Today the Arizona Free Enterprise Club released a comprehensive study of the Kansas tax reform experiment, reviewing many of the claims made by opponents of the 2012 tax cuts to determine their accuracy and applicability to income tax reform.
Titled “The Kansas Tax Reform Experiment: How Arizona Can Learn the Right Lessons from the Sunflower State,” the study finds that many of the claims made by detractors of the Kansas tax package are simply not true. State spending did not decline after the tax cuts were enacted, economic growth was faster when compared to similarly sized states and business growth accelerated in the state.
Rather, the budgetary problems encountered by Kansas were avoidable mistakes that Arizona can learn from if meaningful tax reform is to be implemented in the Grand Canyon State. Some of the lessons from the Kansas experiment include:
- Spending restraint is key to any large tax cut—Contrary to the myth pushed by critics of the Kansas tax cuts, per capita spending was not slashed in the Sunflower State. In fact, overall spending increased in Kansas from 2013 to 2016. Any state considering large scale tax cuts should not plan to spend more.
- Tax reform should include the elimination of targeted incentives and tax credits—When Governor Brownback originally proposed his tax plan, it included the elimination of carve-outs that would have simplified the tax code and recovered lost revenue. These reforms, however, were excluded from the final package, a major mistake that should not be made by other states considering reform.
- Don’t overestimate revenue growth from tax cuts—A common mistake made by supporters of supply side tax cuts is to overestimate economic growth, and with it new tax revenue, that will immediately pay for the tax cuts. This is often not the case, and projected revenues associated with dynamic scoring should be approached conservatively.
- Some changes in the tax code generate more economic growth than others—A key to successful tax reform is understanding that some taxes are more damaging to economic activity than others. This is especially true when considering job growth related to productivity taxes vs. consumption taxes. It is even possible that revenue neutral tax reform can generate additional economic growth if structured properly.
The paper also takes a look at the arguments made by progressive pundits to determine if the ‘blue state’ model of higher taxes and regulations has been more successful in the US than the low-income-tax ‘red state’ model. Our findings clearly show that red states such as Texas and Florida consistently outperform their high tax competitors such as Illinois, a fact consistently ignored by liberal detractors.