Blog For Iowa

Catching up on some old reading I finally got around to reading Peter Fisher’s synopsis of the disastrous Kansas budget over at Iowa Fiscal Partnership.

Justice Louis Brandeis once called states “the laboratories of democracy.” As the major laboratory for crazy right wing anti-tax, anti-government policies Kansas has pretty much proven that their policies don’t work.

Here is the synopsis:

Keeping Ahead of the Kansans

By Iowa Fiscal Partnership
4/9/15
IFP POLICY SNAPSHOT /

Iowa’s Neighbors Show the Folly of Drastic Cuts to State Income Tax

• Big income-tax cuts in Kansas have dramatically reduced funding for schools, health care and other services.

By Peter S. Fisher

As state legislators consider drastic cuts in Iowa’s income tax, they would do well to consider the experience of our neighbor Kansas, which enacted a huge income tax cut in 2012, and cut taxes again in 2013. These cuts have dramatically reduced state funding for schools, health care, and other services.

These Kansas tax cuts were touted as a powerful economic development tool. Businesses and jobs would flock to Kansas, and growth would be so strong that, according to some, state tax revenues would actually increase.

Instead, the state of Kansas has been forced to cut school funding each year since enactment. At a time when the majority of states have increased education funding to make up for cuts during the recession, general state aid in Kansas has continued to fall, and per pupil funding is 15 percent below pre-recession levels, with school closings and increased class sizes the result. Two districts recently announced they will have to end the school year early for lack of funds. The state recently abandoned the school funding formula; aid is no longer tied to enrollment. Most of the state’s reserves have been used up just to keep services afloat, leaving the state with no cushion to soften the effects of the next recession. The state’s bond rating has been lowered.

As for the tax cut being “a shot of adrenaline” for the state’s economy, as the governor predicted, the anticipated job growth did not materialize. Instead, private sector jobs in Kansas have grown by 3.5 percent since the tax cuts took effect, well below the 5.0 percent growth nationally over the same period.

It is instructive to consider as well the experience in Wisconsin, where a large personal income tax cut took effect at the start of 2013, with similar results: subsequent job growth of 3.4 percent, farther below the norm than in Kansas.

None of this should come as a surprise. Most major academic research studies have concluded that individual income tax cuts do not boost state economic growth; in fact, states that cut income taxes the most in the 1990s or in the early 2000s had slower growth in jobs and income than other states. Businesses need an educated workforce, and drastic cuts to education are likely to make it difficult to attract new workers, who care about their children’s schools at least as much as they care about taxes. Nor will income tax cuts help small businesses create jobs. Only a tiny fraction of those paying income taxes own a business, and of those most are not in a position to create more jobs, or can expand employment only if demand for their services increases, regardless of taxes. (footnotes at link)

Just Thursday the Kansas legislature overwhelmingly rejected a new tax plan in the face of huge cutbacks for education and drastic lowering of bond ratings. Early Friday morning there was a reversal, but taxes enacted were just tinkering at the edges. More on that here:

Kansas is hardly alone in this. Presidential hopeful Gov. Scott Walker has turned a similar trick in Wisconsin as noted above.

In Louisiana, the legislature and the presidential hopeful Bobby Jindal are locked in negotiations over how to pay for any services and yet adhere to anti-tax guidelines laid out by Grover Norquist. Yep, legislators turned to Grover Norquist for guidance. Norquist is the unelected self proclaimed anti-tax guru.

We are watching these states and others with Republican governors and legislatures circle the drain of state insolvency while they turn their states into little pits of hell on earth for their citizens. Iowa is but one senator from joining the combination of Republican dominated legislature plus a Republican governor that seems to be the formula for disaster. Thus, while the presidential election gets the press, the local races are extremely important.

While stories abound of states cutting budgets and strangling themselves, Minnesota and California have both shown that fairer taxation and public spending for common good programs can have a great effect on improving the economy. From an analysis of Minnesota’s economy:

Minnesota is one of the top-ten best economies in the country; it is also a high-tax and high-spending economy.

“For so long, the accepted formula is that in order to have a healthy state economy, you have to have low taxes, low spending, and right-to-work laws,” Haglund says. “Minnesota actually has turned all of that on its head.”