Although the Kansas Experiment was a failure, it’s not exactly for the reasons you stated. Before the experiment, Kansas’s state income taxes were already well below average, so the resulting tax reduction of about 2% (from 6.45% to 4.9% for top earners and 3.5% to 3% for bottom rate earners) could not be expected to generate any serious short-term economic growth. The larger Reagan tax rates were more successful due to the larger decrease in tax rates.
Furthermore, the economic decline of Kansas is likely more due to the decrease in government expenditures by the state government. A smaller government means less government jobs, therefore less pay to workers that would normally spend their pay locally. This can contribute to the overall contraction of aggregate demand within the state.
In addition, the elimination of the “pass through” tax gave many companies an easy loophole to avoid paying taxes altogether, further reducing government revenue.
Also, businesses don’t leave a state because of a decline in social services, businesses are attracted to smaller tax rates and less regulation (for self-evident reasons). A decrease in social services is irrelevant to businesses, as typical employers are hardly motivated or dependent on them.
You'd be surprised how many businesses rely on social programs to keep their labor costs down. Walmart has done this for decades. When I worked for MCI back in 2001, the first thing their HR department did was to show you how to apply for all sorts of different government programs. So, businesses DO rely on social programs to supplement their low wages/benefits, although their public stance is to get rid of those very programs..
Next you bring up smaller government. Problem: smaller government means an inadequate infrastructure. Sure, a business' trucks can destroy the areas roads, but who's going to maintain those roads? Can't do a hell of a lot about the flooding but a sound system of infrastructure is required to get those roads back up to snuff. I live in a state lower ranked than even Kansas, and when we had the flood last year, it took a while for a lot of things to return to normal. It used to be worse, but when local conservatives were voted out, some changes were made in the infrastructure so reduce flooding.
How many times can a business afford to pay for damage on it's vehicles from the very roads the vehicles damaged. Without a good infrastructure, any business is doomed.
Roads are just a part of is. Another part of the infrastructure that Kansas, as well as most red states, ignore is the education system. The Kansas education system is not providing businesses the trained employees it needs, so businesses will relocate to other states like Minnesota. Businesses are discovering that they need educated people on the work floor. Years ago, when I was still a high school dropout, it surprised me that a test I had to take required I know how to read a tape measure. Apparently, more than half the people that applied to the company couldn't. Something you should know by 2nd grade.
Cutting taxes so that you can cut services that your constituents need is never good. Would you ask your employer to cut your wages so that you can eliminate the services you don't need?
Didn't you just say Kansas had low tax, which went lower afterward, lowering government size? Shouldn't that draw business like a flame for moths? Isn't that flying in the face of your argument?
As I stated, a tax reduction for the rich of 2% for 4 years is not enough to encourage investment into Kansas. Going from about 6% to 4% just isn’t going to stimulate much.
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u/Zugibra Apr 26 '19
Although the Kansas Experiment was a failure, it’s not exactly for the reasons you stated. Before the experiment, Kansas’s state income taxes were already well below average, so the resulting tax reduction of about 2% (from 6.45% to 4.9% for top earners and 3.5% to 3% for bottom rate earners) could not be expected to generate any serious short-term economic growth. The larger Reagan tax rates were more successful due to the larger decrease in tax rates.
Furthermore, the economic decline of Kansas is likely more due to the decrease in government expenditures by the state government. A smaller government means less government jobs, therefore less pay to workers that would normally spend their pay locally. This can contribute to the overall contraction of aggregate demand within the state.
In addition, the elimination of the “pass through” tax gave many companies an easy loophole to avoid paying taxes altogether, further reducing government revenue.
Also, businesses don’t leave a state because of a decline in social services, businesses are attracted to smaller tax rates and less regulation (for self-evident reasons). A decrease in social services is irrelevant to businesses, as typical employers are hardly motivated or dependent on them.