“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.” – The NY Times, October 10th, 2017, referring to the outcome of Kansas tax reform
It is interesting to learn that this scheme of giving tax breaks to the rich with the hopes of bolstering the economy has been tried recently in a couple of Red states. New York Times’ reporter Jim Tankersley wrote an October 10th story on the economic effect that this type of tax reform had on the state beginning in 2013. We also find another case clearly described by Washington Post reporter Todd Frankel in a December 3rd article on how this worked out for North Carolina who had tried a similar reform. Here is an excerpt from the Washington Post article recounting the experiences of Burglington, N.C., t-shirt factory owner, Eric Henry:
“Conservative groups have hailed North Carolina as a model of a tax overhaul since it began slashing state corporate and individual tax rates four years ago. And one of the effort’s main architects, Thom Tillis, is now in the U.S. Senate, where early Saturday he joined 50 other Republican senators in voting for a $1.5 trillion federal tax overhaul — a plan that employs many of the same tactics already in use here [in N.C.].
“But as Henry drove through the conservative, rural county he’s called home all his life, he had trouble seeing many benefits of the tax cut. Business was good, but it wasn’t good enough that he could give his 20 workers significant raises.
“And there were growing worries that the lost tax revenue — estimated at $3.5 billion this year alone — was beginning to significantly hurt core public services such as schools.
‘I don’t know the people who this benefits,’ Henry said of the North Carolina tax cut.
“Changing the national tax code is much different from changing a state’s code. But what’s happening today in North Carolina offers potential clues about the grand experiment with tax cuts the entire nation is close to embarking on, with Republicans appearing confident they can send final legislation to President Trump by year’s end.
“The tax changes in North Carolina haven’t produced the fiscal calamity that led Republican legislators in Kansas this year to reverse dramatic cuts they passed a few years earlier, but nor have they produced the kind of win-for-all economic prosperity national Republicans say their effort will spur.
“Instead, North Carolina has enjoyed the same steady growth as much of the country, making it challenging to estimate the impact of the tax cut compared with the many other factors shaping the state’s economy.”
What has been noticed is the state’s increasing debt and the impact it’s had on schools, infrastructure, and other state-funded programs (emphasis added to some of the quotes below):
“While North Carolina’s economy has chugged along, signs of strain on state spending have increased. The state budget has not kept pace with a growing population, said Alexandra Sirota, director of the North Carolina Budget and Tax Center, a left-leaning nonprofit.
“’Pretty soon, we’re not going to have enough money,’ Sirota said.
“The state legislature’s Fiscal Research Division agrees. It projects budget shortfalls of at least $1.2 billion starting in 2019.
“The squeeze has already hit public schools.
“In North Carolina, the state government provides the bulk of public education funding. And while the overall contribution is up, per-pupil spending, adjusted for inflation, is down. Plus, there are about 10,000 fewer public school teachers in the state, despite growing enrollment, said Mark Jewell of the North Carolina Association of Educators.
“The school system serving Burlington is struggling, said Alamance-Burlington Schools superintendent Bill Harrison.
Anyone claiming schools are better off after the tax cuts is ‘using smoke and mirrors,’ Harrison said.
“Harrison rattled off a string of numbers to make his point. Funding for school supplies has dropped 20 percent, he said. His schools get 33 percent less money for textbooks now than a decade ago.
“’I heard it every year: Why doesn’t my child have a textbook?’ Harrison said.
“Henry’s wife, Lisa, taught preschool for children with disabilities for almost three decades. She retired in 2015 after watching several years in which state lawmakers made cuts to public schools, including by underfunding teacher pay raises.
“’It just felt like a huge slap in the face,’ Lisa Henry said.
“As the sun started to set, Henry drove back to his company. Just a few employees were still around. None of them said they’d noticed the state tax cuts.
“’Other than the roads not getting taken care of,’ said Eric Michel, 33, chief logistics officer.
And no one in the office has gotten a big pay raise since the tax cut, either.'”
Results in the state of Kansas were even worse after its legislature voted to repeal all corporate pass-through taxes in 2012. Here is an excerpt from an October 17th, 2017 story by the New York Times:
“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.
“’It caused a lot of budget instability,’ said State Senator Jim Denning, a Republican who led the effort to repeal the pass-through exemption this year. Mr. Denning, who earns pass-through income from his interest in a commercial real estate firm, said he had personally benefited from the exemption, but the state’s economy had not.
“The pass-through exemption was responsible for $200 million to $300 million of that annual shortfall, according to budget researchers at the Tax Foundation in Washington.”
It is difficult if not impossible to find data that will show that corporate tax cuts such as those enacted in North Carolina and now passed for the country will do anything but mirror the results found here and in Kansas. Will our politicians in Congress ultimately come to this same conclusion and vote to repeal this ill-conceived tax cut?
For the complete story written by Washington Post contributor Todd C. Frankel, go here.