Kansas is realizing its yooooge budget mistake. Will Arizona follow suit?

17 Feb 2017 01:27 pm
Posted by: Donna

laffer napkinPhoto: Bloomberg

From the Kansas City Star comes this big development:

The Kansas Senate passed a bill to increase taxes Friday that could mark the end of many of the policies long championed by Gov. Sam Brownback.

Because no amendments were made to the bill first passed by the House, it does not need to go back to the House for revision and can head to the governor’s desk.

Brownback has three options:

▪ He could sign the bill, a move he ruled out earlier this week.

▪ He could veto the bill and send it back to the Legislature.

▪ Or he could choose to not sign the bill, but let it become law.

The governor’s office confirmed Friday that if Brownback does not take action on it after 10 days, it passes into law. That clock starts ticking as soon as his office gets the passed bill.

The legislation would bring the state more than $1 billion over a two-year span. It does that by raising a second income tax rate, bringing in a third bracket and ending a tax exemption for roughly 330,000 business owners.

Governor Sam Brownback of Kansas is a true believer in Tax Cut Magic™ and a follower of the wisdom of one Arthur Laffer, famous for dazzling audiences with a (literally) back-of-the-napkin theory of an optimal tax rate (very low, natch) that would usher in glorious economic growth and swelling state coffers.

To punctuate his point, he grabbed a pen and a cloth cocktail napkin and drew a chart showing that when tax rates get too high, they penalize work and investment and can actually lead to revenue losses for the government. Four years later, that napkin became immortalized as “the Laffer Curve” in an article Wanniski wrote for the Public Interest magazine. (Wanniski would later grouse only half-jokingly that he should have called it the Wanniski Curve.)

This was the first real post-World War II intellectual challenge to the reigning orthodoxy of Keynesian economics, which preached that when the economy is growing too slowly, the government should stimulate demand for products with surges in spending. The Laffer model countered that the primary problem is rarely demand — after all, poor nations have plenty of demand — but rather the impediments, in the form of heavy taxes and regulatory burdens, to producing goods and services.

Agree with the Laffer (and, okay, Wanniski) Curve hypothesis or not, it is at least an internally consistent argument. The main problem with it actually arises when you consider it in the context of the overarching conservative worldview – or at least the stated one. Why would they ever want more revenue going to the government, as promised by Laffer/Wanniski? You’d think, if they really believed in the Curve, that they’d propose increasing taxes until the glorious day of the bathtub drowning of the nanny state arrived, but whatevs.

Brownback (elected in the 2010 Tea Party wave) unleashed the Tax Cut Magic™ upon his state with a vigor considered remarkable even among Republican governors, and the results have been, shall we say, not-so-Laffer Curvaceous.

The Congressional Joint Economic Committee reported earlier this year that Kansas had just 9,400 new private-sector jobs in 2015 (out of 2.6 million nationwide). U.S. Department of Commerce data show that, prior to Brownback’s tax cuts, Kansas ranked 12th in the nation in personal income growth; after the tax cuts it fell to 41st.

A handful of school districts in the state had to close early last year for lack of funds, and the state Supreme Court has had to issue orders requiring Kansas to cough up enough money to pay for K-12 education.

In March, Brownback cut $17 million in funding, 3 percent, from the state’s six public universities in response to revenue shortfalls. In April, he announced that he was going to have to delay a $93 million contribution to the state pension fund, prompting Moody’s Investors Services to downgrade Kansas’ outlook from stable to negative.

Whoops.

Arizona Governor Doug Ducey clearly shares the same faith in Tax Cut Magic™ as his colleague Brownback and our state is headed down the same hole. Brownback was reelected in 2014 by 4 points, which sucks for a Republican running in a midterm year, and consistently polls as one of the least popular governors in the country. Ducey’s a slicker cat than Brownback, I’ll give him that, but he can only throw out so many shiny baubles to distract from his disastrous fiscal approach.

1 Comment(s)

  1. Comment by Andrew March on February 18, 2017 2:32 pm

    Arizona is different from Kansas. As long as we have warm winters people (retirees, the military, vacationers and other sunworshippers) will continue to come to the state. That’s a big reason we can get away with terrible schools and public services. Throw in the federal subsidies for our water, agriculture and infrastructure, and our border with Mexico providing for cheap exploitable labor and sunny Arizona can go on being a parasitic state for a long time.

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