You just described supply-side economics, or “Reaganomics”.
No I did not, but enough of this digression.
My original post, which you’re responding to, has precisely nothing to do with any particular economic concept like “supply side”, or Reaganomics. This entire response from you has been a digression from the main topic.
Before this goes any further, I’d like to hear you acknowledge that. In fact, my post specifically said that the business startup metric was NOT about taxes and regulations, and the CNBC metric weights “cost of doing business” as minor compared to “skilled/educated laborforce” and “infrastructure.”
So, could you acknowledge that a conversation about Kansas, Reagaonomics, supply side economics, etc., is going off on a tangent, please?
The point to the original post was rather simple: based on a set of quantitative metrics, red states outperform blue states in two economic areas: Ease of business startup, and fiscal responsibility; and matches blue states in overall business climate.
So, the studies are what they say, and the credit rating matter is what it is. “Kansas” is irrelevant to my original post.
So, what conversation do you want to have? Do you want to discuss why the red states do better as far as overall business climate is rated? Why they have better credit ratings?
Or, do you want to start an entirely different thread to argue about Reaganomics?
Governor Brownback was rated 100 percent by the Cato Institute.
Ah, OK. So since you’re now throwing Cato under the bus, let’s see what they have to say about the matter.
As politicians often do, he (Brownback) over-egged the likely positive effects of such measures, describing them as a “real live experiment” in supply-side economics. But left-wing commentators are now using the stubbornness of the state’s budget deficit, and the relatively weak growth performance since, to attempt to discredit the case for cutting marginal tax rates anywhere. Their partial account of what really happened and its lessons deserves correction.
So, Cato is accusing you of having a “partial account”, Clint. Let’s continue.
First, the impact of the tax cuts on the Kansas budget deficit owed more to politics than the tax reform. In Brownback’s original proposal, almost all of the “cost” of lost revenues was made up for for by broadening the tax base. He wanted to eliminate a number of tax credits and deductions, such that overall there would be little budget impact. But his opponents in the Kansas Senate defeated implementation of these “pay for” measures, meaning the tax cuts alone led to more government borrowing in the absence of significantly cutting spending.
Ah. So, the Kansas Senate passed the tax cuts, but rejected the flattening of the tax code which would have compensated for the losses in revenue. Hm.
Well, Clint, since you’re such an expert on what’s conservative econ vs what’s liberal econ, you don’t need me to tell you that conservatives prefer flatter tax codes, while liberals like more complex ones. So, it appears that all those “conservatives” in the Kansas Senate went wobbly when constituents started to complain about the loss of their favorite loopholes, and shifted into a liberal direction.
Second, though taxes are important, they aren’t everything. A range of other things have affected the Kansas economy in the time since the tax cut was passed. In particular, the state is strongly affected by what goes on in the agricultural and energy industries. Given the weakness of commodity prices over this period, the state economy has struggled for reasons nothing to do with the tax cuts.
How odd. I distinctly remember you saying that nobody but moi’ was mentioning the commodity prices as one of the issues causing the disparity in revenues. Yet, there it is, right there, in the Cato article. Interesting.
Well, I’m sure you weren’t lying to me; you were just uninformed. Let’s move on.
Third, the specific tax package proposed went against good tax practice in one crucial regard, which even most supply-siders would denounce. By completely eliminating the income tax on pass-through businesses, the Governor significantly increased opportunities for tax avoidance for individuals working in certain types of company.
Interesting. I’ll have to noodle on this one a bit. But, it’s pretty obvious that Cato didn’t approve of this provision, nor would people identifying as supply-side purists.
The take up of this provision was much, much higher than expected and one of the key reasons why state revenues were lower than expected. But this type of bad tax policy need not be part of a rate-cutting agenda. In North Carolina, the Tax Foundation has shown how income taxes can be cut in a way that, alongside base-broadening, leads to sharpened incentives and reduced opportunities for avoidance, and so does not lead to large budget shortfalls.
I’ll point out here that the Tax Foundation is a part of the Brookings Institution, which is a center-left think tank.
Finally, state income taxes are already very low in America. Few economists would suggest that cutting them would lead to such a huge impact on economic growth that they would be self-financing, especially without the “pay-fors”. But because the economist Art Laffer was associated with drafting this reform, many mistakenly viewed Kansas as a test of whether the Laffer Curve thesis works (i.e. that there is some revenue-maximising rate of tax above which higher tax rates even lower revenues).
It was no such thing.
That’s not what you said, Clint. You inferred that Cato was 100% behind Kansas.
Of course, one can understand why the Left is so keen to highlight Kansas’ failures. For decades, the free-market Right has broadly won the argument on whether low marginal tax rates on income and corporate profits boost growth by increasing incentives to work and invest.
Yea, that’s pretty much what I said, originally. BROADLY, the free marketers (which is not synonymous with “supply side”) has won this argument. Hence the data which I originally posted.
But it is another thing entirely to ignore the specific conditions of Kansas, and the history of how this tax cut occurred, and to extrapolate that it illustrates how supply-side economics does not work. An extensive review on the link between taxation and economic growth published here by the Institute of Economic Affairs last year showed that high marginal taxes, other things given, tend to slow the growth of economic activity.
Not that that last contention is news to anyone.
Taxes are not everything, and in many cases may not even be the most important policy lever to improve growth prospects. But there is a much broader theoretical and empirical literature than just the Kansas “experiment” which shows that they really do matter.
Hot Damn; that’s exactly the point I’ve been making for several back and forths now; that taxes are a factor, but not THE factor, in economic growth.
No, it is not impossible. Since all surrounding states were subject to the same commodities market, the same market pressures, and did not suffer the Kansas catastrophe.
No a political economist would make this statement. There are simply too many variables in the equation to make that statement categorically.
You admit two of those punches were bad policy. Those policies came from Republican supermajorities and a Republican governor. How are these Republicans not conservative?
Well, that seems to be answered above in the Cato quotes.
I answer this once again: Ease of starting a business is not a panacea, any more than low taxes. California is number nine on one of your lists of easy places to start a business.
Again, “business environment” is not a panacea, and a criteria very subject to debate. If you look at Amazon’s contest to see where its second headquarters would go, out of hundreds, they chose New York, and the DC suburbs. Did your list point to their business environment?
I never presented them as a “panacea”. So, enough with the straw men. I presented them as EVIDENCE (not proof, but evidence) that the business climate in red states is superior to those in blue states.
This is economics. There will always be a “whataboutism” that you can post, like Kansas or Amazon. That’s not news to anyone who understands econ basics. So, the way you dispute my studies is by posting other similar economic studies which present a contrarian view.
So, please do.
Credit ratings tell us only so much. If nothing at all.
A lower rating tells you that the state’s spending is so high as a % of tax revenue that it makes Standard and Poor’s a bit nervous, so as to drop the rating; and that forces the state to issue bonds at higher interest rates, which is then paid with taxpayer money.
I bring up Kansas because you can’t argue that Republican fiscal policies were not applied in full there.
Well, we kinda did.
Facts never get in a conservative’s way.
An amusing statement, since you didn’t seem to have a full view of what occurred in Kansas. (To be honest, neither did I, because outside of the commodity issue, I just knew that whatever Brownback tried to do didn’t work very well. But what Cato pointed out is not an opinion as to why it didn’t work; they pointed out hard, factual data on policies that would not have been implemented if this was a true, rigorous implementation of supply side econ.)
Hope that helps.