Supply-side economic theory? Not in Kansas anymore

It turns out that Kansas Republicans have decided that they believe in science after all. Which is why they’ve decided to end an experiment forced upon the state by Kansas Gov. Sam Brownback, who pushed through one of the most dramatic income tax cuts in modern history back in 2013.

Brownback is about as conservative as they come and he’s long been a staunch advocate of the supply-side theory of economics, which argues that if you put as much money into the hands of millionaires and billionaires as possible, eventually they’ll do something productive with it, including potentially creating jobs for Americans. Calling it a theory is giving it more credit than it deserves. For Republicans, however, it’s been dogma since the days of Reagan, despite an appalling lack of data suggesting that endless tax cuts for the wealthy lead to economic growth.

Brownback, a true believer, decided he was going to prove the point. With a Legislature dominated by fellow conservatives, he implemented supply-side economics in a big way, reducing the top income tax rate dramatically and dropping taxes on pass-through small businesses to zero. Based on supply-side theory, Brownback predicted an economic boom for Kansas, one that would lead to more revenue for the state despite the lower tax rates. He even called it “a real live experiment” at the time, the kind that he hoped would yield data he could ride all the way to the White House a couple election cycles later.

You can probably guess how it all turned out. While states like Minnesota and California, which raised taxes on the wealthy and invested the proceeds in education and quality of life, boomed under Democratic leadership, Kansas’s economy flat-lined. New job creation fell well below even neighboring states, such as Nebraska and Colorado.

Not only did the tax cuts prove deadly to the economy, they also undermined the state’s fiscal health as revenues fell sharply. To stave off huge deficits, the Legislature first slashed road dollars, then drained rainy day accounts, and eventually started slashing education, which didn’t please even Kansas Republicans. President Trump may tout his love for the uneducated, but most Kansans still believe that kids need a good education. The Kansas Supreme Court eventually ruled that state officials had failed to meet their constitutional duty to fund schools, and told the Legislature to find a solution.

After four years of suffering through Brownback’s experiment, Kansans were ready to wave the white flag. While Democrats are still as dead as a dinosaur in Kansas, Brownback’s disaster helped moderate Republicans (who knew they still existed?) find their voice. They mounted primary challenges of many of Brownback’s loonier supporters and eventually came to dominate the Legislature. Earlier this month, they did something that Republicans are never supposed to do— they raised taxes. And when Brownback vetoed the bill, the Legislature overrode him.

Doing so is unlikely to bring any political repercussions to legislators, since Brownback now routinely dukes it out with Chris Christie for the title of “Least Popular Governor in America,” with most polls giving him an approval rating in the mid-20s. As a state politician, you can stick a fork in him. Fortunately for the rest of us, there’s no road to the White House for Sam Brownback.

Unfortunately, while his useful experiment seems to have made an impression on Kansans, it may as well be climate science given the way GOP leaders have managed to ignore the data. President Trump and his fellow Republicans aren’t in Kansas anymore, and they are more than happy to continue to live in the Land of Oz, pitching the same old supply-side song and dance— huge tax cuts that will supposedly pay for themselves by the economic boom they’re poised to unleash.

Of course, as former Reagan budget director David Stockman acknowledged during his tenure, supply-side tax cuts (which provide the largest benefits to the wealthiest in America) are a Trojan Horse— i.e. shameless give-aways to big political funders dressed up as economic theory.

It’s certainly true that tax cuts, when properly engineered, can spark economic growth. That’s basic Keynesian economics, which has proven time and again that when the government injects money into the economy during economic sluggishness, either directly through spending on things like infrastructure, or through tax cuts, it creates economic recovery that might not otherwise exist. That was the concept behind the most successful tax cut package in U.S. history, the one advocated by President John F. Kennedy, which the Congress approved just months after his assassination. It’s a tax cut plan often cited by Republicans as evidence for their supply-side theories. It is anything but.

While the Kennedy package did include a cut in the top marginal tax rate, from the 91 percent then in effect to 70 percent, that was mostly a sop to the business community, which largely opposed the tax cut proposal at the time. But the vast majority of the tax cut was focused on low- and middle-income Americans. In other words, it was a primarily a “demand-side” tax cut. Kennedy’s chief economic advisor, Walter Heller, was a staunch Keynesian and he recognized that putting more money into the hands of average wage earners was the most effective way to boost demand for goods and services. The private sector, he theorized, would then respond through new investment in manufacturing and services to meet that demand. The tax cuts performed as advertised and the mid-1960s boom was off and running.

Supply-side tax cuts could be effective, in theory, if there were adequate demand in the economy but insufficient liquidity to provide capital to meet that demand. But that hasn’t been the case in the U.S. for years. The wealthy have so much money today they’re having a hard time finding places to stash it all. It’s the lack of demand from a financially-stressed and increasingly disappearing middle class, not to mention college graduates overloaded with debt, that is hampering growth in the economy.

Engineering new tax cuts for the already rich, such as the Republicans hope to do with the elimination of the taxes on the wealthy under the Affordable Care Act, won’t spur economic growth. Nor will elimination of estate taxes or cuts in taxes on capital gains, dividends, or high income. Indeed, it can well be argued that these kinds of tax cuts hurt the economy because they rob the government of revenue that it could otherwise use to invest in hiring teachers or firefighters, or rebuilding crumbling roads and bridges. That’s exactly what happened in Kansas, and what finally led even Republicans there to reject their own dogma.

Now, if only Republicans in Washington could get the message.