While he was live-tweeting his favorite show on Monday morning, President Trump touted support that former Reagan administration Economic Policy Advisory Board member Art Laffer expressed for his tax cut proposal.
The plan, released last month, would slash corporate rates to 20 percent from the current rate of 35 percent and cut rates for so-called “pass-through” businesses to 25 percent from 39.6 percent.
Five years ago, Laffer — a longtime champion of supply-side “trickle down” economics — made $75,000 helping Kansas Gov. Sam Brownback (R) shepherd a package of tax cuts through the Kansas legislature. The state’s cuts were similar to those now proposed by Trump on the national level.
In August 2012, Laffer promised a crowd at a small business forum in Kansas that the cuts would produce “enormous prosperity,” adding that they’ll “make a big difference in a decade.”
They did make a big difference, but not in the ways Brownback and Laffer intended.
As ThinkProgress reported on the occasion of a bipartisan group of Kansas lawmakers rolling back Brownback’s economic policies in June, the drastic cuts — which included eliminating state income taxes for pass-through businesses — didn’t produce the growth Laffer foresaw. Instead, employment and the state economy both grew slower than the national rates, and the drastic decline in tax revenue coming into the state’s coffers blew a gigantic hole in its budget.
Kansas is in a fiscal crisis. Lawmakers have to close an over $300 million deficit by this month. Infrastructure spending has been put on hold, the state’s Supreme Court has ruled that public schools aren’t being equitably funded, and the failure to expand Medicaid has hurt vulnerable Kansans and cost the state billions.
All of these factors served as a wake-up call to state lawmakers, who have finally turned on Gov. Sam Brownback (R) and rejected his economic policies. On Tuesday night, a coalition of Kansas lawmakers — conservatives, moderate Republicans, and Democrats — rolled back tax cuts that haven’t delivered on the promise of stimulating the state economy. Kansas will raise taxes $1.2 billion over the next couple years to cover its deficit.
Less than two months after lawmakers rolled back his economic policies, Brownback announced he would leave office to take a job as Trump’s Ambassador-At-Large for International Religious Freedom.
The New York Times recently published a piece comparing what happened in Kansas under Brownback’s watch with Trump’s proposal headlined, “Kansas Tried a Tax Plan Similar to Trump’s. It Failed.” From the Times’ report:
[T]he abandoned experiment in Kansas points to how a carve-out intended to help raise growth and create jobs instead created an incentive for residents, particularly high earners, to avoid paying state income taxes by changing how they got paid…
The tax package reduced state revenue by nearly $700 million a year, a drop of about 8 percent, from 2013 through 2016, according to the Kansas Legislative Research Department, forcing officials to shorten school calendars, delay highway repairs and reduce aid to the poor. Research suggests the package did not stimulate the economy, certainly not enough to pay for the tax cut. This year, legislators passed a bill to largely rescind the law, saying it had not worked as intended.
While slashing taxes didn’t stimulate the economic growth Laffer promised in Kansas, the Trump administration wants you to believe that the growth fairy will come through if they’re enacted nationally. Late last month, Commerce Secretary Wilbur Ross told CNBC that Trump’s tax cuts “will increase the [gross domestic product annual] growth [average] by 1 percentage point,” from 2 percent to 3 percent — growth that would help pay for the cuts. Trump himself characterized his plan as “rocket fuel” that will help propel economic growth.
But Kansas’ experience illustrates that despite what supply-siders like Laffer would have you believe, slashing taxes doesn’t guarantee growth. They are, however, almost certain to reduce federal revenues — one study cited by the Times estimates Trump’s plan “could reduce federal revenues by at least $41 billion a year,” with $39 billion of that reduction coming “from existing pass-through owners paying lower taxes.”
One thing is for certain — reducing the tax burden on pass-throughs will benefit Trump and his family. The Trump Organization — which Trump still owns — owns more than 500 pass-through business entities, all of which would pay less taxes under Trump’s plan.