They didn’t have much of a choice. Based on their fiscal outlook — the state faces a $900 million shortfall — Kansas’s bond rating has been downgraded twice by two rating agencies. The state has burned through its reserves.
I’ve long argued there’s just no evidence to support the claims made by the trickle-downers, so I’ve closely watched the unfolding of the Kansas budget crisis. One thing that struck me was the reaction of conservative lawmakers there to the growing challenge of maintaining support for their education system. What I saw was a welcome, and all-too-rare, recognition that the tax cuts were simply inconsistent with maintaining a public good that they actually value in the state.
Of course, they never should have bought the trickle-down fairy dust in the first place. The historical record shows no correlation between tax cuts and economic growth, either for the nation or for Kansas. Instead, it shows an undeniably clear record of tax cuts and lost revenue.
Which brings me to an interesting and important question around the legislature’s override: Will it have any impact on the proposed Trump tax cut, which purveys the same snake oil, down to opening a big, new loophole?
That is, the state’s tax cuts exempted pass-through income from state taxation, meaning business owners could “pass through” profits from their business to their personal income tax liability, and pay no tax on that income. You will not be surprised to learn that many businesses took advantage of that loophole. In 2014 alone, that cost the state $470 million in lost revenue.
In Trump’s proposed tax plan, pass-through income gets a special rate of 15 percent, which is better than zero, but a huge cut from the top income rate of about 40 percent. In addition to losing lots of revenue from existing pass-through filers, enacting this change at the federal level opens up a huge new tax-avoidance opportunity for high-income people.
Will D.C. Republicans learn from Kansas Republicans?
I fear not. If facts could kill the myth of trickle-down tax cuts, I’d have given the eulogy at its graveside lo these many years ago. I was elated upon hearing the news out of Kansas and I don’t mean to rain on the parade. Maybe my bar is low, but I’m truly impressed by the actions of the legislature, which is dominated by Republicans.
But we must keep it real. All that nonsense about growth effects offsetting the revenue losses from these cuts is no more substantive than dangling the keys to distract the baby.
The play here is to cut taxes for the wealthy and then, when the growth effects fail to materialize, claim that the only way to balance the budget is to cut spending. The trickle-downers have but two goals: cut taxes on the rich and spending on the poor and middle class. This is the undeniable thrust of the Trump budget and the House health-care plan. It is not immaterial that the same folks who pushed the Kansas cuts are behind the Trump cuts.
In Kansas, to better serve the vast majority of their constituents, policymakers said “no” to that cynical play. I hope I’m wrong, but in D.C., I fear the will of the majority to represent those outside the top 1 percent is not nearly so strong.