Should-Read: Chye-Ching Huang: GOP Tax Framework Looks Much Like Kansas’ Failed Tax Cut Package

Should-Read: Chye-Ching Huang: GOP Tax Framework Looks Much Like Kansas’ Failed Tax Cut Package: “In 2012, Kansas adopted an array of tax cuts that were large, costly, and heavily titled to those high on the income scale…

…Although proponents claimed these tax cuts would supercharge the state’s economy, Kansas’ job and economic growth lagged behind those of most neighboring states and the nation after the tax cuts took effect, and the deep revenue losses led to round after round of budget cuts in key programs. This year, state lawmakers considered the damage, and they reversed course and repealed most of the tax cuts. Yet many policymakers in Washington are now proposing costly, regressive federal tax cuts that have a great deal in common with the tax cuts that performed so poorly in Kansas….

Rep. Lynn Jenkins (R-Kansas) has argued that Republicans have “learned from Kansas’ missteps.” Sharon Wagle, president of the Kansas State Senate, has claimed that “[c]omparing the 2012 Kansas tax plan to the ongoing tax reform discussions on the federal level is disingenuous.” Those who make this argument protest too much…. The GOP leaders’ federal tax-cut plan closely follows Kansas’ failed experiment.  And many of the same salesmen who touted the Kansas plan in 2012 now are making the same type of outsized claims that the proposed federal tax cuts will ignite remarkable economic growth….

In 2012… Kansas Governor Sam Brownback promised the state tax cut would act “like a shot of adrenaline into the heart of the Kansas economy.”… Stephen Moore and Arthur Laffer, who helped design the Kansas plan, declared it would have a “near immediate” positive economic impact…. That’s far from what actually occurred, [but] this hasn’t stopped supply-side tax-cutters in the White House and on Capitol Hill…. Stephen Moore — who, as noted, helped design the Kansas plan — now says the GOP tax plan is “not that much different from the one that Trump campaigned on — and that economist Larry Kudlow and I helped draft.”  Moore claims the GOP tax plan will produce the same type of results that he and his allies earlier insisted would occur in Kansas…. Council of Economic Advisers Chair Kevin Hassett contends that the GOP tax plan’s corporate rate cuts will cause large increases in typical workers’ wages — a claim that leading economists have shown rests on assumptions they describe as “ludicrous.”  Similarly, Treasury Secretary Steven Mnuchin says that the GOP tax plan will boost growth so much that it will reduce budget deficits by $1 trillion, a claim no mainsatream economist considers plausible….

The Kansas experience is especially relevant today because the GOP tax plan largely replicates key provisions of the Kansas tax cuts. Cutting the top rate on “pass-through” income and providing powerful incentives for tax avoidance…. Boosters of the GOP tax plan claim they will come up with rules to prevent tax avoidance under their pass-through proposal. But no one should give that assertion much credence…. They’ve yet to present any proposals to do that. And tax experts are deeply skeptical that Congress and the Administration could write and enforce rules…. Individual income tax rate cuts…. Swelling the budget deficit….

Kansas’ tax cuts are an important cautionary tale that federal policymakers ignore at their constituents’ peril…

AUTHORS:

Brad DeLong
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