Failed tax-cut experiment in Kansas should guide national leaders

Failed tax-cut experiment in Kansas should guide national leaders

Former Kansas Governor Sam Brownback’s failed “red state experiment” has truly come to an end.

In rejecting Republican gubernatorial candidate Kris Kobach, who advocated restoration of the Brownback experiment, Kansas voters on Election Day put the final nail in the coffin of what even Republican leaders had come to see as a disastrous set of tax and spending cuts that ruined the Kansas economy. 

Kansas’ 2018 election should serve as a political lesson to our national leaders, and the experience of Kansas over the past several years should serve as a policy lesson. 

In 2012 and 2013, Republican Gov. Sam Brownback signed into law the largest tax cuts in Kansas history. The top state income tax rate fell by nearly one-third and passthrough taxes that affected mainly relatively wealthy individuals were eliminated. With the decline in revenues came significant spending cuts in numerous areas. 

“Our new pro-growth tax policy,” Brownback predicted, “will be like a shot of adrenaline into the heart of the Kansas economy.” The theory, one that should sound familiar, was that cutting taxes and regulations on the wealthy would lead to greater investment and innovation, new jobs, more rapid economic growth and a stronger middle class.

Brownback also called his plan “a real live experiment.” The states have indeed become the nation’s policy idea laboratory, and researchers have had rich opportunities to evaluate what works and what doesn’t.

Sometimes the states benefit, and their experiences help make the case for similar policies at the national level. For example, some states and localities have established paid-leave policies or enacted significant increases in their minimum wages, and generally, research has shown positive effects for individuals, businesses and economies. 

But experiments can go badly wrong, and unfortunately, Kansans were guinea pigs for one of the worst. It soon became clear that the Brownback experiment had failed to deliver on his promises.

Analysis by Menzie Chinn, a professor of public affairs and economics at the University of Wisconsin-Madison, found that after the enactment of the tax cuts, economic growth in Kansas fell well below its pre-Brownback trend and, by the spring of 2017, the rate of job growth in Kansas was not only lower than the rates in most of its neighboring states but less than half of the national average.

Brownback’s experiment was such a failure that his party turned against him. In 2017, the Republican-dominated legislature, overriding the governor’s veto, rolled back the tax cuts.

But some were not convinced, including Kris Kobach, who made a resumption of the Brownback experiment (with even deeper spending cuts) a fundamental part of his platform in the just-ended campaign. The voters of Kansas, however, had had enough, and his advocacy of the tax and spending cuts was critical to his defeat.

The same arguments used to sell the Brownback experiment were used to sell the $1.5 trillion tax cut signed into law by President TrumpDonald John TrumpActivists highlight Trump ties to foreign autocrats in hotel light display Jose Canseco pitches Trump for chief of staff: ‘Worried about you looking more like a Twinkie everyday’ Dershowitz: Mueller's report will contain 'sins' but no 'impeachable offense' MORE last year. Most of the benefits of the cuts went to those at the top of the income spectrum.

Leading members of Congress of his party have already begun talking publicly about significant cuts to programs like Social Security, Medicare and Medicaid to pay for them.

This is reminiscent of Kansas, where the extensive cuts in everything from education, health care and transportation to agriculture and higher education dragged down the state’s economy while the money that was accruing to the rich wasn’t being used to ramp up investment. 

The reason for the failure of the Brownback experiment, and the likely failure of the Trump tax cuts, is that they didn’t account for the ways that economic inequality today obstructs, distorts and subverts the pathways to economic growth that is strong, stable and broadly shared.

They ignore extensive evidence of what — in fact — drives economic growth and stability and can deliver improvements in living standards.

Instead, they reflect supply-side economics, as trumpeted by Arthur Laffer, who was a paid consultant for the Brownback plan and a volunteer cheerleader for the Trump tax cuts. Laffer’s theory of growth has been a foundation for economic policies since the 1980s.  

There is an alternative explanation for how the economy grows. A strong economy comes from a society where good ideas and talented people are not obstructed from economic opportunity.

It’s when investors don’t have distorted incentives but rather see that a strong middle class is ready and able to purchase the goods and services their firms produce.

It comes from ensuring that economic inequality doesn’t subvert our institutions — undermining our democracy, our government and the way the market works to the benefit of the few at the top of the income and wealth ladders, rather than the majority.

The voters of Kansas learned a bitter lesson and made sure history did not repeat itself. Leaders in Washington need to learn that lesson and look for ways to invest in a strong middle class for sustained and balanced economic growth.

Heather Boushey is the executive director and chief economist at the Washington Center for Equitable Growth.