Kansas: A supply-side disaster
“The nation’s most aggressive experiment in conservative economic policy is dead,” said Russell Berman in TheAtlantic.com. In 2012, Kansas Gov. Sam Brownback put the theory of supply-side economics into action, making sharp reductions in the state’s income tax rates and virtually eliminating taxes on small businesses. Like all supply-siders, he was convinced deep tax cuts would accelerate economic growth so much that they would pay for themselves. But that didn’t happen. Growth rates in Kansas have lagged way behind national levels, the budget has a $900 million two-year shortfall, and education spending was cut so badly that parents rebelled and the state Supreme Court ordered funding restored. Last week, the state’s Republican lawmakers finally decided enough was enough, and overcame Brownback’s veto in raising taxes by $1.2 billion. Supply-side economics “never works,” said Eugene Robinson in The Washington Post. Before this debacle, Republicans “could at least argue” that their theory had never been fully tested. Now “that excuse is gone.”
Don’t read too much into Kansas, said The Wall Street Journal in an editorial. The Republican turncoats in the legislature are heavily backed by teachers’ unions, which wanted to punish the governor for his education reforms. As for the tax system itself, Brownback was “unlucky in his timing”—his cuts coincided with a deep slump in the agriculture and energy industries, which drive Kansas’ economy. Unemployment in the Sunflower State remains low, at 3.7 percent, and the growth in small-business formation has been “considerable.” Brownback’s only mistake was to eliminate taxes on “pass-through” businesses. That “ created a loophole” that allowed firms and individuals to declare wage income as business profits— and pay “little or nothing” in taxes.
Here we go again, said Pat Garofalo in USNews.com. Conservatives always try to explain away supply-side failures by saying the reforms weren’t quite right, or that they were stymied by underlying economic conditions. “No amount of evidence is enough to shake the belief that America is one good rate reduction away from an economic renaissance.” The big question is whether national Republicans will heed the lessons of Kansas, said Jordan Weissmann in Slate.com. President Trump is being advised by the same economists who engineered Brownback’s disastrous scheme, and he has proposed a similar program of massive income tax cuts and pass-through exemptions for businesses. “Kansas has admitted its mistake”—but Republicans “may try to repeat it anyway.”