The Harsh Lessons of Kansas’ Tax Cuts

Acknowledging that Kansas’ massive tax cuts, which took effect over two years ago, haven’t done much to boost its economy, conservative commentator James Pethokoukis asks:  “What should Republicans learn from the Kansas experiment, especially the GOP’s crop of White House wannabes who have plans to deeply cut top tax rates?”  He makes some thoughtful points that tax-cut proponents would do well to heed:

• “First, don’t expect tax cuts to pay for themselves or even come close.”  As we and others have observed, states that cut taxes must offset the cost, by raising revenue elsewhere or cutting spending, to meet their balanced-budget requirements.  Tax cuts aren’t a free lunch.   
• “Second, don’t expect an immediate economic boom.”  That’s solid advice, given the poor history of state income tax cuts in producing economic growth.  But it contradicts the claim by economists Art Laffer and Stephen Moore, who helped design Kansas’ tax cuts, that cutting income tax rates provides “the most effective immediate and lasting boost” to state economies.  And it contradicts Governor Sam Brownback’s prediction that the tax cuts would provide “a shot of adrenaline into the heart of the Kansas economy.”

The tax cuts may yet help the Kansas economy over the long run, Pethokoukis argues, citing a recent study finding that top scientists may be more likely to move to states with lower taxes on high incomes.  But that’s a thin reed on which to hang a policy that has forced big cuts in education and other services and helped create a $400 million hole in the budget. 

Years of peer-reviewed econometric studies of the relationship between taxes and economic growth have produced “contradictory and unstable results,” as economists at the Tax Policy Center who reviewed the literature recently wrote, leaving no consensus.  And the large majority of serious studies find that cuts in personal income taxes matter little if at all to economic growth. 

Rather than bet their futures on a tax-cutting approach that hasn’t worked well in the past, policymakers should concern themselves with improving schools, transportation networks, and other building blocks of long-term growth.