Tsitrian: Kansas Instructively Rejects Voodoo Economics

Today’s smartest fiscal policy headline comes from John Tsitrian, who writes of the Kansas Legislature’s repeal of Sam Brownback’s failed tax-cut plan, “The Laffable Curve Flatlines in Kansas.” Tsitrian sees the following lessons for South Dakota lawmakers to take from penitent Kansas:

First, given our propensity for shortfalls in state revenues that occur because of our regressive sales tax/no income tax structure and its dependence on high commodity prices to stimulate our economy, we need to think about reforming our tax system in a way that doesn’t rely on swings in world market prices for grain and livestock.  Next, our congressional delegation should be wary of jumping on President Trump’s promise to supercharge the economy with tax cuts for high earners.  Last Fall our Congresswoman Kristi Noem breezily and uncritically touted a tax reform package of tax cuts that she claimed would result in a 9.1% growth rate, which showed that she knows neither History, nor Economics, nor what she’s talking about.  Given that the Laffer Curve has been a floppola at both the national and state levels,  this notion that cutting taxes automatically does all of some good is the kind of snake oil that sells well to rubes but in the end only makes its hucksters some money [John Tsitrian, “The Laffable Curve Flatlines in Kansas. South Dakotans, Take Heed,” The Constant Commoner, 2017.06.08].

Noem, Thune, Rounds, and Trump are relying on the same voodoo economics in their tax cut plan that Kansas Republicans just had to admit did not work. Alas, Kansas had to suffer for five years under the Brownback plan before its Republicans had to stop denying reality. Let’s hope Noem and her fellow Republicans will shake off their slogans and come to their senses sooner and spare us the Brownback wringer.


22 Responses to Tsitrian: Kansas Instructively Rejects Voodoo Economics

  1. mike from iowa

    Let’s hope Noem and her fellow Republicans will shake off their slogans and come to their senses sooner and spare us the Brownback wringer.

    You kidding? When was the last time wingnuts actually learned from their bizarre mistakes? I don’t remember them ever learning as evidenced by the facts they cannot govern. They fail at running government. They are no good at it. In fact they stink at it.

  2. Governor Mark Dayton and a Democratic legislature took Minnesota from Republican deficits to a sizeable surplus without killing Minnesota’s economy. Now that Republicans have taken over the legislature they tried their best to cut taxes so deeply that Minnesota government would return to deficits, but they didn’t have a large enough majority to override a veto. So the parties had to bargain to get a budget agreement. Some tax cuts were made, but hopefully not enough to create deficits again. And Minnesota isn’t forced into some unnecessary austerity program where everything public gets underfunded and everybody’s unhappy except for the super-wealthy.

    Having two strong parties provides for compromise, at least when intransigence creates real risk of losing the next election. Here in SD we can emulate what works in other states (Minnesota), or we can continue to emulate what doesn’t work (Kansas). SD voters will decide.

  3. I am detecting some misunderstanding out there regarding the concept of the Laffer Curve. It is really a simple idea: as tax rates increase tax revenues also increase, up to a point. Beyond the point where tax revenues peak, higher tax rates disincent work and innovation and tax revenues begin to decline. What happened in Kansas is exactly as the Laffer Curve would indicate, assuming that tax rates were decreased below the rate that maximizes tax revenues. In the upward slope of the Laffer Curve, decreasing tax rates would only decrease tax revenues. Brownback made the mistake of believing that tax rates in Kansas were in the downward slope area of the Laffer Curve. As evidenced by declining tax revenues, he was woefully incorrect.

  4. mike from iowa

    Wingnuts love credit card debt for some reason. Cut taxes-cut revenues. Seems pretty simple to me. Less revenues-less money for gubmint programs for poor welfare recipients. The wealthier welfare recipients always manage just fine with wingnuts trashing the economy.

    In Minnesota, wingnuts don’t even have Obama’s name on their surplus-why go out of your way to take programs that work and make them unsustainable? It has to be out of spite.

  5. John Tsitrian

    Laffer himself, along with Stephen Moore and ALEC guided Brownback’s program. Both Laffer and Moore said it would have a “near immediate and permanent impact.” They were right. http://www.cbpp.org/research/federal-tax/kansas-tax-cut-experience-refutes-economic-growth-predictions-of-trump-tax

  6. Vance Feyereisen

    There is a reason repubs govern so poorly. They do not want to govern, they want control. In their greedy, mark my territory agenda driven thinking only dollars really count. People, climate change, disease and poverty are only distractions to the bottom line.

  7. But wait? I thought as soon as Amazon and other on-line companies start paying sales taxes to South Dakota, THAT will solve all of the revenue shortages right now, right?

    Of course I’m being sarcastic, but yes, our governor did declare that as one of the key problems with our lack of revenue. There is zero self reflection in our state government. Nada.

  8. mike from iowa

    Probably wouldn’t hurt collecting a few bucks from billionaires sheltering assets in South Dakota. Wingnuts wouldn’t make very good bank robbers-they are allergic to going after the people with money. Robbin’ Hoods they ain’t.

  9. Porter Lansing

    @Suka … It may be a simple idea but it’s an invalid idea. It’s not based on sound economics.
    “Tax cuts for the rich will create jobs. Said no economist, ever. Customers create jobs, no matter the tax rate. Would a rich man stop working toward earning $500 million a year because he had to pay a 50% tax on his billion dollar a year income? No. Laffer theory is an insult to American work ethic.
    Politicians use the Laffer Curve to defend polices they already had. Despite its abandonment by all mainstream economists, it is still clung to by a small group more driven by ideology than evidence. Conservatives will always argue taxes are too high, no matter what the tax rate is. Their solution to every problem is to cut taxes. There are numerous flaws in the argument. For example a 100% tax rate is essentially communism. While it is a terrible economic system it is one where tax revenue is still above 0. In their world we are permanently on the wrong side of the Laffer Curve.
    ~ Among economists the average laffer curve is estimated to be at 70%. This means that taxes have to be over 70% before cutting them will raise income. Seeing as no country collects 70% of its GDP in taxes, this essentially means the theory is useless.
    The Laffer Curve is not sound economic theory, but rather wishful thinking on behalf of conservatives who want any excuse to cut taxes for the rich. Cutting taxes leads to less not more revenue. e.g. Kansas 2017 This piece of common sense is acknowledged by economists but still clung to by delusional politicians.
    – excerpts from Robert Nielsen
    September 7, 2012

  10. mike from iowa

    Great article, Mr T. Stephen Moore laid a really big egg seems like.

  11. Tsitrian is right: Laffer and ALEC advised Brownback. In this March 2017 article, Laffer says Brownback’s plan didn’t work because he didn’t cut taxes enough. However, as the author notes, “The supply-side magic that Laffer has long advocated is, by his own admission, unsupported.”

  12. W R Old Guy

    Several months ago NPR interviewed a small business man who owned a manufacturing company. He stated that tax cuts would not trigger expansion of his business. The required trigger for expansion is a sustainable increase in demand for his product. He said he doesn’t even think about expansion for at least 90 days of continuous increased demand. He covers the increased production with overtime. He feels it makes no sense spend money to hire and train new employees and then lay them off a few months later. I agree with his thinking.

    Kansas Secretary of State announced today that he is running for Governor. Watch out for voter suppression attempts.

  13. Increased demand—if I recall the discussion of the stimulus correctly, we get a lot more consumer demand by putting a billion dollars in the hands of a million poor people than we do from putting that same billion in the hands of a thousand already really rich people. The poor people use that money to buy more stuff; the rich people buy a few luxuries and put the rest in their Nassau bank accounts.

  14. Don Coyote

    The problem with the Kansas income tax cut is that it carved out a special exemption for pass through entities (single owner businesses, partnerships, farms and S Corporations) by taxing only the earned wages of the owners. Any profits/retained earnings were exempted from the income tax. This exemption for pass-through entities only served to incentivize tax avoidance and failed to generate enough economic activity to increase tax revenues through an expanding economy. This plan may have worked if the Kansas Legislature had broadened the tax base by ending certain deductions and tax credits (as originally proposed by Brownback) and if Kansas’ two main sections of it’s economy, agriculture and energy, hadn’t tanked simultaneously. Real tax reform needs to both lower tax rates and broaden the base. Lowering taxes and carving out additional exemptions/deductions is a recipe for disaster.

  15. mike from iowa

    The problem with the Kansas income tax cut is that it…….worked exactly the way anybody with a brain could see it would work-cut taxes/cut revenues. It can’t work any other way.

    Not that this will bother the wingnuts who fail to learn from failed taxcut experiments. The next dude down the pike will claim cutting taxes increases revenues, then Kansas is set up for more fiscal tough times and the blame will fall on tax and spend Dems-just like always.

  16. barry freed

    If they truly cared about bumping up the economy, their tax cut should be to increase the personal exemption to $25K. Fair because even Billionaires would receive it. Painless, because the 1%ers claim the working class pays no Taxes. That tax savings would be spent by American workers 100%.

  17. Noem says the economy would grow by 9.1%, what an ignorant statement to make.
    Try defending that number, Troy.

  18. but, but, but …. here in the land of one area code, two time zones and one political party, we don’t have income tax. We don’t have corporate taxes. Why then (if the tax voodoo nerds) are right, isn’t fortune and favor flocking to South Dakota ???
    Seems to me that we’re caught somewhere in the laughing curve.

  19. Don Coyote

    @buckobear” “Why then (if the tax voodoo nerds) are right, isn’t fortune and favor flocking to South Dakota ???”

    You can’t tax your way to prosperity. While the agricultural sectors of the state are sucking wind, Sioux Falls and the I29 corridor are expanding exponentially. Especially SFx. Thanx capitalism!

  20. John Tsitrian

    BEA says that Sioux Falls metro growth rate in ’15 was in the 2-3.3% range, about even with U.S. growth of 2.4% that year. Out here in RC/Black Hills region it was in the 1.1-2% range. https://www.bea.gov/newsreleases/regional/gdp_metro/gdp_metro_newsrelease.htm

  21. mike from iowa

    Ag sector is at the mercy of commodity prices and S### fer brains wingnut pols determined to bankrupt America with tax cuts for the wealthy.

    The only thing laffable about the Laffer Curve is the entire concept. Keep trying the same thing over and over. There are plenty of beds in the psycho ward for devout captialits.