“Failed tax-cut experiment in Kansas should guide national leaders”

That’s the title of an oped by Heather Boushey in The Hill. There’s not much to disagree with in the article, but I think one graph of Kansas employment would’ve really driven home the conclusion.


Figure 1: Nonfarm payroll employment in Missouri (blue) and in Kansas (red), both in logs 2011M01=0. Orange shading pertains to period during which tax cuts are in effect. Dashed lines denote beginning and end of Brownback governorship. Source: BLS, and author’s calculations.

For comparison, I include the Missouri series, also normalized. It is hard to argue that the change in the Kansas series gradient is just coincidental with the end of the tax cut experiment.

I think I deserve apologies from those who wrote four years ago (in response to Whistling Past the Intellectual Graveyard) about giving supply side a chance: Bruce Hall, Ricardo (aka RicardoZ, Dick, DickF), Steven Kopits, and Rick Stryker.

78 thoughts on ““Failed tax-cut experiment in Kansas should guide national leaders”

  1. 2slugbaits

    There is an alternative explanation for how the economy grows. A strong economy comes from a society where good ideas and talented people are not obstructed from economic opportunity.

    Yep. A good example is Pittsburgh, which was knocking on death’s door not all that long ago. Today Pittsburgh is very much on the rebound because city leaders made a conscious decision to develop the city’s intellectual and medical reputation. It’s the NBER poster child for economic rebirth. At one time Lawrence, KS had the second highest average education level in the country. That was then. The only thing that Kansas excels at today is mortuary science.

    By now it should be pretty clear that when hard right conservative politicians talk about “supply side” economics as the key to economic growth, what they really mean is a set of policies designed to help those that already got theirs keep what they got. Build up a pile of wealth and then support low growth but defensive policies. It’s the four corners offense approach to economic growth.

    Reply
    1. dilbert dogbert

      Back in the early 80’s I had a young UK grad student doing his master’s theses using my project. Had a lot of fun with kids like him and other work study students at NASA. I went with him back to Lawrence to meet his advisors when he presented his thesis. Met his family and toured the town. Very nice. My student went on to work for GE in Ohio. Brain Drain.
      His dad ran a donuts shop franchise business. His franchises were on a hand shake agreement. He provided training, supplies and equipment. The dad was a food inventor.
      Also met a guy who made black, really international orange, boxes to measure aircraft performance. The guy took his equipment to Japan to measure the performance of the Foxbat that a Russian pilot escaped with. Thanks taxpayers for letting me have so damn much fun at NASA.

      Reply
      1. Moses Herzog

        You Satanic “big government” liberals and your waste. Always look for a hand out like the Iowa soybean farmers.
        YOU MAKE ME SICK!!!!!!

        Reagan warned us about people like you who can’t “pull yourselves up by your bootstraps” like Reagan did, taking “private sector ” Army paychecks making marketing films so 18 year old men would be enthusiastic to be shot or be blown up. That’s what real heroism is, you commie snowflakes!!!! Reagan knew what hard work was all about!!!! Do you liberal pansies know how burdensome it is to duplicate cheesy Charlton Heston style acting?!?!?!?! Do you liberal pansies have any</b< idea!?!?!?!
        https://youtu.be/kf7iCLA4IgE?t=29

        YOU on the other hand!!!! YOU MAKE ME SICK!!!!!!

        “Lieutenant Reagan was ordered to active duty on 19 April 1942. Due to eyesight difficulties, he was classified for limited service only, which excluded him from serving overseas. His first assignment was at the San Francisco Port of Embarkation at Fort Mason, California, as liaison officer of the Port and Transportation Office. Upon the request of the Army Air Forces (AAF), he applied for a transfer from the Cavalry to the AAF on 15 May 1942; the transfer was approved on 9 June 1942. He was assigned to AAF Public Relations and subsequently to the 1st Motion Picture Unit in Culver City, California. Reagan was promoted to First Lieutenant on 14 January 1943 and was sent to the Provisional Task Force Show Unit of This Is The Army at Burbank, California.”
        https://www.reaganlibrary.gov/sreference/military-service-of-ronald-reagan

        Wow, this brings back my PTSD memories of “Cadet BoneSpurs Trump”. Oh my God!!!!! Oh my God!!!! I remember “Cadet BoneSpurs Trump” at Mar-a-Lago Pass and the Vietcong at the Mar-a-Lago spa!!!!! Let the combat nightmares end, Oh God!!!! Oh God!!!! Let the combat nightmares end, please LORD!!!!!!

        /Sarc

        Oh well, maybe Mitt Romney can save us from all these damned “darkies” sucking off the government. Romney is a faithful God-fearing man, and Romney knows the correct way to suck on the engorged breast of the federal government—you do it while white and wealthy, then wave Mitt’s big naughty finger at all those “dirty darkies” in Detroit. THAT’S how you LEAD!!!!
        http://articles.latimes.com/2012/jan/12/nation/la-na-bain-subsidies-20120113

        Here’s a scene from Soylent Green. Watching this always makes me feel better when remembering all the severe pain and trauma Reagan and Cadet BoneSpurs Trump felt during those vicious combat battles:
        https://www.youtube.com/watch?v=9IKVj4l5GU4

        Reply
  2. Moses Herzog

    Menzie, I think you know this comment by me would be more a reflection of, or indictment of, the people mentioned at the very last of your post—than any unrealistic expectations from life you hypothetically would (but don’t) have——

    Uuuuuuhh, don’t hold your breath on that apology Chief.

    And speaking of Chiefs (see how I did that there??), your apology from “Princeton”Kopits and assorted fruitcakes would be roughly 2 levels more shocking than “Chief” talking out loud in “One Flew Over the Cuckoo’s Nest”:
    https://www.youtube.com/watch?v=-pZYU8OGO6Q

    See, R.P. McMurphy was way ahead of his time. He knew to get the F— out of Dodge and head to Canada before donald “Orange Excrement” trump hit the White House.

    Reply
    1. Moses Herzog

      @ dilbert
      This was back when the average American voter knew which socioeconomic class was (generally) their true enemy. Americans’ sensitivity to the smell of orange colored skunk was much more easily set off in those days. A picture of species “trumpis skunkus” right before a sneak leap into “Marine One”
      https://skunkiedelight.files.wordpress.com/2010/03/sagie-a-month-aftet-rescue-gained-a-pound-7-mo-old.jpg

      You’re mistaking the current populous of America as one that generally likes to read quality materials. That’s a cute little dream of yours I happen to share—but rather naive of both of us. These little fantasies only lead to disappointment.

      Reply
  3. don

    The graph seems to imply that the Brownback tax cut slowed economic growth. How would you explain that? Could there simply be another factor at work that is missing from your analysis?

    Reply
    1. pgl

      Read the article again. Economic growth did slow which the oped notes citing Menzie’s research. But it is too simple to say the tax cuts was the cause of slower growth. The issue here was that the Republicans promised that tax cuts would magically INCREASE growth and of course that promise was not borne out. But why would tax cuts increase growth. Supply-siders tend to skip this central question. I guess the usual story is that we would get more investment. But wait the tax cuts for rich people allowed them to consume more while the cuts in government investment meant overall investment fell.

      Republicans live on faith in tax cuts for rich people. Economists do actual analysis. And this oped is actually pretty clear on what really happened.

      Now if you have some other causal factor – please educate the rest of us.

      Reply
      1. noneconomist

        Supply siders at the state level –while promising tax cuts for everyone–usually cut taxes for high earners and raise taxes on low and middle income earners. Revenues? They’ll explode when the cuts kick in. While everyone waits–and waits–for what will never happen.
        Not long before many Kansans, for example, rename their state “Brownbackistan” as public services crumble while they listen to their leaders proclaim success.
        Which leaves many to ask, if that’s success, what constitutes failure?

        Reply
        1. pgl

          So right. Republicans are not exactly for small government when it comes to defense spending etc. They are for sticking it to the little guy so the rich dudes can enjoy the Hamptons.

          Reply
      2. don

        My best guess – the demand-side effect of the cut in state spending overcame any supply-side effect of the tax cut. (I wonder if breaking out the state employment and overall employment would have helped to show this.) But I was remiss in not immediately recognizing that in most cases, tax cuts and spending cuts are just opposite sides of the coin for a state.

        Reply
        1. pgl

          A good Keynesian analysis. But note that when one cuts investment – which this did – the policies are also anti-supply-side.

          Reply
  4. Moses Herzog

    OFF-TOPIC
    I’ve always had mixed feelings about Gary Hart. I think he’s above average intelligence (especially for a politician, but in general), He knows policy well, and he is sincere in his initiative to be a public servant and do public good. My mixed feelings on Gary Hart start off with what I think has been the subtext (not very small subtext) under everything he says, that is “Yes, I screwed around on my wife. Yes, I probably screwed around on my wife more than once. And so what?? It has nothing to do with being a leader.”
    https://www.youtube.com/watch?v=nYKDnuhWVlo

    Do we believe that?? In 2018 I am sad to say most Americans do</b< believe that. But if we compare say a Jimmy Carter with a Donald Trump, how does that score exactly?? Now, some people will mention Kennedy. Kennedy was well educated, handsome and came from a privileged family. If you take away Kennedy's looks, his luck in having great advisers on the Cuban missile crisis, and the fact he checked out (died) at a very very naive time culturally in America and checked out right before Vietnam exploded, what do you have?? Less than 3 years total as President. I would argue a slightly better than average President. And also, a tomcat. How would Kennedy rate next to Obama (a man who by all appearances has been monogamous and as far as I know only ONE half-baked rumor about him cheating). Do most Presidents cheat on their wives?? I would wager more than half do.

    Does that mean it's not important for voters BOTH to know and to weigh when voting??? Is it “OK” for a man to tell a very big lie, against the most important person in his life (assumably his wife) and “against God” (if you are religious)?? Gary Hart and other people have the right to argue that “it’s not important”. And it is a valid position to hold. I also have a right to say IT IS important. and I have the right to say I will purchase, frequent, and be a patron of journalistic outlets that search out (Senator Hart can use the word “hunt” if he likes) those politicians that think it is “OK” that they cheat and lie to their spouses and their children. Evangelical voters (“conservatives”??? they are labeled) are cool with adultery. Evangelicals are now cool voting for a man who commits treason during an election. Evangelicals are cool voting a man who launders money for Russian organized criminals and murderers. Evangelicals are cool voting for a man who has ICE agents kidnap children, drug children, and rape women and children at their ICE cages.
    https://www.texasmonthly.com/news/southwest-key-hired-child-case-manager-previously-arrested-child-pornography/

    https://www.washingtonpost.com/national/desert-detention-camp-for-migrant-kids-still-growing/2018/11/27/a6d01a34-f25d-11e8-99c2-cfca6fcf610c_story.html?noredirect=on&utm_term=.94c0b98dd713

    https://www.nytimes.com/2018/08/03/us/sexual-abuse-arizona-migrant-children.html

    https://www.apnews.com/0c62b088c27147b0a6055d1e8394a3af

    I am not cool with it, and there are still SOME Americans not cool with voting for it either. Maybe a minority, but we are still here

    Reply
  5. Julian Silk

    Dear Menzie,

    This will be relatively brief – 2 comments.

    1) Regarding the usual supply-side arguments – the costs of relocating manufacturing facilities, hiring new employees or making sure the old ones can pay for relocation, making sure the children of the new employees have decent schools to send their kids (with appropriate textbooks, etc.), that the new employees have decent medical facilities, etc., are never considered in the supply-side arguments. So in some sense, the supply-side arguments have always been incomplete.

    2) I was with the Gary Hart campaign in 1984, and worked on the Tim Wirth campaign in 1986, which was intimately connected. Lee Hart was a much better politician than Gary – he didn’t relax. There were rumors which I heard about in 1984, and you have to consider context – he was intending to run against Reagan, who was loyal to his wife by all accounts, and did run against Mondale, who was loyal to his wife by all accounts. He was and is a very smart man, but he was campaigning with this notion of “I’ll really tell you the truth”, and just didn’t. The reaction of Pat Schroeder, who was so close to Hart, is the one to watch in these things.

    Julian

    Reply
    1. Moses Herzog

      I always liked Pat Schroeder. As a social misfit teen (hard for you guys to imagine,, eh?? joke) I spent a decent amount of time watching C-Span. And would watch her stumping on national issues, and even once on a pretty bad presidential run. One thing that struck me about Schroeder was (and I can hear the open groans from Menzie’s female readers here) she was way way way over-emotinal about things. As in, more than once she was a hair away from crying (and even did end up crying on at least one occasion). I mean it, now, you can tell when people are about 1/8 step away from letting the river flow. And I saw her hit that mark in public speeches at least 10 times. Now let me say this—this was one of the reasons that made her Likable to me. The fact Schroeder got emotional meant she genuinely cared. A politician who genuinely cares about people, and isn’t faking it to check a box on a demographics card?? That’s like opening your downstairs freezer and finding a larger gold ingot lying right under your Heath ice cream bars. It wasn’t going to change my vote—-but the problem is—that would change many other people votes “If she cries talking about ‘topic X’ what is she going to be like on war time decisions??”. I think it is part, not all, of what killed any chance of her national intentions.

      Schroeder is a great lady, and has sadly been forgotten by many so called “feminists” who are more interested in belonging to a “cool club” of 2018 than singing the praises of women like Schroeder who set the real bar. Women are always whining Hollywood never does stories about career oriented women. Where are the FEMALE movie producers there??? It’s so much more fun for women to throw eggs at the men than get up off their duff and make films. Look at your Reese Witherspoons, Oprah Winfreys, Kathleen Kennedys, Sofia Coppolas, Sandra Bullocks. How about Drew Barrymore?? She produces films and is of about the right age and facial features to play the 1980s Schroeder part herself—well looky looky there—- they are just like the men–NONE of them want to make a film that LOSES money. If any of those women actually gave a crap, a film about Pat Schroeder would have already been made by now. How about Drew Barrymore?? She produces films and is of about the right age and facial features to play the part herself. And if they did it right, it might even pull a “Black Panther” and sell a few tickets. Don’t hold your breath too long on that one. It’s much more fun for women to whine about the men making the films than to put up their own money.

      Reply
      1. Moses Herzog

        Many Hollywood films start from the small impetus of a well done documentary film. (Because nothing aids a lack of Los Angeles based creativity than stealing from reality). Now this is what, 5 minutes?? And you can find another 50 one-liner type Youtube videos that about 3 people have watched if you count Schroeder’s dog playing online as a person. Tell me you can’t make a movie out of this, with a good screenplay writer, a serious director (Kathryn Bigelow anybody??) and half an attempt at marketing—-I dare anyone to tell me said film wouldn’t clear $50 million profit on maybe a $10 million budget if the cast wasn’t too greedy. I give them “a gross share” of the revenues. Whatever. Tell me with all that pent up Trump anger this doesn’t clear $50 million in in 2 weekends in the right hands.
        https://www.youtube.com/watch?v=Tcm_OO4kEgs

        https://www.youtube.com/watch?v=OJTSvJV58Ok

        Schroeder was doing heavy lifting while Hillary was in Arkansas, pretending she liked making cookies and that she grew up to age 18 an Illinois native and resident, and a Yale grad with a deep south accent. Guess what?? People respect women who do the real work, not liars who pretend they bake cookies and grow a fake “I’m just one of you illiterates” accents inside of 48 hours of moving to the Ozarks.

        Reply
    2. Beeker25

      The supply side argument always comes with the argument that people or companies move on the basis of taxes. Another point they use a blunt aggregate data to prove their point while leaving out other measures. In the end, the definition of insanity is doing something over and over and hoping for a different result applies here.

      Reply
  6. Moses Herzog

    Off-topic, but an important MUST read
    Jason Leopold is one of the best journalists working in America today. You can pretty much bank on everything in this story as being FACT. We have a squatter in the White House named donald trump, who is using his position gained from illiterate American voters to F— over this entire nation.
    https://www.buzzfeednews.com/article/anthonycormier/the-trump-organization-planned-to-give-vladimir-putin-the?bftwnews=&utm_term=4ldqpgc&ref=hpsplash
    BTW, Sater was mentioned in the Atlantic magazine article discussing trump’s money laundering for Russian organized crime (many of them, but obviously not all, Russian Jews). I have linked on this site multiple times. I can put the link up again in this thread if any commenter requests it. Sater has a very dark history, but I would say, if Sater wants to give back to a nation that helped liberate Jews from concentration camps and has given many Jews a safe place to live and educate their children—Sater could do worse than turn state’s evidence against the White House squatter named trump. Sater might even work his way up to the title of “National hero”. It’s a bit of a stretch considering Sater’s personal history, but hey, these are crazy times.

    Reply
  7. pgl

    OMG!

    “I think I deserve apologies for those who wrote four years ago (in response to Whistling Past the Intellectual Graveyard) about giving supply side a chance: Bruce Hall, Ricardo (aka RicardoZ, Dick, DickF), Steven Kopits, and Rick Stryker.”

    I started reading these past comments and I strongly suggest everyone else avoid doing so as these comments are so incredibly stupid that I may have to go bang my head against the wall.

    Reply
  8. pgl

    He’s BAAAACK!

    “Patrick R. Sullivan
    July 1, 2014 at 7:59 am
    To make the point even more clear, the Laffer Curve says that at tax rates of 0% you get zero revenue. Josh Barro’s piece says Kansas applies a 0% tax rate to certain types of income. Guess what Laffer would expect the revenue to be.”

    Patrick R. Sullivan is legendary among right wing trolls. Why? He writes some of the most vacuous intellectual garbage ever such as that really stupid line.

    Reply
      1. pgl

        You were expecting Patrick R. Sullivan to understand monetary policy back in the 1930’s? He does not even get what monetary policy is today.

        Reply
          1. pgl

            BTW while the Bank of Canada was established in 1934, the Bank of Montreal effectively served as Canada’s central bank for a long time before that. Patrick R. Sullivan neither knows history nor economics. Sort of like a poor man’s Donald Luskin.

          2. pgl

            I wonder if Patrick R. Sullivan ever read this:

            https://www.sciencedirect.com/science/article/pii/S1094202501901413

            The Great Depression in Canada and the United States: A Neoclassical Perspective

            “Canada suffered a major depression from 1929 to 1939. In terms of output it was similar to the Great Depression in the United States. However, total factor productivity (TFP) in Canada did not recover relative to trend, while in the United States TFP had recovered by 1937. We find that the neoclassical growth model, with TFP treated as exogenous, can account for over half of the decline in output relative to trend in Canada. In contrast, we find that conventional explanations for the Great Depression—monetary shocks, terms of trade shocks, and labor market and competition policies—do not work for Canada.”

          3. Moses Herzog

            I’m hoping you were at least successful in teaching Ricardo about IP addresses. Then it will have all been worth it, eh??

            How ironic is it he gave himself the ID name of possibly one of the top 5 economists of all time? Weird…..

  9. pgl

    Steve Kopits back in 2014 did not know the difference between nominal increases v. real increases. Does he know this simple concept yet? Who cares as I refuse to read his worthless blog!

    Reply
  10. Steven Kopits

    Unemployment rates:

    Kansas: 3.3%
    Missouri: 3.1%
    California: 4.1%
    New Jersey: 4.1%

    https://www.bls.gov/web/laus/laumstrk.htm

    Employment-to-Population ratios (2017)

    Missouri: 61.4%
    Kansas: 64.2%
    California: 59.4%
    New Jersey: 60.2%

    https://www.bls.gov/opub/ted/2018/employment-population-ratios-increased-in-12-states-in-2017.htm?view_full

    Unemployment rates in Kansas and Missouri are essentially similar; however, at least as of the latest annual data, 3 more people per hundred were working in Kansas than in Missouri. California and New Jersey look bad by either unemployment or emp-to-pop ratios. Do they deserve a post?

    Hard to make the case, based on available data, that Kansas looks bad. Indeed, it looks the best of the four states in aggregate.

    As I recall, I was never a great fan on asymmetrical tax cuts which essentially blew out the budget deficit. If you dig for it, you’ll probably find it.

    Otherwise, here is what I wrote in the linked comment:

    I think sizing tax changes is always going to be a challenge; it is certainly possible the administration there under-estimated the revenue impact of tax changes, even though a decline of $372 million was budgeted. They may have to re-visit this issue.

    Creating “ten of thousands of jobs” in a state with a labor force of 1.5 million and unemployment of 4.8% is no mean feat. One percent of the labor force is about 15,000 jobs, and labor force is declining by 0.5% per year. Maybe you could push the unemployment rate down another percent or so. But the employment to population ratio in Kansas is already much higher than its comp group: 64.5 percent vs 59.7% in MO or 56.4% in California. So that’s a net of about another 15,000 or so jobs max that the economy there can take, if I believe what I see. That would bring unemployment a year hence to about 3.3%…

    I stand by what I wrote.

    Reply
    1. pgl

      You never replied to this from Menzie:

      “But what is more interesting is the real spending trend; since the CPI-Midwest rose 1.6% (y/y through May), then real spending fell 4.7%.”

      Yes we noted your abuse of nominal increases. Ever heard of real spending per capita? Didn’t think so.

      Reply
      1. Steven Kopits

        I never said anything about spending per capita. I don’t think it’s a particularly good metric, though. New Jersey, CT, Illinois, NY City all have high spending per capita and they’re all broke.

        The issue is the efficiency of spending. If politicians aren’t paid for efficiency and sustainability, don’t expect to get it.

        Reply
        1. pgl

          “I never said anything about spending per capita. I don’t think it’s a particularly good metric, though. New Jersey, CT, Illinois, NY City all have high spending per capita and they’re all broke.”

          Per capita spending is not a good metric. OMG Steve – you have won hands down the dumbest troll ever award. BTW – I live in New York. We are not broke. This is why I refuse to read your stupid blog. You write really stupid things.

          Reply
          1. Steven Kopits

            NYC looks broke to me:

            Pensions and Healthcare

            https://nypost.com/2018/02/25/new-yorks-ticking-pension-bomb/

            https://www.nytimes.com/interactive/2017/06/20/business/dealbook/new-york-city-pensions.html

            https://www.empirecenter.org/wp-content/uploads/2013/09/PensionExplosion.12.2010.pdf

            https://www.forbes.com/sites/mayrarodriguezvalladares/2018/11/01/americas-largest-three-cities-financial-condition-is-scary/#79b19a9f3609

            Public Housing

            Nycha [New York Public Housing] is waiting on a federal monitor and the infusion of at least $2 billion in city funds, although even that might be a drop in the bucket next to the system’s estimated $25 billion in unmet capital needs .

            https://www.nytimes.com/interactive/2018/06/25/nyregion/new-york-city-public-housing-history.html

            Subway

            Ridership is near a 70-year peak, but after years of neglect, deferred maintenance, and financial mismanagement, the system can’t handle the strain.

            https://www.cbsnews.com/news/mta-why-has-the-nyc-subway-gone-off-the-rails-60-minutes/

            Amtrak Tunnel

            Without Federal help, NY/NJ can’t replace aging Amtrak tunnels under the Hudson. Project cost: Up to $20 bn.

            https://www.progressiverailroading.com/amtrak/news/Cuomo-tours-Hudson-River-tunnels-in-push-for-federal-funding–55911

            You could do worse than to read some of the local NY press, given that you live there. Personally, I would have booted you from the comments sections a long time ago. You’ve made it a toxic place, nothing more than serial invective and precious little analysis or substantive debate.

    2. dilbert dogbert

      Things are just awful here in California. Please stay away!!!! We are full up with flatlanders and can’t find any room for them to stay. They are camping on the sidewalks.

      Reply
        1. pgl

          Wyoming is cheap because no one wants to live there and even if one did – the job opportunities suck. I do declare. Princeton Steve has taken the lead for the dumbest troll ever. Even Patrick R. Sullivan cannot compete with this idiocy.

          Reply
        2. noneconomist

          Carmel is more expensive than Topeka? Cost of living is higher in Santa Barbara than in Dodge City? A house costs more in Honolulu than one in Wichita? Who knew?
          What next? More expensive to own and drive a car in California than Kansas? Say it isn’t so!

          Reply
    3. don

      Your comparisons of percent of the labor force employed might be relevant. After all, a touted effect of lower income tax rates is smaller work disincentives. However, to be useful, you should look at labor participation rates before and after the Brownback tax cuts (as our host did with the unemployment rate). Otherwise, you might conflate differences in demographics and in the structure of jobs in the economy with those of the tax changes.

      Reply
      1. Steven Kopits

        I made no attempt to allow for ‘fixed effects’ as Menzie likes to say. But if 3 more people in 100 are working in Kansas than in Missouri, and 6 more than in New Jersey or California, then I am hard pressed to understand why Kansas is being singled out for this kind of treatment. If Menzie is looking for failure, I could recommend he look at my home state of New Jersey or Connecticut or Illinois. There’s lots of failure to go around.

        Reply
  11. baffling

    i would be curious to see if rick stryker would be willing to reassess his comments from the linked page, in light of the 4 years of data we now have available. rick, could you please take some time away from your son and give us a reassessment? thanks

    Reply
    1. pgl

      Rick Stryker echoed a common theme: “To Ricardo’s point, not all tax cuts are equal. Many conservatives/libertarians did not think the Kansas cuts were optimal. It would have been better to broaden the base for example and perhaps not provide the corporate pass through. But the evidence does not suggest, I think, that the tax cuts failed but rather that they were too small to resist being overwhelmed by broader economic forces.”

      This is SO dishonest. They pull together the Usual Suspects of supply-siders like Kudlow, Moore, and Laffer and let them design tax policy. And when the promised miracle fails to occur, they whine “this was not our optimal policy”. Seriously? Of course there is always – there are other factors. Well yea but then the Usual Suspects claimed a tiny capital gains tax cut in 1997 was the reason for the late 1990’s boom.

      Liars lie. That’s what they do!

      Reply
  12. noneconomist

    Problem again: California has about 13X more people than Kansas. The state extends over 1000 miles north to south and includes numerous economic regions. More than a few of these regions have unemployment figures (not to mention better regional GDP stats) than Kansas. Orange County, for example, is a bit larger but far more prosperous. That would also be true for San Diego County as well. For other counties, the disparities are even more glaring.
    As much as it’s unfair to compare these two counties with Kansas (economically and in almost every other aspect) it’s equally unfair to compare Kansas with California.

    Reply
  13. SecondLook

    Tax cutting is the sine qua non of modern American conservatism. Not subject to analysis or any serious critique.
    And since they have won the public hearts and minds on the subject, it is like trying to be religious skeptic during the Middle Ages…

    Reply
  14. spencer

    I suspect that because it is something that can be manipulated, economist and politicians on both the left and right probably give way to much credit to the positive and/or negative impact of different tax rates.

    For example, Massachusetts use to be known as “Taxxachusetts” . But in the 1980’s a democratic governor took steps to reduce taxes and now taxes in Massachusetts are close to the national average. During this time Mass. experienced strong per capita growth and it is is now has the third highest level of state real per capita income–adjusted for regional price parities. ( it is now 130% of the national average) It helps that the state was a leader in several strong industries like high tech, education, finance and health care. But it probably was more that taxes in Mass were outliers and just bring them close to the national norms removed the issue as a strong negative and allowed the states natural advantages to prevail.

    But what we had was a list of factors that drove the economy and taxes were just one of them, and in and of itself was not all that significant.
    So in the cases of Nebraska and Wisconsin we have people trying to claim credit or place blame on single factors could that could not be justified.
    But the bottom line is still that the experiment with lower taxes in these two states did not work –period.

    So my question is what doe peak trader get out of trying to beat a dead horse.

    Reply
    1. PeakTrader

      Spencer, it should be noted, Kansas’s economy is much less diversified than the U.S. economy. Its largest industries are agriculture, cattle, oil & gas, and aviation. Of course, government is a big part of the economy too.

      Commodity prices collapsed not long after the tax cuts and less government spending is contractionary (government mismanagement implementing spending cuts is not surprising).

      Commodity prices fell 50%, wheat prices fell from $9 to $4 a bushel, farm income down, a 40% drop in aviation jobs, and many government job losses were high-paying jobs too.

      Reply
      1. PeakTrader

        “Meanwhile in Connecticut, the state twice raised taxes to address a budget deficit. Unfortunately, these tax hikes did not create long term revenue growth. What’s more, after the most recent rounds of tax hikes, the state experienced a corporate exodus highlighted by GE and Aetna. The state capital of Hartford is also flirting with bankruptcy.”

        Chart – Real GDP – Connecticut

        https://fred.stlouisfed.org/series/CTRGSP

        Chart – Real GDP – Kansas

        https://fred.stlouisfed.org/series/KSRGSP

        Reply
        1. pgl

          Good grief – an off the wall quote with no attribution. Did you write this gibberish all by yourself but no one would publish it? Or did you quote some other idiot without proper attribution? Can you say plagiarism?

          Reply
      2. pgl

        “government is a big part of the economy too.”
        Really? – A Republican led state is more socialist than California? Good to know.

        Reply
      3. 2slugbaits

        PeakTrader Kansas’s economy is much less diversified than the U.S. economy. Its largest industries are agriculture, cattle, oil & gas, and aviation.

        Where do you get this nonsense? Did you ever try actually looking up data for Kansas GDP? Agriculture, cattle, oil & gas and aviation are nowhere near the dominant value added sectors in Kansas. Please visit the BEA website for state GDP before commenting again.

        Of course, government is a big part of the economy too.

        And while you’re visiting the BEA site, you might want to look at the direction of state & local government spending during the reign of Brownback.

        Reply
        1. PeakTrader

          2slugbaits, even in Silicon Valley, you’ll find services is by far the largest part of the economy, e.g. financial services, professional & business services, food services, education services, health services, leisure & hospitality, even government services, etc. like in Kansas. However, just because people spend and pay taxes everywhere doesn’t make the San Jose economy the same as Kansas.

          https://www.newsmax.com/t/newsmax/article/636549/113

          Reply
          1. 2slugbaits

            PeakTrader Wow. Newsmax as our source? Really? I recommended that you look at BEA data, not some crap from Newsmax. That’s even worse than linking to moronic articles from Forbes. You listed several industries and claimed they were the largest in Kansas. You were wrong. Just admit you were wrong and move on.

        2. PeakTrader

          Also, I stated before:

          If a state is already business-friendly, e.g. low taxes, small government, low cost of living, etc., making it a little more business-friendly may have little effect to attract or start-up businesses. Also, Kansas is in the boondocks, far away from megatropolises, which tend to generate business activity.

          Reply
          1. noneconomist

            Which makes one ask: who bought the “Look out Texas, here comes Kansas” nonsense? Those who promoted it obviously knew they had easy marks who also bought into the tax cuts would be “a shot of adrenaline” into the Kansas economy. (More like morphine).)
            You can preach to the choir for only so long, even a want-to-believe conservative one that will eventually figure out why the promised full collection plate is emptier from week to week.

  15. noneconomist

    Speaking of Wisconsin, how about that Paul Ryan?
    Going home as a deficit hawk (hand over mouth, laughing) turned deficit exploder. Not laughing.
    In prehistoric times (2011) Hawk Paul was moaning and groaning about those crazed big spending liberals leading us to economic ruin. What would the future hold for his three children who would bear the brunt of such largesse? (Republican deficit/debt hawks are always concerned about the effects of rising debt on children, especially the unborn or those whose mothers were too poor to afford birth control. Remember, it was more important to subsidize corn growers than to subsidize birth control)
    Well, wouldn’t you know. Hawk Paul helped engineer one of those tax cuts that would bring so much revenue, we wouldn’t know what to do with it all.
    Deficits? Seems that $438 Billion deficit in 2015 will be around $779 in 2018. And next year? Close to $1Trillion!
    So, looks like Paul’s kids, along with all the others, will continue to suffer from policies pushed along their pops, who walked proudly up the aisle to announce the tax cut passage while looking forward to the billions of extra revenue it will never produce. And more fiscal pain inflicted on more future Ryans with the help of, yes, dear old Dad and Grandpa.
    Of course, we can expect Hawk Paul to reappear in one of those conservative “think tanks” where he’ll once again strategize on planning for more tax cuts to save his children from a miserable economic future.

    Reply
  16. Moses Herzog

    I was trying to find graphs, specifically related to the state of Oklahoma, relating annual tax rates to annual revenues over an extended multi-year time frame.
    The best site I am aware of to find this type of information is (really like the only I am aware of)—
    https://okpolicy.org

    I can’t seem to find that data (at least laid out in graph form). Yeah, that’s right, I’m super-lazy and do not want to plot it myself if I can find it— and I cannot believe no one has tabulated that and put it in a graph online. That is, what I was looking for was kind of Laffer related data, if and how Oklahoma’s tax rates had affected state government revenues. If Menzie or anyone knows the place to find that graph, that would be so cool if you would pass it along.

    I happened upon some other info, while looking for the Oklahoma Laffer curve info. For those of you who think making marijuana legal–or at least not a felony crime—could actually be a positive legislative move—–>> your state’s voters might be interested in the following data.
    https://okpolicy.org/in-its-first-year-sq-780-reversed-10-years-of-growth-in-felony-filings/

    This saves MILLIONS of dollars for any state’s Department of Corrections (state prison system) that hasn’t already made these changes related to marijuana.

    BTW, since CBD sales are now legal in Oklahoma, and (I think??) Oklahoma citizens can now grow as many as 5 plants in their own homes, and small amounts of marijuana in your personal possession is now only a misdemeanor—->> there has been no mass murder in the streets, no zombie apocalypse, no werewolves, and no out of the ordinary sitings of feral human beings or extra wayward women soliciting red-blooded American men….. that I know of……..

    Reply
  17. don

    Your comparisons of percent of the labor force employed might be relevant. After all, a touted effect of lower income tax rates is smaller work disincentives. However, to be useful, you should look at labor participation rates before and after the Brownback tax cuts (as our host did with the unemployment rate). Otherwise, you might conflate differences in demographics and in the structure of jobs in the economy with those of the tax changes.

    Reply
  18. Bruce Hall

    Odd how the argument against tax cuts at the federal level is that they will stimulate the economy for a few years before the effect wears off, but will only result in negative outcomes for states. I guess that’s because states can’t print debt.

    Reply
      1. Bruce Hall

        Menzie, I’ve often wondered why government spending has a multiplier effect, but private spending doesn’t. 😉

        We talk as if government debt and excess spending stimulates the economy (after taking its bureaucratic cut), but somehow it doesn’t work when people keep their money, borrow as needed, and spend it as they see fit. Oh, it’s because at some point people have to pay back their debts, but government doesn’t. Got it.

        Two words: Ponzi scheme. Or maybe: bubbles burst. Or maybe: children’s problem. https://fred.stlouisfed.org/series/gfdegdq188S

        Reply
        1. 2slugbaits

          Bruce Hall I’ve often wondered why government spending has a multiplier effect, but private spending doesn’t.

          Who said private spending doesn’t have a multiplier effect? I think you misunderstand the intuition behind the government multiplier. At the risk of greatly oversimplifying, the core problem is a lack of private spending. It’s that lack of private spending that weakens aggregate demand and leads to recessions. The government becomes the spender of last resort. In other words, government effectively takes money out from under the mattress and puts it back into the economy. If consumers and businesses spent 100% of after tax income, then there would be no need for government spending to stimulate aggregate demand. Of course, there wouldn’t be any domestic investment either because there wouldn’t be any domestic saving. It’s when consumers cut back on spending and business cuts back on investment out of saving that we end up with savings exceeding investment demand. This problem is especially acute at the zero lower bound because interest rates cannot go (much) below zero. That’s when we need deficit spending to soak up excess private saving. You might want to examine a very simple version of the fiscal multiplier and think about what’s going on in the algebra. The first order effect is to inject all of the money back into the economy, and it’s only follow-on order effects that diminish as some of that government spending is saved rather than spent. That’s also why a spending multiplier is higher than a tax cut multiplier.

          Two words: Ponzi scheme.

          Three words: States are immortal.

          Reply
          1. PeakTrader

            2slugbaits says “…a spending multiplier is higher than a tax cut multiplier”

            That’s not necessarily true. Weak household balance sheets can have a much higher tax multiplier, because households will pay off debt (e.g. a car loan or credit cards) or catch-up on bills to raise discretionary income. Moreover, it will strengthen the banking system.

            An increase in government spending, e.g. repaving roads, will be a limited and temporary boost, because households will mostly still be paying off debt.

            A large tax cut in 2009, e.g. $5,000 per worker or $700 billion, along with an increase in unemployment benefits (rather than extensions), would’ve likely resulted in a much stronger recovery, given the build-up of household debt from overconsumption before the recession.

          2. 2slugbaits

            PeakTrader That’s not necessarily true.

            In the simple multiplier model it’s always true. Can’t you do simple algebra?

            An increase in government spending, e.g. repaving roads, will be a limited and temporary boost, because households will mostly still be paying off debt.

            This doesn’t have anything to do with it. The first term in the spending multiplier is always 1.00. It’s the tax cut multiplier that can be defeated when households use the tax cut to deleverage and pay off debt. Your completely confused about all of this.

          3. PeakTrader

            2slugbaits, your limited understanding how the tax multiplier works through the economy and can result in stronger growth is why you continue to make ignorant statements.

          4. Menzie Chinn Post author

            PeakTrader: Take it from someone who teaches macro. 2slugbaits has the math right — on the demand side a spending multiplier is larger than a tax cut multiplier.

          5. PeakTrader

            Menzie Chinn, 2slugbaits comments may be good enough for Econ 101, but they’re ignorant.

            Here’s what Barro said:

            “There’s a big difference between tax rate changes and things that look just like throwing money at people. Tax rate changes have actual incentive effects. And we have some experience with those actually working…(tax cuts) worked to expand GDP for example in ’63 and ’64 with the Kennedy/Johnson cuts. And then Reagan twice in ’81 and ’83 and then in ’86. And then the Bush 2003 tax-cutting program. Those all worked in the sense of promoting economic growth in a short time frame.“

            https://www.google.com/amp/s/www.theatlantic.com/amp/article/370/

          6. PeakTrader

            I cited Barro, because his predictions turned out true.

            Households would’ve used tax cuts much more efficiently and appropriately in response to the recession than government spending, i.e. a higher tax multiplier than spending multiplier effect.

          7. 2slugbaits

            PeakTrader Oh my, if you were one of Menzie’s students, I’m pretty sure you would have flunked his macro course. Look, it should have been blindingly obvious from the context that we were talking about the demand side fiscal multiplier. What part of “on the demand side” did you not understand? Do you understand that when folks on an econ blog refer to fiscal multipliers they are referring to changes in aggregate demand? You pretend to have some knowledge of economics, so couldn’t you at least pretend to understand the lingo? Instead you retreat into some babbling nonsense about how tax cuts are supposed to work on the supply side. We’ve covered this ground before and you’ve demonstrated that you don’t understand how supply side tax cuts are supposed to work. And in case you forgot, the main topic here is a case study in how supply side tax cuts failed to deliver the goods in Kansas.

          8. PeakTrader

            2slugbaits, you’re wrong as usual. I got an A in Intro to Macro, which isn’t saying much. At the graduate level, you learn there are many more vectors in n-space than you can comprehend. That’s why a sound general equilibrium model of a large economy hasn’t been created. Throwing out simple theories, particularly 90 year old theories, and a bunch of terminology you don’t really understand do not fully explain how a large macroeconomy actually works.

            And, without the Kansas tax cuts, the economy may have been worse, although I explained before the tax cuts weren’t ideal and spending cuts could’ve been better to facilitate economic growth.

          9. 2slugbaits

            PeakTrader I got an A in Intro to Macro, which isn’t saying much.

            Well, it surely doesn’t say much for your school.

            At the graduate level, you learn there are many more vectors in n-space than you can comprehend.

            In other words, you want to appeal to incomplete knowledge as a reason to justify fairy tales and unicorns.

            Throwing out simple theories

            The whole discussion was about the simple fiscal multiplier. Again, what part of “simple” did you not understand?

            terminology you don’t really understand

            Apparently you’re the one who doesn’t understand the terminology. You’re the one who misunderstood what the term “fiscal multiplier” means.

            without the Kansas tax cuts, the economy may have been worse

            Hard to see how it could have been worse. In any event, your comment is an abuse of the way economists are supposed to think about counterfactuals. A counterfactual is not a license to believe any “so so” story that comes along.

            the tax cuts weren’t ideal

            How would you know what an “ideal” tax cut should have been? You just got through telling us that “there are many more vectors in n-space than you can comprehend. That’s why a sound general equilibrium model of a large economy hasn’t been created.” You can’t have it both ways. If the economy is too complex to comprehend, then it’s too complex for you to think you know what an “ideal” tax cut was. You’re blowing smoke.

            spending cuts could’ve been better to facilitate economic growth.

            Another fact free assertion. Go check the BEA data. Real state and local spending in Kansas was flat to sharply contractionary.

          10. Bruce Hall

            2slug, my words Ponzi scheme were pointed toward the Fed graph that shows U.S. debt/GDP (105%) is about where Greece (109%) was when the walls came tumbling down. Certainly there are differences, but directionally the U.S. is in trouble.

        2. pgl

          “I’ve often wondered why government spending has a multiplier effect, but private spending doesn’t.”

          Lord – what a stupid statement. Read even the most basic Keynesian textbook and you will not that an exogenous rise in private spending does have a multiplier effect. What have you been reading – Dr. Seuss books?

          Reply
          1. Bruce Hall

            pgl does one have to use the /sarc notation for the obvious? But thanks for making my point that increasingly deficit spending by our government isn’t necessarily the way to achieve non-destructive growth. Debt at 105% of GDP and ….

        3. pgl

          “We talk as if government debt and excess spending stimulates the economy (after taking its bureaucratic cut), but somehow it doesn’t work when people keep their money, borrow as needed, and spend it as they see fit. Oh, it’s because at some point people have to pay back their debts, but government doesn’t.”

          An even more idiotic statement! Ever heard of the government budget constraint? Didn’t think so. How about Barro-Ricardian equivalence?

          BTW Bruce, a one-time increase in government investment does stimulate aggregate demand even in a Barro-Ricardian equivalence model.

          If you do not know this – then go read up. Otherwise you will keep embarrassing your poor mom with such incredibly stupid statements.

          Reply
        4. 2slugbaits

          Bruce Hall GDP is a flow variable, so you want to think in terms of leakages. If you have an engineering kind of mind, then you might want to think in terms of a hydraulic model of the economy:
          https://en.wikipedia.org/wiki/MONIAC
          It’s a play on the old EUNIAC machine, which incidentally was kept in the building right next to one of my old offices.

          Reply
  19. Citizen AllenM

    The first problem with the entire set of arguments above is the assumption that Kansas was above the optimal level of taxation to provide the services demanded by the public. Was it? Were massive industries fleeing to sunnier climes? Uh, no. And guess what, were the people happy with a lower provision of services (including drastic cutting of state government)? Uh, no.

    So, all of the basic macro questions are rolling up boxcars. Now, belief in the magic of tax cuts comes from a time when marginal rates were very high indeed at the FEDERAL level- so proof was easy to come by- geez- when confiscatory rates were changed in Britain and the US, tax collections soared as the economies awoke.

    Yeah, a 90% rate that was meant to discourage wartime profiteering was pretty savage. But it forced a tremendous amount of investment instead- the forgotten reasons for it lost in mists of time.

    Now, I look at Arizona, which just had a populist spasm as a result of low provision of services (geez, the teachers went on strike!!!), and even forced a quick band-aid of money. Of course, my car registration fees just increased by $32 a year to pay for the highway patrol and avoid a tax increase.

    Are taxes in Arizona one third of California? Yes. Did those big tax cuts promoted by Ducey and predecessors generate above California levels of growth? NO.

    A much better natural experiment than Kansas, and it shows a decade of failure.

    And low provision of services as well!

    Reply

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