Monday, June 08, 2015

Sam Brownback's Utopian Experiment Looks To Be Over

Brownback is the fundamentalist Republican governor of Kansas who in 2012 went wild on those popular tax cuts, with the simple-and-flawed idea that if only most firms could avoid paying any state taxes on their profits the Kansas economy would boom*.

The obvious (and completely predictable) consequences were, well, obvious.  The state of Kansas couldn't make ends meet, because of a giant drop in tax revenues.  So what did our Sam do next to balance the shrinking state budget?  He cut expenses, naturally.

The tax cuts favor mostly people who earn more, the expense cuts hurt mostly people who earn less.  Internal income inequality in Kansas grew.  

But those rounds of cutting expenses were not enough to balance the state budget.

Now the Republicans in control of the state must face up to raising taxes, poor things.  For a financial conservative this is like having to pull your own milk teeth with pliers (done that, been there), so the debates are still largely about how to roll more of the tax load on the shoulders of the poorer people in the state.  Sales tax increases??  Grrreat idea, because those taxes tend to be regressive.  To cover that up, let's not tax food.

Of course raising the sales taxes will make purchases more expensive for the consumers in Kansas and that might make them buy less.  This, in turn, would drive many local firms' profits down, having a further negative effect on any remaining state taxes on corporate income and so on and so on.

The debates are still ongoing, but here are some of the proposed tax increases and other changes:

The Kansas Senate passed Sunday what would be the largest tax increase in the history of the state of Kansas.
The measure passed by a 21-17 margin. Kansas Sen. Julia Lynn, who represents Johnson County, Kan., was the deciding vote on the bill.
Details on the $471 million tax increase:
    •    The sales tax increases to 6.55 percent from 6.15 percent.
    •    The cigarette tax will go up by 50 cents each pack, bringing the total tax to $1.29.
    •    The food tax will drop on July 1, 2016. However, it will be 6.55 percent until that time.
    •    Most itemized deductions on state income taxes are repealed.
    •    Reduced deductions for property taxes, charitable contributions and mortgage interest.
    •    There's a property ta
    •    tax lid for cities and counties.
    •    A new school voucher program that will provide tax credits to those who donate funds for private and religious schools.
    •    $24 million on taxes for business owners.
Tax increases are supposed to mean rapid death for American politicians in power, and that is certainly the case in the Tea Party -wing of the Republican Party.  We shall see what happens.  But as I have written before, watching this Nutty Economists' Tax Experiment Gone Wild would be entertaining (beer and pop corn entertaining) if the pain wasn't affecting so many real people.

On the other hand, Brownback was re-elected after he wrecked the state.

*This is flawed mostly because it ignores the important question about the demand side:  What effect have Brownback's policies had on the aggregate demand by people in the state?  If demand is insufficient, giving more money to firms won't work to create a boom.