Tax cuts aren’t magic

Around this time last year, Kansas was looking at an 800 million dollar shortfall. They managed to take a pinch here and chop a bunch there to take the deficit down to 400 million. Then they robbed several segments of the budget to make up the gap, notable the schools and the highway fund, which then triggered the current fight about school funding.

Each year Kansas faces a huge budget shortfall. In spite of what Gov. Brownback promised, cutting taxes has not, in fact, increased revenue. Shocking. Now, that’s not to say that Kansas doesn’t have a low unemployment rate. Whenever Brownback supporters talk about the tax cuts, they always like to mention the unemployment rate.

The unemployment rate in Kansas peaked in 2009 at 7.3 and the US as a whole peaked a couple months later at 10 even. So that’s where it was, but where is it now? The US is at 5 and Kansas is now at 4. So, with that in hand, we can see that tax cuts were not the cause. The US rate has halved, meaning there’s a strong downward trend anyway. Proponents of Brownback and tax cuts in general like to claim that the tax cuts led to a lower unemployment rate, but that’s not exactly honest.

For about a year now, nearly every single month Kansas has collected less than the projected/required amount. They knew this budget shortfall was coming. Yet, here we are. These tax cuts took place in 2012/2013. We’ve got plenty of data at this point. We know tax cuts do not magically increase the state tax revenue. When you think about it, that’s a pretty fucking stupid idea.

Here’s a tidbit from a Wichita Eagle article:

Gov. Sam Brownback blamed the state’s financial troubles on global factors in his first interview since the state’s $290 million budget hole was announced, pointing to dropping oil and agriculture prices as the cause of the shortfall.

“I mean, we’ve got a global commodity market that’s fallen off badly. You’ve got a number of commodity-based states that are struggling now budgetarily,” Brownback said Friday.

He also said any tax increase “would have negative impacts on the state” when it already faces economic challenges.

The Kansas legislature has a weird delusional way of doing things. There’s a budget shortfall of 290 million dollars. The Kansas constitution doesn’t allow the state to have a budget deficit, so they’re required to come up with something.

Now, Brownback is not wrong about the dropping oil and agricultural prices causing problems in the state. But let’s be real, a year ago Kansas has the exact same problem. The issues they’re having now aren’t related to the ag and oil drop, they’re merely causing extra issues. In fact, I would contend that the economic outlook for the global economy means that Kansas should seriously consider temporary tax increase ANYWAY, and when paired with the super-minimal taxes they have now, it’s simply idiotic not to increase them.

So if they aren’t going to raise taxes, what are they going to do?

One option would sell off a portion of the state’s future tobacco settlement money for quick cash. Another would delay a $99 million payment to the state employee pension system.

Great idea! That sounds totally fiscally responsible.

Wow. So I’ve spent a lot of time telling you why these massive tax cuts led to stupid results. But I recently read a Slate article that actually gave a really great and really succinct explanation of why we get those results. Great article, by the way. Read it here. However, for the purpose of this, I’ve snipped out the most important bit:

A brief explanation: Companies organized as pass-through entities, such as partnerships, LLCs, or S-corporations, don’t pay corporate taxes. Instead, their profits get handed over to their owners, who then pay personal income taxes on the earnings. Brownback exempted those profits from state taxes under the theory that it would help spur more small-business growth.

The problem is that many large and successful businesses are also organized as pass-through entities. And, as the right-leaning Tax Foundation gently warned in 2012, there was nothing to stop other big companies from restructuring themselves to avoid taxes. That seems to have happened in a big way: About 70 percent more businesses have taken advantage of the loophole than expected, which has helped cripple the state’s budget projections.

And from this, we get a national effect. The Republican candidates for president aren’t talking about tax cuts. Here’s the final bit from a recent Star column:

So it’s possible the Kansas budget plan has worked, in reverse: it’s convinced politicians across the nation what not to do. It’s like the rest of the country is sticking pins in the state, trying to kill voodoo economics once and for all.

Voodoo economics comes from George H.W. Bush. That’s what he called Reagan’s tax plan. He then lost to Reagan in the primary and didn’t become president until Reagan ran into term limits.
So there you are. Tax cuts don’t create so much growth that they offset the tax cuts. They tried that, over and over, and it just doesn’t work.

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