Once again down the trickle-down, supply-side rabbit hole …

120831_paul_ryan_405With Republicans in charge of both the House and Senate next year, tax “reform” is again on the agenda. U.S. Rep. Paul Ryan, expected to chair the tax-writing House Ways and Means Committee, has committed to three basic goals on his reform agenda:

— Reduce the top corporate tax rate from 35 percent to 25 percent;

— Reduce the tax rate on the wealthiest of Americans from 39.6 percent to 25 percent;

— Reduce the number of tax brackets from the current seven to just two: The aforementioned 25 percent top bracket, and a second bracket of 10 percent.

So, with corporate after-tax profits at an all time high, with median household income falling while income for the top 1 percent soars, the Republican solution to our economic problems is to cut taxes substantially for corporations and the wealthy. It is good-old-fashioned trickle-down economics — nothing has changed.

Ryan’s plan raises all kinds of issues, not least of which is the deficit. How do you slash government revenue without sending the deficit soaring? Well, one way to do it is to cheat.

Ryan and other top Republicans have made it clear that they intend to use “dynamic scoring” in assessing the revenue impact of their tax package. In short, they will assume beforehand that their new tax plan produces the “supply-side” economic miracle that they claim it will, and they will base future budgets on assumed revenue growth that will probably never materialize.

As it happens, we have a very recent example of the dangers of that approach in the economic laboratory known as Kansas. There, conservative Republicans under the leadership of Gov. Sam Brownback enacted major tax cuts for businesses and the wealthy in 2012, promising that the resulting economic boom would send government revenues soaring and avoid major cuts in education and other programs.

The Kansas Policy Institute, a conservative “think tank” and a sister to the Georgia Public Policy Institute, was a major champion of that approach. “Using dynamic analysis, we can reasonably predict the additional economic and revenue effects of a significant income tax cut,” KPI claimed, predicting that by fiscal 2015 — which is right now — those tax cuts would produce state revenue growth of roughly 4 percent a year.

They were extremely confident, and weren’t shy in promoting themselves.

“My focus is to create a red-state model that allows the Republican (presidential) ticket to say, ‘See, we’ve got a different way, and it works,’ ” Brownback told the Wall Street Journal in 2013. He also relayed a conversation in which Mitch McConnell told him that ‘This is exactly the sort of thing we want to do here, in Washington, but can’t, at least for now.” A McConnell aide confirmed the conversation to the WSJ.

Instead, fiscal disaster. The tax cuts were implemented, but revenues have dropped significantly and have not rebounded as “dynamic analysis” predicted. The state’s credit rating was downgraded and will probably be cut again; thousands of teachers and other public employees had to be laid off; and instead of the promised boom, the state has added jobs at half the national rate.  The backlash has been so severe that even in a state that Mitt Romney won by 21.5 percentage points, Brownback won re-election this month by less than four points and got less than 50 percent of the vote.

Brownback won that race largely by promising Kansans that the worst was over and that the revenue shortfall last year was a one-time thing. “We’ll finish this year with several hundred millions of dollars cash on hand, so we’re going to be in fine shape,” he told voters.

He lied.  On Monday, six days after Brownback’s re-election, the state issued a revenue update revealing that the situation was even worse than imagined. Its $380 million in reserves are almost gone and the state will have to cut another $280 million just to make it through the rest of the fiscal year. Next year, it will need to cut another $436 million. In a small state like Kansas that had already made serious cuts, those reductions are dramatic.

The future is no brighter.  In fiscal 2016, revenue growth is now projected to be just 0.7 percent; in fiscal 2017; it is now projected to rise by just 1.1 percent. Yet thanks to “dynamic scoring,” the entire state budget is predicated upon the fiction that revenue growth would be the 4 percent promised by the Kansas Policy Institute.

And I do love KPI’s response to just how embarrassingly off-base its “dynamic analysis” turned out to be:

“Kansans deserve better than ‘sky is falling’ scare tactics. We encourage legislators and media to honestly examine facts without political filters and present citizens with viable solutions to provide services at a better price. No finger pointing … no attempts to score political points … and no shading the facts … just civil debate of viable solutions.”

No. You wouldn’t want anybody to point fingers.

—————

UPDATE: On Twitter, a reader points out that North Carolina went through the exact same thing: Big tax cuts; promises of revenue growth that didn’t materialize; major budget crisis:

— New figures from legislative analysts confirm the 2013 cut to individual income tax rates is costing the state far more than originally projected.

Last year, Republican leaders authored a plan to cut income taxes from a three-tiered marginal system of 6 percent, 7 percent and 7.75 percent to a flat rate of 5.8 percent for 2014 tax year.  

According to a memo Thursday from legislative analyst Brian Slivka and chief economist Barry Boardman, the updated cost of the tax cut is $680 million for the current tax year.

That’s $205 million, or 43 percent, higher than the original projection of  $475 million.   

The cost for the 2015 tax year is also projected to be $200 million higher than original estimates – $890 million rather than $690 million. Additional tax cuts are set to take effect Jan. 1. 

In the memo, Boardman and Slivka explain that the revision is due to the fact that North Carolina wages have not grown as quickly as projected last year.”

Reader Comments 0

475 comments
AlanReynoldsEcon
AlanReynoldsEcon

Japan, Britain and France recently raised tax rates on what people earn and/or spend.  The results weren't pretty.

To argue that lower tax rates can't help is to imply that higher tax rates can't hurt.  Wrong in both cases.

Kashmir Zoso
Kashmir Zoso

With the ACA's architect recent comments, I'm not sure how anyone can trust politicians at all.  Regardless of which side of the isle they are on.


The fact is, the US has a horrible debt and the deficit isn't going to shrink anytime soon.  There is simply no way to lower taxes for anyone.  However, the trick is to somehow put the 5 million people who have been out of work since 2008, back to work.


Trickle down is an unfortunate term, but none the less, when a person goes to work for Intel, or Facebook, or GE, or Boeing, or even the federal government, those employees benefit from the business generated from those companies.  That's a fact.  Call if what you want, but entrepreneurship and large corps like Apple, Microsoft, GM and others create jobs, provide health benefits, provide retirement and in some instances, provide stock options.


Just my 2 cents.


Yo!

Sam33
Sam33

I would be all for lowering corporate tax rates if corporations paid any where near the corporate tax rate.  its really the least of our worries but they pay for elections so they get served first (and second)


Buttercup23
Buttercup23

It's been obvious to me since Reagan, Republicans can't govern, anyone thinking they can are sadly mistaken.  With Ryan at the helm you can be sure Social Security, Medicare, Medicaid, Food Stamps, and every other Government program that helps the American People will be on the chopping block.  Is this really what the majority of the American people want??  I don't think so but you would never know this from the results of this past election.  Kansas here we all come.

scrappy-22
scrappy-22

Here's another news flash:  Reducing corporate tax rates will NOT result in lower cost of goods! 


I am sure if you follow the statements, you would see a direct line from any money saved directly back to the profits - benefiting only the very top of any corporate ladder. 

scrappy-22
scrappy-22

My gawd.... I can't believe those people have control of two branches. WAKE UP VOTERS! 


How many times does 'trickle-down' economics have to be proven false before you believe it! 

lvg
lvg

Republicans don't give a hoot about deficits when they are in control.

RoadScholar
RoadScholar

Where is the cut for deductions? I thought all those regulations were bad?

Peachs
Peachs

The Republicans piss on us and call it rain. They hijack our government with smoke and mirrors, lowest voting day since 1942, and put programs in place that destroy the country and somehow convince the convict's mother she has raised a perfect boy. We deserve what we get in this country, if we can't see our condition and correct it. This crowd would have us believing Hitler was our ally, if he could cut an oil deal with the corporate powers to be. I remember reading heavy support by William Randolph Hearst for Germany in World War One, evil serves a purpose for someone always.

straitroad
straitroad

Bookman, given the recent comments coming from the "architect" of the ACA where he admitted to outright deception in order to force the law on an electorate that clearly did not want it, it is telling of your character that you would write an article ignoring this fact while accusing Brownback of lying.

Peachs
Peachs

@straitroad if you are a betting man I would not bet against Bookman and for Brownback in this discussion unless you just want to look like an idiot!

LilBarryBailout
LilBarryBailout

And oh, by the way, your Idiot Messiah agrees with Ryan that corporate taxes need reform to be competitive globally.

Your shallow "analysis" of Ryan's reform lies by omission, too.

Peachs
Peachs

@LilBarryBailout we have the most competitive market in the world right now, why fix it?  Admitted we are the least ugly of the very uglies, but we don't need to be copying Europe economics or the far East, or Alabama or Mississippi which Georgia does with pride. 

LilBarryBailout
LilBarryBailout

Rabbit hole? Your Idiot Messiah is running the biggest deficits in history.

Jack_Republican
Jack_Republican

The c corp rates won't go to 25%: that'll be below some s corp s/h rates.

robo2000
robo2000

when taxes are cut, government revenues increase, so those who support tax increases are lying when they say revenues will increase.

Peachs
Peachs

@robo2000 what happens when we book private profit on things like Wall Street that is fraud and incorrectly accounted for as success making that administration look much better and its policies falsely successful?  It is like a college football team cheating and winning the national championship and people saying the coach is a genius. 

robo2000
robo2000

I'll take the rabbit hole rather than the dungeon we've been in the past 5 years

LordHelpUs
LordHelpUs

@robo2000 I'll take the dungeon for the last five years over the sheethole full of Rush Limbaugh excrement the entire country was in from 2001 to Feb, 2009...

moonbat_betty
moonbat_betty

Well, I guess this Twitter session is over.


Sayonara mis amigos.  



gotalife
gotalife

You got nothing because all your party will do is feed the rich. Status quo. Worthless.

gotalife
gotalife

Obama To Announce Immigration Action Next Week: Fox News

Go to Mexico right after signing that.

TBS
TBS

@gotalife @moonbat_betty


Yep.  After the big victory last week Republicans are going to be reminded that the commie Mooslem still resides in the WH. 

TBS
TBS

@moonbat_betty @TBS @gotalife


Teach them what?


That Obama still has a lot of EOs to catch up with your boy Bush?


He needs to pick up the pace


LOLOLOL!!!!!!!!!!