Randy Woods and Aansh Mehta
January 8, 2017
The governor of Kansas has some wisdom for Donald Trump, from one Republican tax-cutter to another: The reductions may take longer than expected to give the economy a sustained lift.
Like President-elect Trump, who said on the campaign trail that slashing taxes would jump-start growth, Sam Brownback in 2012 said steep cuts to personal income and small-business taxes in the Midwest state would provide the economy a“shot of adrenaline.” What followed wasn’t the promised jolt. The shortfall in revenue has instead forced the government to curtail spending on everything from health care to higher education.
“A guy has got to feel money in his pocket” before getting confident enough to spend more, which would boost economic growth, Brownback said in an interview. “We’ve seen people put up buildings that they wouldn’t have otherwise with this money. That will then generate more, but that takes time.”
Brownback’s experiment offers a cautionary tale for Trump, who has placed tax reform as a central part of his strategy to more than double the pace of economic growth and add millions of well-paying jobs to the labor force.
Brownback’s critics say the state’s experience could offer an even starker warning to the incoming administration, as they blame many of its recent economic woes on tax cuts. Since the governor approved a reduction in personal income taxes and cut non-wage business income taxes for small-business owners in 2012, Kansas has fallen behind the national average in terms of job creation and personal income growth, according to data compiled by Bloomberg.
Brownback’s “tax policies have been a bust,” said Duane Goossen, a Democrat who was state budget director from 1998 through 2010. “The tax cuts immediately — as soon as they were implemented — put our budget far out of balance structurally. And as a result, Kansas has struggled now for five years to just get by financially, and that’s meant constraints and cutbacks.”
To be sure, Kansas is a major producer of oil and agricultural products, meaning the so-called sunflower state has been hit hard by the drop in commodity prices. Brownback said that phenomenon is largely to blame for his state’s economic troubles, and that tax cuts have helped small-business owners. His detractors argue reforms have limited the government’s ability to fund a much-needed stimulus.
Comparing the state’s reforms with Trump’s plan is tricky, in part because the president-elect hasn’t given full details leading up to his Jan. 20 inauguration. What we do know is that he aims to achieve the most far-reaching overhaul of the U.S. tax system in a generation.
“I don’t think you can say that just because it happened in Kansas, it’s going to happen at the federal level,” according to Kenneth Kriz, a public finance professor at Wichita State University in Kansas. “Making that translation is a risky business.”
But it’s worth noting that economists who promoted and helped design Kansas’s tax policy are close to the Trump camp. That includes Stephen Moore, a Heritage Foundation economist who advised Trump’s campaign, and one of the most notable names in Reaganomics, Arthur Laffer.
Moore didn’t respond to requests for comment. Laffer, in an e-mail, cited an article he wrote that says the Kansas tax cuts contributed to a fall in unemployment and the creation of private-sector jobs, adding that “unrelated budget forces” caused shortfalls in revenue.
Meanwhile, the governor who was narrowly re-elected in 2014 thinks it’s worth Trump taking a closer look at his state reforms.
“If you did this nationwide, you would have an enormous positive impact on small business, which is your primary engine of growth for jobs,” Brownback said. “This would be a fantastic way to go.”
Read more from the Bloomberg here.