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Another Failure of Supply Side Economics

Supply-side (or trickle-down) economics, the only economic plan the Republicans have had for the last four decades, claims that if you lower taxes you’ll boost the economy so much that it will boost tax receipts enough to make up for the lost revenue. That has never been true and here’s yet another example of it in Kansas, where reality has shown the exact opposite of what Republicans predicted.

In 2012, Kansas governor Sam Brownback signed a massive tax cut into law, arguing that it would boost the state’s economy. Eventually, he hoped to eliminate individual income taxes entirely. “Our place, Kansas, will show the path, the difficult path, for America to go in these troubled times,” he said.

National conservative activists raved. Patrick Gleason of Americans for Tax Reform said Kansas was “the story of the next decade.” The Cato Institute praised Brownback’s “impressive” tax cuts and gave him an “A” on fiscal policy. And the Weekly Standard’s Bill Kristol said that, if reelected, Brownback would be “a formidable presidential possibility.”…

After the cuts became law, it was undisputed that Kansas’s revenue collections would fall. But some supply-side analysts, like economist Arthur Laffer, argued that increased economic growth would deliver more revenue that would help cushion this impact.

Yet it’s now clear that the revenue shortfalls are much worse than expected. “State general fund revenue is down over $700 million from last year,” Duane Goossen, a former state budget director, told me. “That’s a bigger drop than the state had in the whole three years of the recession,” he said — and it’s a huge chunk of the state’s $6 billion budget. Goossen added that the Kansas’s surplus, which had been replenished since the recession, “is now being spent at an alarming, amazing rate.”

It did nothing to boost growth. In fact, Kansas trails the rest of the country in economic growth. And it dropped state tax revenue by more than 10% of the entire budget. And now Brownback’s approval ratings are lower than Obama’s, as they should be. This economic theory has never worked. The result is always the same — lower revenue and higher deficits, as anyone who can do basic math can predict.

Comments

  1. culuriel says

    Considering that it’s Kansas with Brownback as Governor, the Kansas GOP will find a way to blame abortion and gay people.

  2. Chiroptera says

    ‘Course the claim will be that the problem is that there weren’t enough tax cuts or that they weren’t implemented correctly.

  3. raven says

    Brownback did more than just cut taxes. He made the tax system more regressive by redistributing the rich’s taxes to the middle class by changing the tax rates versus income ladder.

    As Krugman pointed out, Supply Side Economics isn’t supposed to work!!! It’s not actually an economic theory.

    It’s a Trojan Horse to make the rich richer and the rest of us poorer. An excuse.

  4. sugarfrosted says

    If we want supply side to work, we need to make inflation fairly high, as this drives spending among the wealthy. Granted that’s not what the people who push it want, they want to hoard money not spend it. That’s why they freak out about inflation. (Some inflation is good, hyper inflation is bad, deflation is bad too.)

  5. says

    The higher the economy climbs, the greater the fall and damage when recessions hit (re: 2008).

    But then, you don’t notice it as much when you’ve got a golden parachute….

  6. raven says

    Charlatans, Cranks and Kansas Paul Krugman NYT
    JUNE 29, 2014 edited for length

    Two years ago Kansas embarked on a remarkable fiscal experiment: It sharply slashed income taxes without any clear idea of what would replace the lost revenue. Sam Brownback, the governor, proposed the legislation — in percentage terms, the largest tax cut in one year any state has ever enacted — in close consultation with the economist Arthur Laffer.

    But Kansas isn’t booming —
    the state’s budget has plunged deep into deficit,

    There’s an important lesson here — but it’s not what you think.

    The real lesson from Kansas is the enduring power of bad ideas, as long as those ideas serve the interests of the right people.

    Why, after all, should anyone believe at this late date in supply-side economics, which claims that tax cuts boost the economy so much that they largely if not entirely pay for themselves? The doctrine crashed and burned two decades ago, when just about everyone on the right…

    Krugman said it recently. …as long as those ideas serve the interests of the right people.

    Supply Side Economics isn’t an economic theory. It’s more like an advertising slogan, and a false one at that, that serves the interests of the ultra rich.

    “Supply Side economics will make your whites whiter, floors shinier, lawn greener, and superpower your economy. ”

    PS The architect of Kansas’s disaster was Arthur Laffer. Really? A known fraud who was discredited decades ago.

  7. says

    “Our place, Kansas, will show the path, the difficult path, for America to go in these troubled times,” he said.

    Difficult for whom? This asshole is basically admitting that he’s using the rhetoric of sacrifice to justify making everyone else sacrifice everything so he and his cronies won’t have to sacrifice anything.

  8. raven says

    Saint Reagan tried SSE and it didn’t work. He ended up raising taxes 11 times but did manage to explode the national debt.

    George Bush cut taxes again. It didn’t work but it did help cause the Great Recession. It also exploded the national debt again and made Reagan look like an amateur at fiscal incompetence.

    It’s quite clear that, Supply Side Economics is a Weapon of Mass Destruction!!! Wreaking havoc and causing misery on billions of people. (One of which was my dead 401(K) plan.)

    Really, Art Laffer, George Bush, the Heritage Dumb Tank, Brownback, and a few dozens of others should be in prison at the Hague, being tried for war crimes. Their War on the Non-ultrarich and the US and world economies was a great success.

  9. dugglebogey says

    The puzzling logic of supply-side economics to me has always been “If you give rich people more money, they’ll spend (invest) it. It seems to me that people got rich because they didn’t spend their money (okay, I actually thought they inherited it.)

    If you want to give money to people who will spend it, give it to poor people!

  10. says

    Republicans do have an example that supply side works. In 1980 the economy was in the doldrums and by 1986 the economy was doing pretty well. They point to Reagan’s tax cuts.

    But they purposefully ignore that in 1980 the prime rate was 20% put that high to kill inflation. And by 1980 the Fed was starting to lower the prime rate and by 1986 it was down to 8%. That was a humongous drop in such a short period and is well understood to be VERY stimulatory to the economy. But this fact will always be ignored in order to credit the tax cuts. But there is even more….

    In 1980 OPEC was pretty much defeated and the Shah dead so the price of oil, which at the time was about $120 per barrel, controlled for inflation, started to drop. By 1986 the price of oil had dropped to around $30 a barrel (again in today’s prices controlled for inflation) And again, we know now just how stimulatory such a price cut is on all aspects of the economy.

    So the only argument that the Republican’s have that supply side works fails miserably when you look at it objectively. Of course looking at things objectively is not what Republicans do.

  11. dingojack says

    “And the Weekly Standard’s Bill Kristol said that, if reelected, Brownback would be ‘a formidable presidential possibility.’…”

    Poor old Brownback, imagine being condemned such absolute terms.

    Dingo

  12. pocketnerd says

    Thus Spake Zararaven, #3:

    Brownback did more than just cut taxes. He made the tax system more regressive by redistributing the rich’s taxes to the middle class by changing the tax rates versus income ladder.

    As Krugman pointed out, Supply Side Economics isn’t supposed to work!!! It’s not actually an economic theory.

    It’s a Trojan Horse to make the rich richer and the rest of us poorer. An excuse.

    But… but… discussing the way the wealthy rig the system to benefit themselves while screwing the rest of us is class warfare!

  13. jayhawk says

    “Considering that it’s Kansas with Brownback as Governor, the Kansas GOP will find a way to blame abortion and gay people.”

    This is no joke, Brownback IS blaming Obama for Kansas’s revenue shortfalls!.

    “Brownback, running for re-election, has assessed blame for the state’s revenue problem on external forces such as President Barack Obama and federal tax policy. The governor said roots of the revenue slippage could be found in decisions by U.S. investors to claim capital gains early in response to federal spending and tax policies shaped by Obama.” CJonline 6/30/2014

    http://cjonline.com/news/2014-06-30/kansas-revenue-slips-28m-below-estimates-june

  14. says

    “in close consultation with the economist Arthur Laffer.”

    Laffer is to sound fiscal, economic and social policy as Dr. Josef Mengele was to the Hippocratic Oath.

  15. raven says

    …while screwing the rest of us is class warfare!

    That it is.

    And we are all soldiers in the class wars just by being alive and in the USA.

    I myself am a Colonel on the People’s side. (Actually it is more like a Sargent, but since it isn’t very organized, people are able to claim any rank they want.)

    Right now the People have been losing since the 1970′s at least, as economic inequality keeps increasing and the middle class shrinks. But the Perpetual War never ends so that isn’t necessarily going to always be the case.

  16. D. C. Sessions says

    This economic theory has never worked.

    Define “worked.” It accomplishes its objectives; it’s just that those objectives are not the ones used to sell it to the voters.

    The result is always the same — lower revenue and higher deficits, as anyone who can do basic math can predict.

    And those, in turn, are used (as Modus observes) to cut government services.

    It’s a right-wing hat trick:
    1) Cut taxes on the rich
    2) Raise taxes on the poor and middle class, thus increasing the “taxed too much” pressure for more tax cuts on the rich.
    3) Cut government services (thus making government less valuable to voters, enabling another round)

    Lather, rinse, repeat.

  17. wscott says

    claims that if you lower taxes you’ll boost the economy

    Most economists do agree there’s a point where raising taxes too high slows the economy and reduces revenue. So above that point, lowering taxes would in fact boost revenue. Of course, most sane economists agree we’re nowhere near that point. Like many right wing memes, it has a small kernel of validity that has been completely swamped by overly-simplistic dogma that doesn’t care about actual data.

  18. pocketnerd says

    Thus Spake ZaraD. C. Sessions, #18:

    And those, in turn, are used (as Modus observes) to cut government services.

    It’s a right-wing hat trick:
    1) Cut taxes on the rich
    2) Raise taxes on the poor and middle class, thus increasing the “taxed too much” pressure for more tax cuts on the rich.
    3) Cut government services (thus making government less valuable to voters, enabling another round)

    Lather, rinse, repeat.

    And, of course, the failure of government services due to inadequate revenue (q.v. “starving the beast”) lets your talking heads trumpet “See? See? Gubbamint can’t do nothin’ right! So let’s cut taxes some more and privatize whatever remains!”

  19. howardhershey says

    Groan. Mike Pence, Indiana’s governor/potential-presidential-candidate-in-his-own-mind, had set up a misnamed Tax Competitiveness and Simplification Conference to “guide” him in deciding how to change Indiana’s taxes. The “diverse group” (according to Pence) of members of this closed-to-the-public-except-for-videos conference ranged the political spectrum all the way from Grover Norquist to Arthur Laffer.

  20. says

    Brownback did more than just cut taxes. He made the tax system more regressive by redistributing the rich’s taxes to the middle class by changing the tax rates versus income ladder.

    He also eliminated taxes on “pass-through” business revenue, meaning that if you make your money by owning a business, you don’t pay taxes. If you make your money by working for someone else’s business, you do pay taxes.

    There is no economic rationale for this, not even a bad one. Taxing different types of income at different rates distorts incentives and makes the economy less efficient. If a person can make more money as a wage-earner than as a business owner, she shouldn’t be penalized for it and encouraged to take the less productive route. What’s worse, it strongly encourages creative accounting in order to reclassify wage earnings as business earnings. All of those hired accountants and phony front corporations represent a significant deadweight loss.

    Of course, rich people tend to own businesses and the cult of business ownership is lionized in right-wing circles, so the business owners are showered by the state with free money while the wage-earning peasants get to pay the tax.

  21. says

    Area Man “He also eliminated taxes on “pass-through” business revenue, meaning that if you make your money by owning a business, you don’t pay taxes. If you make your money by working for someone else’s business, you do pay taxes. There is no economic rationale for this, not even a bad one.”
    As a Job Creator I can confidently state that it makes perfect sense.
     
    Besides, talking about taxing people (and Corporate Persons) of my class is Class Warfare. Talking about raising yours is Good Fiscal Policy, particularly when it’s linked to funding for the Welfare state, pitting you against the Poor, leading you to vote for representatives who’ll cut taxes (especially mine) while at the same time blaming those below you for being Moochers. Ideally, you’ll vote for people who’ll also cut things that you need and raise your taxes, because Rightwing Populist rage is fueled, in part, by irony.

  22. Pierce R. Butler says

    markmckee @ # 11: …In 1980 the economy was in the doldrums and by 1986 the economy was doing pretty well.

    The discovery of oil in Alaska’s North Slope made a big difference for Reagan (as did the North Sea oil finds for Thatcher).

  23. says

    Supply side economics would probably work fine, if the government were actually using its resources to increase the supply of goods. The problem is that they don’t actually do that at all, they just give money to rich people who happen to own businesses, and call that supply side economics despite it doing nothing to increase supply. Indeed, it tends to reduce supply, because if the government is giving you free money, why would you want to risk that money on a business venture that may lose rather than just banking it and cutting back on your risk.

    If they actually had the government enter the market to compete with private businesses, it would function to block inflation by making it impossible for private businesses to raise prices above the governments without providing added value of some kind, which would have solved the ‘stagflation’ problems that supply side economics were conceived to handle perfectly. Of course, there’s no way for private businesses to compete with the government unless the government is corrupt, because it doesn’t have to operate at a profit, and they do, so the end result of true supply side economics in a democratic state with an informed, rational population would be creeping socialism.

    That’s probably why conservatives make such an effort both to blacken the idea of supply side economics by miss-labeling a clearly toxic policy as such and to reduce as far as possible the chances that they will ever have to deal with an informed, rational electorate, or indeed have to face true democracy at all.

  24. freehand says

    Modus, your post @ 26 is a thing of beauty. It brought tears of rage and joy to my eyes.

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