Later On

A blog written for those whose interests more or less match mine.

Kansas’s conservative experiment may have gone worse than people thought

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Max Ehrenfreund writes in the Washington Post:

When Kansas Republican lawmakers voted to raise state taxes last week, they were not only rebuking their own governor, they were tacitly admitting that his tax cuts hadn’t produced the economic boom their proponents promised.

It is not just that tax cuts didn’t achieve their purpose, though. New research suggests that the cuts were, in fact, counterproductive.

A working paper by economists at Oklahoma State University suggests that cutting taxes actually may have damaged Kansas’s economy, resulting in fewer jobs, reduced incomes and a slower pace of growth.

Distinguishing among the national and global factors that affect a state’s economy is difficult, but the paper is some of the most specific and detailed research yet on the consequences of the cuts for ordinary Kansans.

Gross state product — a measure of the overall size of Kansas’s economy — increased about 7.8 percent less than it would have had Gov. Sam Brownback (R) not cut taxes, according to the paper, which is being reviewed for publication. The number of Kansans working has increased 2.6 percent less than it would have otherwise, the results suggest. Brownback’s policies also reduced the share of the state’s population participating in the labor force.

Reduced taxes forced the state to spend less, which could have brought down the overall level of demand for goods and services in the state, the economists believe. At the same time, concern about whether the state would be able to balance its budget might have deterred businesses from making major new investments.

The authors also studied Wisconsin, where Gov. Scott Walker (R), a 2016 presidential candidate, also cut taxes. Although those cuts did not have as clear a negative effect on the state, they did not appear to benefit Wisconsin’s economy, either.

“Both experiments seem to not be working,” said Dan Rickman, who wrote the paper along with his colleague Hongbo Wang.

An underperforming economy

Brownback brought down taxes beginning in 2012, allowing wealthy taxpayers to pay the same marginal rate as the middle class by eliminating the uppermost of the three brackets in Kansas’s income-tax scheme. He also allowed taxpayers to exempt income from small business, with the goal of fostering entrepreneurship in the state.

The governor and his Republican allies said that these changes would have benefits for ordinary Kansans.

“Our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy,” Brownback wrote in 2012.

Since then, however, Kansas’s economy has consistently lagged behind that of neighboring states and the country as a whole. Brownback, though, has argued that Kansas’s poor performance is a result of other factors, and that the tax cuts are beginning to have their intended effect despite those obstacles.

It is difficult to identify the cause of a downturn in a state’s economy. Local conditions and global forces can combine in ways that are not easy to observe or understand. In Kansas’s case, a strong dollar relative to foreign currencies has made U.S. agricultural exports more expensive, which is bad news for the state’s wheat farmers.

One approach would be to compare Kansas to other agricultural states in the Great Plains, but there are important differences. States such as Oklahoma and North Dakota have come to rely on more shale-gas production, while Kansas has long had an important aerospace sector.

Instead, using historical data from a variety of other states with similarly structured economies, Rickman and Wang created an index to use as a point of comparison for Kansas. This composite benchmark almost exactly mimics the actual data from Kansas before Brownback took office, showing that it is a useful indicator of the broader economic forces affecting the state’s economy in general. . .

Continue reading.

There’s a lot more including a good chart.

Written by LeisureGuy

15 June 2017 at 11:03 am

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