More Time Unlikely to Fix Kansas’ Poor Strategy for Growth

Heritage’s Stephen Moore argues that Kansas’ tax cuts, which have led to deep revenue declines that will make it harder for the state to invest in education and other drivers of long-term prosperity, just need more time to boost its economy.  But that’s not what proponents argued in 2012, when the legislature enacted the first round of deep income tax cuts.  Governor Sam Brownback said then that the tax cuts (designed by Arthur Laffer, a frequent collaborator with Moore) would be “like a shot of an adrenaline into the heart of the Kansas economy.”

We don’t know whether Kansas will under- or out-perform the U.S. economy in coming years (although the state’s own legislative researchers project slower growth for Kansas relative to the United States in 2015).  But recent experience and academic studies suggest that Kansas hasn't improved its chances of economic growth by cutting taxes and may well have damaged them.

Our examination of how the big tax-cutting states of the past two decades have fared found that tax cuts aren’t a particularly fruitful strategy for growth:

• Three of the six states that enacted large personal income tax cuts in the years before the Great Recession of 2007-2009 saw their economies grow more slowly than the nation’s in the following years.  The other three states enjoyed above-average growth, but they are all major oil-producing states that benefitted from a sharp rise in oil prices after the tax cuts.
• Similarly, the five states with the biggest tax cuts in the 1990s created jobs during the next economic cycle at one-third the rate of other states, on average.  The biggest tax-cutting states also had slower income growth.

Among economic studies, there’s no consensus on the impact of state taxes on economic growth.  Some studies find that higher taxes hurt growth, some find that higher taxes help growth when they finance higher-quality education and better infrastructure, and most find that tax levels have only a minor impact either way.

Other states considering deep tax cuts in pursuit of economic growth should note those facts, as well as the damage that deep tax cuts have already done in Kansas.