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Tuesday, July 15, 2014

The failure of tax cutting as economic stimulus

Posted By on Tue, Jul 15, 2014 at 10:50 AM

click to enlarge NO CIGAR: Ronald Reagan, shown here predicting the trickle-down benefit of a big tax cut, was forced to raise taxes when his plan failed. - WIKIPEDIA
  • Wikipedia
  • NO CIGAR: Ronald Reagan, shown here predicting the trickle-down benefit of a big tax cut, was forced to raise taxes when his plan failed.
Ernie Dumas is back this week with another lesson on the historic failure of tax cuts — Ronald Reagan's or those of many states — to produce the promised economic bonanzas.

It's occasioned by tax cutting promises by the major candidates for governor, Mike Ross and Asa Hutchinson. He finds flaws with both men's plans, though calls Hutchinson's "more draconian." Both are perilous, he writes, because of tax cuts from the recent legislative session.

If Hutchinson and Ross get around to applying much math, they will worry about the consequences if the theory breaks down. If there is no spurt of growth what happens when another $150 million of revenue loss occurs in 2016 as the existing tax cuts for unearned income phase in if lawmakers enact the new governor’s tax cuts and perhaps some of their own? How will they meet the mammoth costs of prison expansion as the convict population soars past 20,000, keep up with the constitutional mandate to furnish a suitable education for all children or bail out the school  health insurance program when it collapses from inattention?

How will they counter the huge increase in state spending on medical care for indigents if Republican legislators (and presumably Hutchinson) end state participation in Obamacare’s Medicaid option and expenses are shifted back to the state?

Sure, Arkansas has enjoyed a surplus every year, but that has largely been the result of Obamacare’s absorption of a large share of existing Medicaid costs and Obama’s 2009 stimulus program, which saved the state  treasury some $825 million in medical expenses over four years.

But the math from a few sister states that have gone through the process ought to be the most chilling. 

Kansas, North Carolina and Wisconsin are all suffering from Republican-sponsored major tax cut initiatives. Job growth? Still in the theoretical.

Here's the full column.

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