Monday, June 30, 2014

The Kansas tax cut debacle: 'The enduring power of bad ideas'

Posted By on Mon, Jun 30, 2014 at 6:59 AM

click to enlarge BROWNBACK'S BUST: Kansas income tax cut.
  • BROWNBACK'S BUST: Kansas income tax cut.
Paul Krugman has words of warning — sure to be unheeded by the faithful — of yet another failure of the Laffer curve, trickle-down school of economic theory. The Kansas tax cut miracle is a bust.

Papers have been full of news about how Kansas Gov. Sam Brownback's promised economic miracle from an unprecedented income tax cut hasn't worked. Its economy lags behind neighboring states. Important programs like education have been harmed. The state's budget deficit has prompted a downgrade of the state's debt.

Big surprise.

Why, after all, should anyone believe at this late date in supply-side economics, which claims that tax cuts boost the economy so much that they largely if not entirely pay for themselves? The doctrine crashed and burned two decades ago, when just about everyone on the right — after claiming, speciously, that the economy’s performance under Ronald Reagan validated their doctrine — went on to predict that Bill Clinton’s tax hike on the wealthy would cause a recession if not an outright depression. What actually happened was a spectacular economic expansion.

The Kansas miracle won't shake the faithful, including Arkansas state legislators primsed with the marching orders of the American Legislative Exchange Council, which, as Krugman notes, produces the blueprint for these plans.

ALEC is about privatization (a profit-taking from government services); deregulation and tax cuts for corporations and wealthy. This means, Krugman observes, effective tax cuts on the bottom tier of taxpayers through loss of services. It's coming in Arkansas, particularly if Republicans build on their current small majority. If only facts mattered.

But how can you justify enriching the already wealthy while making life harder for those struggling to get by? The answer is, you need an economic theory claiming that such a policy is the key to prosperity for all. So supply-side economics fills a need backed by lots of money, and the fact that it keeps failing doesn’t matter.

And the Kansas debacle won’t matter either. Oh, it will briefly give states considering similar policies pause. But the effect won’t last long, because faith in tax-cut magic isn’t about evidence; it’s about finding reasons to give powerful interests what they want.

Further reading: Both a left-wing and a right-wing analyst talk about what's wrong with Kansas tax cuts, particularly an exemption for business pass-through income (to LLCs and partnerships). The right-winger says of course you can't cut taxes without broadening the tax base. In other word, stick a regressive sales tax on poor people so the rich folks' income can be sheltered.

It's been such a disaster Brownback's re-election faces a stiff challenge from a Democrat. In Kansas.

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