The Kansas Pile-On

For the forces of government growth, the worst possible thing is a state that breaks ranks from the endless creeping government expansion and actually tries to cut taxes and spending.  In today's United States, that would be Kansas.  So suddenly this state you never read about deep in flyover country is getting a lot of attention in the national press.

In 2010 Kansas elected Republican former Senator Sam Brownback as its governor, following two Democrats (one of whom was Kathleen Sebelius).  With the support of a heavily Republican legislature, Brownback has set about to make big cuts in taxes as a way to jump-start the economy.  The top income tax rate was cut from 6.45% to 4.9% effective in mid-2013.  Further cuts are scheduled over the next several years (down to 3.9% in 2018), and Brownback has even talked about getting rid of the income tax entirely.  Heresy!

The New York Times weighed in on Sunday July 13 with an editorial titled "Kansas' Ruinous Tax Cuts."  The clear goal is to nip this tax cutting thing in the bud before it starts taking hold.  The Times editorial quotes Brownback in 2012 as saying "Our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy."  And then it proceeds to cherry-pick some data to try to show that the whole thing isn't working and should be stopped right now:

But the growth didn’t show up. Kansas, in fact, was one of only five states to lose employment over the last six months, while the rest of the country was improving. It has been below the national average in job gains for the three and half years Mr. Brownback has been in office. Average earnings in the state are down since 2012, and so is net growth in the number of registered businesses.

As another example of the Kansas pile-on, here is Howard Gleckman from July 15 at the Forbes web site.  His conclusion:  "This is fiscal snake oil."  And Mark Peters in the Wall Street Journal on July 15 cites "more than 100 Republican officials" in Kansas as supporting Brownback's opponent for governor in the upcoming election, largely attributing the phenomenon to cold feet over the tax cuts.

A few comments on this.  First, I wouldn't be expecting very dramatic changes to be happening overnight as a result of what really are not-very-dramatic tax cuts.  The process of creating a good investment climate and then attracting the investors takes years, just as the process of destroying a good investment climate and driving business away takes years.  Here in New York, Bill de Blasio is doing everything he can to destroy the good investment climate created by his two predecessors, but you can't really notice any change yet.  It would be nice if clear results could be in within 12 months, but these things just don't work that way.  And then there are specific factors as to particular businesses and industries that can affect the results.  For example, Kansas is big in the private aircraft business, which is struggling.  That business would still be struggling even if they eliminated the income tax entirely.

So instead of cherry-picking some short term data about Kansas, let's take a look at a somewhat bigger picture.   Here is the recent data from the Commerce Department on GDP growth by state for 2013:

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Surprise, it is the usual case of low tax low spend states far outperforming the high tax high spend states.   It's not a perfect correlation, and never is in any given year, but low tax states like Texas (3.7% growth) and Florida (2.2% growth) virtually always outperform the "blue states" (not blue in this chart), like New York (0.7%), New Jersey (1.1%), Connecticut (0.9%) and Illinois (0.9%).  Oh, and there's Kansas at 1.9% -- a lot better than New York.  Try to find that data in the New York Times!

For a little more long term perspective on things, take a look at demographer Joel Kotkin's op-ed from the Wall Street Journal on July 15, "Success and the City."  Kotkin documents the remarkable success of low tax Houston, now the fourth largest city in the country and continuing to outstrip all rivals.

Houston's economic success over the past 20 years—and, more remarkably, since the Great Recession and the weak national recovery—rivals the performance of any large metropolitan region in the U.S. For nearly a decade and a half, the city has added jobs at a furious pace—more than 600,000 since early 2000, and 263,000 since early 2008.  The much more populous greater New York City area has added 103,000 jobs since 2008, and Los Angeles, Chicago, Phoenix, Atlanta and Philadelphia remain well below their 2008 levels in total jobs. Los Angeles and Chicago, like Detroit, have fewer jobs today than they did at the turn of the millennium.

And from today's Wall Street Journal, we have "Weak Economy Dogs Christie On The Road."  With New Jersey having a top income tax rate now almost 9%, why should that surprise anyone?

So Kansas, have a little fortitude.  Success may take a little while, but it will come.