Published January 7, 2018, by The Gazette, Cedar Rapids
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When Kansas enacted major cuts to state income taxes in 2012 and 2013, Jonathan Williams and others at ALEC (the American Legislative Exchange Council) lauded this experiment in supply-side economics and claimed immediate effects on growth.
In 2013, Williams called it “a bold step toward pro-growth tax reform that will certainly continue to unlock more of Kansas’ economic potential.”
Five years later, this experiment has proved to be a dramatic failure.
At first ALEC economists and other early advocates of the tax cuts argued that we just needed to be more patient; all would be well. Most recently, Williams and Drew Klein of the Koch-funded Americans for Prosperity, in an opinion piece in this newspaper, try to explain away the failure in a budget context instead of the economic one supply-siders promoted. Their excuses fail in any event.
The Kansas experiment was indeed a bold test of supply side economics at the state level; the income tax cuts were deep, and included an unprecedented elimination of taxes on some business income.
And let’s be clear: The supply side argument is about growth, that tax cuts will create jobs and investment and stimulate formation of new businesses.
There now is abundant evidence that the tax cuts failed to boost the Kansas economy. In the years since the tax cuts took effect Kansas has lagged most other states in the region and the country as a whole in terms of job growth, GDP growth, and new business formation.
Several sophisticated academic studies have isolated the effects of the tax cuts from other factors and found that the tax cuts did little or nothing to boost the state economy. This confirms numerous studies across many states that generally have failed to find a connection between income tax cuts and growth.
Klein and his ALEC allies choose to ignore the overwhelming evidence of failure and pretend that the criticism of the Kansas experiment is just about the budget deficits that ensued, which they attribute to insufficient spending cuts instead of plunging revenues.
In fact, the reluctance of the legislature to cut spending further saved the Kansas economy from performing even worse.
In order to bring the budget somewhat back in balance, Kansas borrowed from the future, using up reserves, postponing infrastructure projects, and missing contributions to the pension fund. Schools closed weeks early when state funding ran out. Had legislators cut spending further, that would have put a bigger dent in the economy, as recipients of government contracts were forced to retrench and workers laid off spent less in the local economy.
A supermajority of the Kansas Legislature in 2016 acknowledged failure and repealed the majority of the tax cuts. The state now has to scramble to restore fiscal soundness, while continuing to suffer the consequences of misguided policy and instability that some say have helped to create a worker shortage. From 2013 to 2015, Kansas experienced a net out-migration of about 9,000 people. Neighboring “high-tax” Missouri, on the other hand, grew by 7,000.
Yet Klein, Williams and others, ideological blinders securely in place, continue to peddle tax cuts as the surefire path to growth, unswayed by all evidence to the contrary. Let’s hope our Legislature learns from the Kansas experience; we don’t need Iowa to be another testing ground for a failed idea.