2) or (3b) in either Kansas or Louisiana was well north of 50%...

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