Debating Kansas’ Tax Cuts

With Kansas’ radical tax cuts drawing national attention this election season, I recently debated the Heritage Foundation’s Stephen Moore, who advised Governor Sam Brownback on the tax cuts, on their impact.  The full debate, published by State Tax Notes and moderated by its commentary editor Doug Sheppard, is

Leachman:  In 2012 you and Arthur Laffer wrote, ‘‘The quality of schools also matters as does the state’s highway system, but it takes years for those policies to pay dividends, while cutting taxes can have a near immediate and permanent impact, which is why we have advised Oklahoma, Kansas, and other states to cut their income tax rates if they want the most effective immediate and lasting boost to their states’ economies.’’  Why — 18 months after the income tax rate cuts were implemented — isn’t Kansas’s economy performing better?

Moore:  It’s a little early to tell about Kansas.  A 1.5 percentage point tax cut isn’t going to turn this Midwestern state into Beverly Hills or Boca Raton.  If Kansas can continue to get the rate down to close to zero, we would expect to see some strong growth effects.  Our advice to Brownback is full speed on the tax cuts.

Leachman:  The total income tax cut in Kansas was very large, equaling at least 9 percent of revenues this fiscal year.  It’s hard to expect a state to do more than that.  And again, Moore said cutting income taxes is the most effective way to immediately boost state economies.  Hearing now that they’ve got to do substantially more tax cutting before they’ll see strong growth effects has got to be disappointing to people who believed in the Kansas experiment.

And here’s part of my final statement in the debate:

Kansas followed Moore’s simplistic advice:  Slash your income taxes and your economy will surge.  But that advice is wrong.  And now, Kansas’s finances are in shambles, its economy is ho-hum, and its future looks worse — not better.  Other states that follow this path can expect a similar result.

This debate is not really just about Kansas.  Other states have passed — more recently than Kansas — irresponsibly large income tax cuts under the guise of economic revitalization.  The tax cuts enacted by these other states — Missouri, North Carolina, Indiana, and Ohio, for example — are not much different from Kansas’s.  While none were as big as the Kansas cuts, they generally included many of the same ingredients.  At their core is big cuts in income tax rates for the highest-income households to be paid for with cuts in funding for schools and other public services key to future economic growth, and often tax increases for low-income families. . . .

Economic growth will not save these states from further diminishing their education systems or other important public services — services already damaged by the Great Recession and its aftermath.  And as in Kansas, there’s no reason to think the tax cuts will cause these states to see their economies boom in the years ahead. . . .