Kansas GOP State Senator asks Congress to learn from Kansas while cutting taxes

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A message to Congress: Don’t make the same mistake we did in Kansas

In the following five years, Kansas experienced nine rounds of budget cuts, stress on state agencies and the inability to effectively provide the core functions of government for our citizens. As Republicans in Congress begin working to modify the federal tax code, I worry that tax reform done poorly could lead to similar failure. I hope federal lawmakers learn from mistakes made at the state level. This year, the Kansas legislature — including many Republicans like me — voted to partially restore income-tax rates and to repeal a provision that allowed independent business owners to pay almost no state taxes on their income. We also overrode our governor’s veto, who opposed rolling back the tax cuts he championed.

Critics of our vote claim that Kansas didn’t cut spending enough to accompany the tax cuts. In reality, we cut our budget through across-the-board cuts, targeted cuts, rescission bills and allotments. Roughly 3,000 state employee positions were cut , salaries were frozen, and road projects canceled . We delayed payments to the state employee retirement system and emptied our savings accounts. Even as we issued more than $2 billion in new bonds to float our debt, Kansas received three credit downgrades, making that debt costlier.  We want to believe promises of amazing growth or outcomes. In 2012, traditional budget forecast models accurately predicted the devastating effect the tax breaks would have on state revenue. Proponents of the plan used dynamic scoring predicting incredible economic growth and supporting their own preconceived ideas. Today, we know which forecasts were correct. (We should also note that failing to listen to constituents while blindly holding to ideology can have consequences: About a third of Kansas legislators became ex-legislators in 2016.)

https://www.washingtonpost.com/opinions/a-message-to-congress-dont-make-the-same-mistake-we-did-in-kansas/2017/10/19/fb6058a2-a9de-11e7-92d1-58c702d2d975_story.html?utm_term=.483113dbcfd5

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The GOP Tried Trump-Style Tax Cuts in Kansas. What a Mess.

Like Brownback, Trump is proposing simplifying and lowering individual tax rates. Like Brownback, he’s pushing an unusual tax cut for business owners that critics say opens up a major loophole. And, much more than Brownback ever did, Trump's team is promising that explosive growth will make up for the cost of their cuts.Brownback pitched his plan as a test of conservative policy. First, the state would cut income taxes (the top rate went from 6.45 percent to 4.9 percent) and eliminate taxes entirely on pass-through income for business owners. If, as the governor predicted, the cuts attracted new businesses, added jobs and boosted funding for schools and local governments, then income tax rates would decrease even further as part of a "March to Zero" that would end them entirely.

Over the next five years, state and local governments battled over a dwindling revenue supply, including a roughly $700 million drop-off in the first year. Job growth, meanwhile, lagged behind the national average and neighboring states. Financial ratings agencies, unimpressed with boasts of an impending boom, downgraded the state's debt in 2014. Standard & Poor's blamed Kansas' "structurally unbalanced budget" while Moody's also cited the income tax cuts in lowering its outlook. "The empirical evidence was clear that revenues fell off a cliff, especially individual income tax revenues," Kenneth Kriz, who has studied the plan's impact as director of the Kansas Public Finance Center at Wichita State University, told NBC News. "There was just no way they could make up that much lost revenue."

A study by four economists examined the Kansas pass-through measure and found that it had provided a major incentive for individuals to rejigger their finances in order to claim business profits that otherwise would have been taxed as individual income. That left the state with less revenue, but no apparent benefits to the economy. "We found essentially no changes in real economic activity, but changes in how income was reported in order to take advantage of the difference in rates," Jason DeBacker, a professor at the University of South Carolina and co-author of the report, told NBC News. The Trump administration is currently proposing to reduce the rate on pass-through entities to 25 percent, which would be 10 points lower than the top income tax rate under the Trump/GOP framework. Economists across the spectrum are worried it could create a similar loophole to Kansas that would benefit the ultra-wealthy like the president, whose own businesses are organized as a series of pass-throughs.

https://www.nbcnews.com/politics/white-house/gop-tried-trump-style-tax-cuts-kansas-n812701

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If Republicans cut taxes and raise spending, it’s “reckless spending or mindless Keynesianism” at best. If they cut spending and raise taxes, it’s “heartless/murderous austerity”.

Or maybe supply-side policies are unwarranted in an environment of low inflation, low unemployment and steady GDP growth.

Sure, tax cuts right now doesn’t sound like a good idea. But if they went for an across the board tax hike of 5%, raising Medicare/Social Security eligibility to 70, cutting welfare(besides SNAP/HUD) by 20%, and a federal VAT of 5-10%, the left would go crazy. It would be too complex for most to argue beyond “Balancing the budget shouldn’t require cutting funds to the poor and elderly.”

Those are radical proposals which even Ted Cruz didn't make (70 really??). And the Medicare thing has to be worse than Trumpcare & will cause deaths of & will brutally bankrupt many old people. The US is the only industrialized country not to have Universal Healthcare & the goal should be to expand Medicare to everyone, so the talk of cutting it for 65-70 year old is terrible. And 50% of 55-65 year odd people have 0 in their pockets & having nothing for retirement. US has the highest unequal distribution of wealth among seniors & has terrible poverty among people. No-one wants to give a job to a 64 year old Non-College educated guy & pay him 15$. So those are not rational proposals.

The budget argument is also fairly meaningless. It is totally irrelevant if there is a 1$ Surplus or a 50M Deficit as long as it is low. Deficits in general are good as long as Nominal GDP Growth >> Rate of Interest that the government has to pay.The current deficits of 600-700B $ are too high. Ideally it should be contained around 200-300 B $ at most & that shortfall can be made up by closing loopholes/raising taxes on wealthy by 2-3% odd.

The key is to raise the minimum wage to a reasonable level so that people are off subsidies & earn enough to contribute to the economy & help create jobs. Plus, you have to take a 1-3 $ one time Debt to finance Infrastructure which will create millions of jobs & will pay off. This is an extremely low interest rate period & a good time to borrow.