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Monday Smackdown: Kansas's Conversion into Brownbackistan, and Its Failure

Live from the Republicans' Self-Made Gehenna: Let me, for one, say that I am surprised that the economic results of Laffer-Moore grifter tax cuts in Brownbackistan have been so bad. I expected them to be bad. But I expected big tax cuts to steal at least some of the tax base from neighboring Missouri: south of the Missouri River the Kansas-Missouri border is State Line Road, and the state border bisects the two million person Kansas City metroplex. But no: worse than I would have imagined likely, even for Brownback, even for Laffer and Moore.

Moving money from the state budget where it is spent in-state into the pockets of the rich whose marginal propensity to spend in-state is low has consequences. Add in the effects of not expanding Medicaid and the tax cuts, and $1 billion/year of government-funded spending that would be happening were Kansas part of Colorado is not happening. If the in-state multiplier is two, then the simple Keynesian model all by itself accounts for the post-2012 divergence between Brownbackistan and the U.S. average--you don't need any resort to "uncertainty" generated by the Brownback trainwreck:

All Employees Total Nonfarm in Kansas FRED St Louis Fed

David Atkins: Kansas’ Experiment in Right-Wing Economics Is Still Failing Miserably: "Every few weeks I feel it’s important to return to the ongoing disaster in Sam Brownback’s Kansas...

...It doesn’t get nearly as much play as it should in the media.... Under the leadership of Brownback and one of the most conservative legislatures in America, Kansas dramatically slashed the tax rates of Kansas’ wealthy and its corporations. According to ideology, the cuts should have jumpstarted Kansas’ economy and led to rapid growth that created jobs and helped the tax cuts pay for themselves. Of course, nothing of the sort happened. The effect was disastrous, a slow-rolling series of budget shortfalls followed by cuts to essential services like education and roads, which only slowed the economy further. A series of punitive and regressive sin taxes on tobacco and other goods were instituted to make up for the cuts to the tax rates of the wealthy, which of course only further undermined consumer spending.

Officials in Kansas have tried to blame the problems on a slow national economy, but that is hogwash.... It’s not local economic variations. Kansas’ troubles really are directly the fault of its tax cuts. They didn’t boost the economy–they slowed it down. And now Kansans are paying the price. Even more cuts are coming, including devastating cuts to road maintenance through thefts from its already plundered Department of Transportation.... This is on top of the damage Brownback is already doing to the state’s K-12 and university education systems.... The nation’s eyes should be trained on Kansas. This is what happens when you put Republicans in charge with the freedom to pursue their economic ideology. It’s not just a moral train wreck in terms of inequality and shared prosperity. It doesn’t even work to keep the lights on and make the trains run on time...

There have been a great many bad pieces written about Brownbackistan. The one that I, personally, found most annoying was written last-year by the once-promising Chris Suellentrop a year ago for the New York Times. Suellentrop wrote that he "prefers" to emphasize the part of the story of Brownbackistan that makes the Brownbackistanistas--cough, his uncle Gene Suellentrop and his uncle's colleagues--look like good people who, when the chips are down, preferred to "violate a deeply held principle to protect what they saw as the common good" and so come down on the side not of ideology but humanity:

Chris Suellentrop: The Kansas Experiment: "The cuts to education were real...

...and they have been the most controversial outcome of the budget agreement in Kansas. But I prefer to emphasize this aspect of the deal: A group of politicians decided to violate a deeply held principle to protect what they saw as the common good.... Conservatives in the Kansas statehouse... hit bottom on the amount of government that could be cut. But that’s what happened. If they could have cut spending more deeply without doing immeasurable harm to schools, to prisons, to mental hospitals, to roads, they would have done so. Over and over, they told me they didn’t run for office to raise taxes. Then they did exactly that...

Going the extra mile to make your Uncle Gene look like less of an asshole than he is is simply not the proper business of a reporter.

The piece was most greatly marred by the failure of Suellentrop nepos to even ask the very important question of whether Suellentrop patruus is a grifter or a mark. Did Uncle Gene not know that Brownback, Moore, Laffer, and company were making false claims that the tax-and-budget cuts would be "like a shot of adrenaline into the heart of the Kansas economy"? Or did he know it, and yet not have the balls to represent the people of Kansas?

Much better to read Yael T. Abouhalkah:

Yael T. Abouhalkah: In latest Kansas revenue fiasco, it’s still the tax cuts, stupid: "Kansas officials said Friday that total tax revenue for June fell a woeful $34 million below estimates...

...The most important figure in the Department of Revenue report... is: $2.249 billion... how much individual income tax revenue the state collected in the 2016 fiscal year that ended Thursday.... The reckless actions by Gov. Sam Brownback and the Legislature in 2012 to reduce income tax rates on all Kansans and unfairly eliminate this tax for 330,000 LLCs continue to devastate the state budget. Kansas government no longer can provide solid public services to 3 million people. Why is Kansas in such horrible fiscal shape? It’s still the tax cuts, stupid....

In the 2013 fiscal year... $2.931 billion. But after the reductions were in place, that source of funds plummeted to $2.218 billion in the 2014 fiscal year, was $2.278 billion in the 2015 fiscal year and--again--reached just $2.249 billion in the 2016 fiscal year. Yes, that’s even less than last year.... Kansas today is collected a staggering $650 million or so less in individual income tax revenues every year than it was before the tax cuts. If the state had not foregone that revenue, the $34 million shortfall in June would have been just a small blip on the radar, nothing to be worried about. But here the Sunflower State is... after Brownback pushed through tax reductions that he said would re-energize the economy, create new jobs and--perhaps most notably--replace some of the revenue lost through his actions. None of that has happened. Kansas has actually lost 700 jobs over the last year...

Or much better, IMHO, to trust someone like Bill Gale, who does not get a big spread in the New York Times Magazine:

William G. Gale: State Income Tax Cuts: Still a Bad Idea: "Ever since the 1970s, when Jude Wanniski and Arthur Laffer...

...came up with the ideas that are now referred to as supply-side economics, conservative politicians have been unable to resist the siren song of tax cuts for big earners. In recent years, this enthusiasm has spread to state governments led by conservatives, offering new tests of a proposition that has generated scant evidence of success elsewhere.... Supply-siders argued tax cuts would pay for themselves by increasing growth substantially.... Some proponents still can’t help themselves and lapse into the more hyperbolic claims. But the record is clear that tax cuts have not boosted growth.

When growth is (appropriately) measured from peak to peak of the business cycle, the vaunted Reagan tax cuts in the early 1980s produced a period of average growth. Indeed, research by Martin Feldstein, President Reagan’s former chief economist, and Doug Elmendorf, the former Congressional Budget Office Director, concluded that the 1981 tax cuts had virtually no net impact on growth. Virtually no one claims the 2001 and 2003 Bush tax cuts stimulated growth.... Tax rates as determinants of growth fare no better in cross-country comparisons.... High-end tax cuts have exacerbated income inequality.

Despite all of this, the zeal for lowering income tax rates, especially at the top, spread beyond Washington decades ago.... In the 1990s, six states cut taxes by more than ten percent, mostly by enacting significant personal income tax cuts... only the tax-cut states that were boosted by the financial boom rose faster than average.  Between 2001 and 2007, Arizona, Louisiana, New Mexico, Ohio, Oklahoma, and Rhode Island cut personal income taxes. Only New Mexico and Oklahoma, which benefited from oil and gas... experienced net gains in their employment share....

The most widely-reported recent state income tax cut occurred in Kansas in 2012. Gov. Sam Brownback argued it would be ‘like a shot of adrenaline into the heart of the Kansas economy.’ The tax cuts did not produce the hoped-for growth, though, and more revenue was lost than originally anticipated. Fiscal year 2014 revenues were $700 million lower than FY 2013--$330 million less than [Brownback] expected... [when] most of the American economy was picking up steam... $330 million represents more than 5 percent of Kansas’ government spending from general funds.... Kansas... failed to keep up with the region....

Rather than reversing the income tax cuts, though, the Kansas legislature in June raised regressive taxes on sales and cigarettes.... The states have no good reasons to believe that tax cuts will bring the desired manna. Yet they continue to erode their tax bases in the name of business growth during an era in which few states can afford to cut critical services ranging from education to infrastructure repair.  Some ideas live on and on, no matter how much evidence accumulates against them. States that follow them do so at their own peril.

Or by reading Michael Madowitz:

Michael Madowitz: What Can We Learn from Kansas?: "Three years ago, Kansas’ conservative government...

...led by Republican Gov. Sam Brownback--made a bet: cut taxes on the wealthy, and the economy will grow enough to make up for the lost revenue. Spoiler alert: it hasn’t worked out — as I write this, the Legislature is frantically trying to close a $350 million budget hole — but the policy has failed in an informative direction.

There are two clear takeaways: first, supply-side economics didn’t even work with the deck stacked in its favor, and second, we’re seeing what happens when supply-side tax cuts on the rich fail to produce badly needed revenue. The end result is that the wealthy get to keep their tax cuts and everyone else gets to close the gap.

The idea that states are laboratories for democracy has always suffered from a rarely acknowledged weakness: because such policy experiments take place at the state level, the results are often useless to policy makers in other contexts. This isn’t universally true; some of the best research in America is being done by organizations that help local governments design policies so researchers can see if the policy worked after the fact.

However, a lot of the ‘experiments’ we hear about are too poorly set up to ‘prove’ anything.

Kansas’ supply-side experiment is more the latter than the former, but there are lessons we can learn precisely because it’s gone so poorly. The failed supply-side predictions that tax cuts will be self-financing is nothing new, but there is a wrinkle here.

We have decades of experience showing tax cuts for the rich don’t pay for themselves on the national level, but that doesn’t guarantee they won’t work on the state level. Because high-income taxpayers can move from state to state more easily than they can move from country to country, proponents have made a plausible case that cutting taxes on wealthy people can pay back in other ways at the state level.

In that vein, the Kansas experiment is informative. The state eliminated taxes on S-corporations — sometimes known as the Gingrich-Edwards loophole — in an attempt to make the state more attractive to high-income earners, some of whom classify their earnings as S-corporation income. Obviously, getting people to move from Kansas City, Mo., to Kansas City, Kan., wasn’t going to raise the national income, but it could have worked for raising the state’s income.

The fact that it hasn’t, and that Kansas’ economy has underperformed in income growth and in job growth, makes the results of this experiment a useful lesson for both state and national policy makers. We can comfortably say that the benefits in Kansas would be larger than the national benefits because of relocations. Yet, even after building-in these zero-sum gains on the Kansas side, the results for the budget have been catastrophic.

The other major takeaway is that these experiments have consequences—and not just for the experimenters.

The exact compromise that gets Kansas back to a balanced budget hasn’t been fully hashed out yet, but the governor has said he won’t sign a deal that rolls back the tax cut for S-corps—you know, the one that didn’t work as advertised. We also know that the gap is likely to be closed by some combination of higher sales taxes, property taxes, and an elimination of the state’s sales tax rebate for food. In case you were wondering, more families buy food than run pass-through corporations.

The overall effect of the tax changes is pretty clear. Wealthy Kansans got a tax cut that blew up the budget, then the rest of the state got tax increases to help fill the hole. The state also cut funding for schools and higher education, among other public needs, possibly by so much it violates the state constitution.

The end result of Kansas’ supply-side experiment for family budgets in the state looks to be so bad it’s being mocked by comic strips. It may be little consolation to the working families who will end up holding the bag, but the Kansas experiment carries useful lessons for American policy makers. Tax cuts for the rich don’t pay for tax cuts, tax increases on the rest of us do. Of course, if you’re up-to-date on economic research, you already knew this.

There are occasional signs of light:

Menzie Chinn: “Kansas loses patience with Gov. Brownback’s tax cuts” | Econbrowser: "From CBS News today (April 2016):

Brownback took office on a pledge to make Kansas friendlier to business and successfully sought to cut the top personal income tax rate by 29 percent and exempt more than 330,000 farmers and business owners from income taxes. The moves were popular in a Legislature where the GOP holds three-quarters of the seats.... The predicted job growth from business expansions hasn’t happened.... Since November, tax collections have fallen about $81 million, or 1.9 percent below the current forecast’s predictions....

It’s hard to argue for long term diverging trends as the explanation, given the long run co-trending of national and Kansas employment. In that context, the recent (since 2011M01) dropoff is remarkable.... The article continues:

‘We’re growing weary,’ said Senate President Susan Wagle, a conservative Republican from Wichita. While GOP legislators still support low income taxes, ‘we’d prefer to see some real solutions coming from the governor’s office,’ she said.


Invictus: Brownback's Abject Tax Policy Failure in KS: "In July 2012, Kansas Governor Sam Brownback penned an op-ed titled...

...‘Tax Cuts Needed to Grow Economy’ in the Wichita Eagle. This was to be an experiment in supply side, trickle down economics; Kansas was to be the petri dish.... It’s going so poorly--Kansas is such a shit show--that as of June 8, the state’s Department of Revenue had failed to even post the previous month’s woeful numbers.... Response to an inquiry, which did include a press release, was that ‘it looks like the release did not upload.’ Really?... But wait, there’s more! The numbers have been so bad, Kansas has been failing so miserably, that Governor Brownback wants answers! From the release:

Governor Brownback tasked Budget Director Shawn Sullivan with implementing a full, independent review with outside experts to evaluate current procedures related to revenue estimating and budgeting. The review will evaluate the existing consensus revenue estimating process to determine why it fails to provide accurate estimates for budgeting purposes, make recommendations for improving the quality of fiscal notes, and analyze existing tax policies.

Brownback seems unable to accept the possibility that his policies are an epic failure. Rather than even consider that his tax policies are ‘sub-optimal’ for economic growth, the Governor looks first at the procedures being used to provide estimates. A classic case of Cognitive Dissonance writ large.... Final thought, via the Eagle:

‘Large company layoffs and struggles in the aviation, oil and agricultural industries point to an overall sluggish economy which contributed to lower-than-expected revenue receipts,’ Jordan said in a statement. ‘This is a trend reflected throughout the region.’

Scott Drenkard, director of state projects for the Washington-based Tax Foundation, a think tank that studies tax policy, disputed that explanation...

Yael T. Abouhalkah: In defending Gov. Sam Brownback’s tax cuts, two economists bungle the job:

Yael T. Abouhalkah: Facts beat fiction spewed by Gov. Sam Brownback on Kansas economy | The Kansas City Star

Kansas City Star: Kansas lawmakers, Gov. Sam Brownback stagger toward shameful end to session

Menzie Chinn: Kansas Macro and Fiscal Crash

Paul Krugman: This Age of Derp, Kansas Edition

Mark Peterson: Lawmakers find old, new truths](

Taegan Goddard: Kansas Republicans Concede They Must Raise Taxes

Invictus: We Know What’s the Matter With Kansas

Eric Levitz: The GOP Must Answer for What It Did to Kansas: "In 2010, the tea-party wave put Sam Brownback into the Sunflower State’s governor’s mansion and Republican majorities in both houses of its legislature...

...Together, they implemented the conservative movement’s blueprint for Utopia: They passed massive tax breaks for the wealthy and repealed all income taxes on more than 100,000 businesses. They tightened welfare requirements, privatized the delivery of Medicaid, cut $200 million from the education budget, eliminated four state agencies and 2,000 government employees. In 2012, Brownback helped replace the few remaining moderate Republicans in the legislature with conservative true believers. The following January, after signing the largest tax cut in Kansas history, Brownback told the Wall Street Journal, ‘My focus is to create a red-state model that allows the Republican ticket to say, 'See, we've got a different way, and it works.' ' As you’ve probably guessed, that model collapsed....

Brownback pledged to bring 25,000 new jobs to the state in his second term; as of January, he has brought 700. What’s more, personal income growth slowed dramatically since the tax cuts went into effect. Between 2010 and 2012, Kansas saw income growth of 6.1 percent, good for 12th in the nation; from 2013 to 2015, that rate was 3.6 percent, good for 41st. Meanwhile, revenue shortfalls have devastated the state’s public sector along with its most vulnerable citizens.... Louisiana has replicated these results... Bobby Jindal.... What has happened to these states should be a national story...

Yael Abouhalkah: Jobs tank in Kansas, surge in Missouri in Kansas City area

Menzie Chinn: Kansas: The Macro Outlook

Henry Grabar: Sam Brownback's funding plan for Kansas is bad news for roads