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Voodoo economics in Kansas


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#1 diogenes227

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Posted 17 April 2015 - 12:45 PM

The first Bush got it right...

The bottom line: The results from the economic laboratory known as Kansas are in. Supply side theory -- and Kansans -- lost. The only question is whether those like Brownback have learned anything.



Doubt it.

KANSAS EXPERIMENTED AND LOST


Supply-Side Doom in Kansas
1 Apr 17, 2015 12:15 PM EDT
By Barry Ritholtz

Every year, right after the April 15 tax deadline, the U.S. Census releases its data on the prior year’s state tax collections. It is a fascinating document, filled with great data points for tax and policy wonks. It reveals a good deal about the state of local economies, economic trends and results of specific policies. In broad terms, the financial fortunes of the states are improving.

A quick excerpt:

State government tax revenue increased 2.2 percent, from $847.1 billion in fiscal year 2013 to $865.8 billion in 2014, the fourth consecutive increase, according to the U.S. Census Bureau’s 2014 Annual Survey of State Government Tax Collections.

General sales and gross receipts taxes drove most of the revenue growth, increasing from $258.9 billion to $271.3 billion, or 4.8 percent. Severance taxes increased 6.0 percent, from $16.8 billion to $17.8 billion, and motor fuel taxes increased 3.4 percent, from $40.1 billion to $41.5 billion.

You can read the full press release here or access all of the data directly from the Census.

There are some truly fascinating data points in the report:

• North Dakota had the biggest percentage increase in revenue, a gain of almost 16 percent, from $5.3 billion to $6.1 billion, as drillers and workers flocked to the region to participate in the fracking boom.

• Alaska had the largest decreases in revenue, a decline of $1.7 billion (34 percent), from $5.1 billion to $3.4 billion, as royalties from oil and gas leases plummeted.

• Kansas also had a big decline in revenue, falling 3.8 percent, from $7.6 billion to $7.3 billion. (Delaware had a 5.1 percent decline, second to Alaska in percentage terms, on revenue of just $100 million.)

Let's focus on Kansas, because of all the states its tax data reflects conscious policy choices as opposed to larger economic forces, such as falling oil prices.

Under the leadership of Republican Governor Sam Brownback, the state radically cut income taxes on corporations and individuals. Going on the assumption that this would generate a burst of economic growth and higher tax revenue, no alternative sources of revenue were put into place. Similarly, the state failed to lower spending.

Alas, reality trumps theory. As we have seen almost every time this thesis has been put into practice, it fails. The tax cuts don't magically kick the economy into higher gear and the government ends up short of money. Remember former President George W. Bush and his tax cuts? Same deal.

Much of the intellectual heft for this theory can be traced to economist Arthur Laffer, a former member of President Ronald Reagan’s Economic Policy Advisory Board who is sometimes referred to as the father of supply-side economics. To cite just one example: Laffer, along with Stephen Moore, expounded on this thesis in a September 2012 report, "Taxes Really Do Matter: Look at the States."

Now it is true that excessively high tax rates can cause economic harm. For those of you old enough to remember, think about when the Rolling Stones decamped from the U.K. to France in response to Britain’s 98 percent wealth tax; more recently the band U2 shielded some of its assets by shifting them from Ireland to the Netherlands.

The argument goes that cutting tax rates would have led these big earners to stay, and that capturing a reduced amount of revenue is better than losing the potential revenue completely.

Nor is anything wrong with the underlying premise of supply-side economics per se: We can increase economic growth by lowering barriers for producers to supply goods and services and make capital investments. A greater supply of goods and services at lower prices benefits all consumers, helping to expand business activity, hiring and spending. All of that naturally leads to higher tax revenue for the government.

And yet some economic radicals have taken the supply-side theory to absurd places. Perhaps the most radical is Grover Norquist, the promoter of the "Taxpayer Protection Pledge.” Norquist opposes any and all increases in taxes, and has persuaded many politicians and almost all Republicans to sign the pledge.

While serving as Kansas’s U.S senator, Brownback signed the pledge, and was a central player behind putting the theory into practice in the state. Unfortunately for Kansas, the real world has a tendency of introducing frictions that theory often ignores. Kansas now is confronting annual budget deficits, severe cuts in education and road maintenance, and credit-rating downgrades.

Ideally, states should be looking for the optimal point where tax rates produce the greatest revenue with the lowest burden. The range includes value choices between somewhat more revenue versus somewhat lower taxes.

Now, after Brownback's supply-side experiment, Kansas has become a sort of mirror image of the high-tax nation that the wealthy like Mick Jagger and U2 tend to flee. Those in the middle class in Kansas might like to leave for a state with services that aren't starved for money. But like many people of modest means, they aren't especially mobile, and often have deep roots in a community: They own homes, have family and friends nearby and have children in the local school system. Picking up and moving a small business or residence to the next state is harder than it sounds.

The bottom line: The results from the economic laboratory known as Kansas are in. Supply side theory -- and Kansans -- lost. The only question is whether those like Brownback have learned anything.


"If you've heard this story before, don't stop me because I'd like to hear it again," Groucho Marx.

“I spent half my money on gambling, alcohol and wild women. The other half I wasted,” W.C. Fields.

#2 dasein

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Posted 17 April 2015 - 12:51 PM

I guess the moral of the story is to be a rock star and live mobile....
best,
klh

#3 pdx5

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Posted 17 April 2015 - 03:22 PM

Tax cuts alone is like 1 leg of a 3 legged stool. You also need drastic reduction in business regulations, except for pollution. And you you also need drastic reduction in welfare. Singapore has all all those 3 legs of stool in place. Result? 40% more jobs than there are citizens. Those are filled by imported workers on 2 year work visa's. There is no food stamps program in Singapore for working age adults. There is no unemployment checks for anybody. Not a single person. They don't need it. Everybody has a job. Business taxes are low. No wonder every major corporation has a branch there. Every 6th Singapore citizen is a millionaire! That 3 legged stool is working great! I spent a week there in March 2014. It was the safest, cleanest, most modern city I have ever visited. Great food, great public transportation, world class underground highways, best cruise terminal I have seen (I have seen 3 dozen), and ultra modern airport with PC's all over the airport with free internet. What do we have? Welfare programs coming out of the ears. Unemployment for 99 weeks...to discourage workers to look for jobs. Free Obama phones, rent subsidies, heat subsidies, free Medicaid, subsidized Obamacare, free school lunches, free childcare, free transportation to medical facility, free translators at medical facility if you can't speak English, Free lawyers if you can't pay their fee, yada yada yada,
"Money cannot consistently be made trading every day or every week during the year." ~ Jesse Livermore Trading Rule

#4 K Wave

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Posted 17 April 2015 - 06:07 PM

Tax cuts alone is like 1 leg of a 3 legged stool.
You also need drastic reduction in business regulations, except for pollution.
And you you also need drastic reduction in welfare.

Singapore has all all those 3 legs of stool in place.
Result? 40% more jobs than there are citizens.
Those are filled by imported workers on 2 year work visa's.
There is no food stamps program in Singapore for working age adults.
There is no unemployment checks for anybody. Not a single person.
They don't need it. Everybody has a job.
Business taxes are low. No wonder every major corporation has a branch there.

Every 6th Singapore citizen is a millionaire! That 3 legged stool is working great!

I spent a week there in March 2014. It was the safest, cleanest, most
modern city I have ever visited. Great food, great public transportation, world class underground highways, best cruise terminal I have seen (I have seen 3 dozen),
and ultra modern airport with PC's all over the airport with free internet.

What do we have?
Welfare programs coming out of the ears.
Unemployment for 99 weeks...to discourage workers to look for jobs.
Free Obama phones, rent subsidies, heat subsidies, free Medicaid,
subsidized Obamacare, free school lunches, free childcare, free transportation
to medical facility, free translators at medical facility if you can't speak English,
Free lawyers if you can't pay their fee, yada yada yada,


You got it, but think City Slickers...Billy Crystal explaining the VCR...

Some folks are never gonna get it.....

#5 TradeMark

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Posted 17 April 2015 - 09:28 PM

So what your saying is: that you can cherry pick data, over too short a period of time, not control for dozens of other variables, and assert anything you want. Makes sense. TM

#6 NAV

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Posted 17 April 2015 - 11:32 PM

Tax cuts alone is like 1 leg of a 3 legged stool.
You also need drastic reduction in business regulations, except for pollution.
And you you also need drastic reduction in welfare.

Singapore has all all those 3 legs of stool in place.
Result? 40% more jobs than there are citizens.
Those are filled by imported workers on 2 year work visa's.
There is no food stamps program in Singapore for working age adults.
There is no unemployment checks for anybody. Not a single person.
They don't need it. Everybody has a job.
Business taxes are low. No wonder every major corporation has a branch there.

Every 6th Singapore citizen is a millionaire! That 3 legged stool is working great!

I spent a week there in March 2014. It was the safest, cleanest, most
modern city I have ever visited. Great food, great public transportation, world class underground highways, best cruise terminal I have seen (I have seen 3 dozen),
and ultra modern airport with PC's all over the airport with free internet.

What do we have?
Welfare programs coming out of the ears.
Unemployment for 99 weeks...to discourage workers to look for jobs.
Free Obama phones, rent subsidies, heat subsidies, free Medicaid,
subsidized Obamacare, free school lunches, free childcare, free transportation
to medical facility, free translators at medical facility if you can't speak English,
Free lawyers if you can't pay their fee, yada yada yada,



"Welfare" is the transfer of wealth from the hard working middle classes to the non-working classes of the society, in an authoritarian way by the government. That way the elites can maintain their status quo, wealth and security (no blood on the streets) "free of cost". It's the greatest daylight robbery and is as old as mankind !

The bankers finished what was left of free market capitalism in this country. Obama and his programs will finish the middle class in this country.

If there is a need of the hour, it's educating our kids and instilling work ethics among them. Both are missing in this country big time. Way too many freeriders !

Edited by NAV, 17 April 2015 - 11:39 PM.

"It's not the knowing that is difficult, but the doing"

 

“I have heard many men talk intelligently, even brilliantly, about something – only to see them proven powerless when it comes to acting on what they believe” - Bernard Baruch

 


#7 dasein

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Posted 18 April 2015 - 07:58 AM

"Welfare" is the transfer of wealth from the hard working middle classes to the non-working classes of the society, in an authoritarian way by the government. That way the elites can maintain their status quo, wealth and security (no blood on the streets) "free of cost". It's the greatest daylight robbery and is as old as mankind !

If there is a need of the hour, it's educating our kids and instilling work ethics among them. Both are missing in this country big time. Way too many freeriders !


I am actually amazed that Western Europe, IMO, makes the US look good - like in the US, Western European citizens think they are models of progressive enlightenment - meanwhile their politicians are supporting the daylight robbery you mention above, the population at large has lost the work ethic or any idea of selfsufficiency and if anyone gets blamed for the erosion of living standards it is the refugees and foreigners, where half the foreigners actually want to work hard and improve their lot, but all that red tape and wealth transfer, not to mention closed systems that favor incumbents and dislike of foreigners in general, gets in the way.

Edited by dasein, 18 April 2015 - 08:00 AM.

best,
klh

#8 klono

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Posted 19 April 2015 - 07:04 AM

So what is Delaware doing wrong? Is it just a case of too much non-producing, redistribution recipients in and around Wilmington in a tiny state?

#9 Apollo

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Posted 20 April 2015 - 08:24 AM

diogenes227, I agree with you and Barry Ritholtz. I think a constructive debate on this topic might change some minds but I'm not in the mood right now to contribute to that debate. Best of luck to you in spreading truth. It's going to be a long road to educating others. Apollo

#10 Rogerdodger

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Posted 20 April 2015 - 08:33 AM

No mention of Detroit?