Reaganomics has been a failure for 40 years. Republican fanatics doubled down on it regardless. The result was a fiasco.
Sam Brownback became governor of Kansas in 2011. He and right-wing lawmakers abolished certain business taxes and slashed top income taxes, but raised taxes on moderate earners. The poor were punished with brutally tightened welfare requirements and sales tax on food. He cut $200 million from education spending and eliminated four state agencies with 2,000 employees. He had a simple mantra: Cut Taxes! To Zero!
He declared, “Our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy.” Moreover, businesses would flock to Kansas: “We are right next to some other states that haven’t lowered taxes.”
Right there we see the first problem, namely, the fundamental flaw in Reaganomics (also called “trickle-down economics” or “supply-side economics”). Money is switched from high-propensity spenders to low-propensity spenders. Wealthy people are less likely to spend extra money as fast as government or poor people. They have a lower “marginal propensity to consume.” So consumer spending declines and crimps economic activity.
The second problem surfaced in 2014. Kansas collected $700 million less tax revenue than in 2013. The shortfall was a quarter of its entire budget.
Problem No. 3 also happened fast. Public education collapsed due to the huge spending cuts. Schools were closed, class sizes swelled, hours were cut, teachers left in droves and parents became unpaid janitors. Outraged parents sued Brownback, who fought them to the Kansas Supreme Court. In 2014 it ordered him to restore education spending. He did this with increases in sales taxes.
This produced the fourth problem. Increasing sales taxes depresses consumer spending. Sales tax revenues dropped. The shortfall had to be funded since state governments cannot run a deficit like the federal government’s.
Like dominos falling, this created the fifth problem. Kansas had to borrow money. Republicans still believed their beloved Reaganomics would generate such massive economic growth that the money borrowed could be repaid from taxes, howsoever low. They got a dose of reality. Deadbeats pay higher interest than prime borrowers. Borrowing became progressively more expensive and then impossible. By 2016, Kansas had a budget deficit of almost a billion dollars. Its credit rating had fallen to junk due to its junk economic policy.
The sixth domino fell. Brownback had eliminated taxes on owner-operated businesses, known as “pass-throughs.” Republicans believed this would jump-start economic growth by encouraging business owners to reinvest their extra money and expand their businesses. Instead, it led to massive tax avoidance. People ceased to be employees, became consultants, incorporated as pass-throughs, and stopped paying tax.
This caused the seventh domino to fall. Highway maintenance was cut back and public works projects were shelved, further crimping economic activity. Economic growth in Kansas consistently lagged behind the rest of America. Its economy grew at only one-third of the national rate. And in the Kansas City metropolitan area, job growth on the Missouri side was four times as much as the rate on the Kansas side, a crushing humiliation for Brownback.
In 2016, Kansas entered an economic recession. A business analyst at Bloomberg summarized the fiasco in a March 2016 article entitled “Kansas Tried Tax Cuts. Its Neighbor Didn’t. Guess Which Worked?” He stated, “Kansas has lagged Nebraska in job creation since 2011, and the gap has widened since late 2014. Instead of adding the 25,000 jobs a year that Brownback promised, Kansas actually lost 5,400 jobs over the 12 months ending in February.”
Only with ruin staring them in the face did Republican voters rebel against this madness. They concluded that conservative politicians were idiots, no matter how “business friendly.” They elected moderates and even some Democrats. The legislature voted for increasing taxes. Brownback vetoed them but was overridden by supermajorities in both chambers.
Nobody broke out the bubbly. Melissa Rooker, a moderate Republican state representative, said, “It’s hard to celebrate because Kansas is in such shambles. The magnitude of the problems that we have to correct is so great.”
Democrats should not celebrate this humiliation of Republicans. The supply-side economist Arthur Laffer has, for 40 years, touted the Reaganomics notion that cutting taxes on the wealthy unleashes incredible economic growth. He is the genius behind Reaganomics, the Kansas fiasco, and President Trump’s appalling tax plan. He has a grip on the Republican Party like Rasputin, the mad Russian monk of Czarist times. Republicans are now hellbent on repeating the “success” in Kansas nationwide!
If you do not know whether to laugh or cry … cry, very hard. It is your country these “conservatives” are wrecking. Next time we shall see what happened when voters kicked out the Republican wrecking crews and put in politicians with brains.