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In the year 2017, President Trump has promised the United States that he will provide unprecedented tax cuts to the people of the United States. He believes that such a tax system would stimulate economic growth and once again propel America to the pinnacle of economic success. However, he is not the only one to promise these tax cuts.
In fact, tax cuts have been the ideology of the Republican Party. Hence, whenever they are in power unopposed, they try to implement tax cuts. This same thing happened in the United States in 2015 in the state of Kansas. It is called the Kansas experiment because it really is a real-life test of how trickledown economics works. In this article, we will study the details of the Kansas experiment.
The Kansas Senate was predominantly Republican with very few Democrats to oppose the process. This provided fertile grounds for Governor Brownback to bring into effect the Kansas experiment. The idea behind the Kansan experiment was the same as in all tax cuts. The state was to lower the income tax of the rich and the corporations and this should have resulted in economic growth at a furious pace.
Following this logic, Governor Brownback cut the tax rate of the rich by as much as 29% in some cases. Also, he totally eliminated the income taxes on many businesses. Not only were these measures extreme in nature, the problem is that they were implemented overnight.
The state’s spending budget remained unchanged whereas the income was drastically cut down. Senator Brownback believed that the immediate tax cuts would spur immediate economic growth and the tax plan would end up being revenue neutral. Obviously, that did not happen. The result is that the state of Kansas today finds itself on the verge of bankruptcy thanks to this experiment.
The experiment seemed to have failed because the rich and the corporations who received these tax cuts did not use it to expand the economy and create more jobs. Instead, they just pocketed the cash. They were more concerned with tax avoidance than they were with economic growth. The result is that even though tax cuts were as high as 29%, the rate of job growth was close to 0.1%.
The Kansas experiment can, therefore, be called a complete failure. The end result has been that the government has intervened and created a great transfer of wealth from the poor to the rich.
Let’s understand how Governor Brownback took steps to deal with this crisis that has ended up worsening the situation.
The income tax is primarily a progressive tax. This means that the rich pay more of this tax as compared to the poor. The tax base is more since they have higher incomes and the tax rate is also higher creating a bigger revenue stream for the government. On the other hand, the sales tax is a regressive tax. This is because it is applied equally to all items. The poor people spend a larger portion of their income on buying goods and services. Hence, they end up paying a comparatively larger chunk of their income in these taxes as compared to the rich.
When the budget was in shortfall, Governor Brownback did not roll back the income tax cuts. Instead, he supplemented it with higher sales tax numbers. This did give the government some respite. However, this has negatively affected the common man of Kansas. Any tax breaks that the middle class got were negated by increased sales tax. The poor lost more of their incomes to taxes and the rich ended up becoming the beneficiaries.
The state of Kansas had to arrange money somehow to ensure that they do not fall into a debt spiral. They have been borrowing increasingly more money thanks to the sudden drop in income. Hence, expenses had to be reined in as well.
The problem is that Governor Brownback started aggressively cutting the spending on education. The state aid to the college fees was reduced. Also, the pensions to be paid to teachers and professors were delayed. As a result, a lot of teachers have started fleeing the state of Kansas. Their schools and colleges are in disarray.
Once again, the rich send their kids to private schools and private colleges. It is the poor who go to community schools and colleges. Hence, this spending cut has also been regressive in nature and has had maximum impact on the poor.
Governor Brownback has also taken a big chunk out of the state’s budget for roads and highways to fill the shortfall caused by reckless tax breaks. Cutting down on infrastructures like roads and highways is antithetical to the tax break ideology. This is because businesses also need good infrastructure to be able to cheaply transfer their goods. A state cannot be business friendly unless it provides the proper infrastructure required for transporting goods.
All this has resulted in significantly high debt burden on the state of Kansas. However, the governor is still not ready to roll back the tax cuts. This has prompted credit rating agencies like Standard and Poor’s, Moody’s and Fitch to downgrade the debt belonging to Kansas. Governor Brownback feels that this is temporary turbulence that will clear itself once the benefits of his tax plan kick in and the economy starts growing rapidly.
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What the Current Wave of Protectionism and Populism mean for the Future of Globalization and Free Trade
February 12, 2025
