Kansas: The Canary in the GOP Goldmine

Governor Sam Brownback of Kansas was the poster boy of supply side economics…cutting taxes to stimulate the Kansas economy in a pure experiment of Reagan economics. Only it hasn’t worked out the way he and the GOP planned…in fact it has turned out exactly as you would expect when you cut tax revenues: record deficits and little business growth:

In February 2015, three years into the supply-side economics experiment that would upend a once steady Midwestern economy, a hole appeared in Kansas’ finances.

To fill it, Gov. Sam Brownback took $45 million in public education funding. By April of this year, with the hole at $290 million, Brownback took highway money to plug it. A month later, state money for Medicaid coverage went into the hole, but the gap continued to grow.

Today, the state’s budget hole is $345 million and threatens the foundation of this state, which was supposed to be the setting for a grand economic expansion but now more closely resembles a battleground, with accusations and lawsuits flying over how to get the state’s finances in order.

The yawning deficits were caused by huge tax cuts, championed by Brownback and the Republican-dominated Legislature, that were supposed set the economy roaring. They didn’t.

To those of you who live in Wisconsin, some of these things may sound familiar to you…although WI hasn’t yet sunk this deeply into the trickle down sink hole. But there are already complaints around funding for education from around Wisconsin and they are just getting going. But here’s what we can expect if things don’t change here:

“The finances are making it hard to meet the needs of our kids,” he (Steve Jameson,the principal of Columbus Kansas’ Park Elementary) said. “The climate makes it hard to recruit good teachers. If you hear the legislators bashing you all the time, the governor bashing you all the time, you can choose to go to another state.”

And this Reagonomics is exactly what Donald Trump is promising on a national level and economists are warning about trillion dollar increases in the deficit if he reduces tax revenues…something like we are seeing in the test bed of Kansas:

It was a risk Brownback ran when he overhauled the state budget based on an interpretation of fiscal conservatism that dramatically cut personal income taxes.

The state would thrive, he pledged, because the tax cuts would help keep businesses and smart, young Kansans in the state, not fleeing “to Houston, or Dallas, or Chicago or somewhere else.”

“It will pave the way to the creation of tens of thousands of new jobs, bring tens of thousands of people to Kansas, and help make our state the best place in America to start and grow a small business,” Brownback wrote in 2012. “It will leave more than a billion dollars in the hands of Kansans. An expanding economy and growing population will directly benefit our schools and local governments.”

Well it hasn’t been happening…so what do you do in this situation? Repeal the tax cuts? Hell no:

Unwilling to scale back the income tax cuts, the state did increase the sales tax. Now Kansas has the second-highest sales tax in the nation, and such reliance on sales taxes has saddled the state with additional problems: Deflation is dropping the prices of goods and the taxes the state collects on them.

Kansas has the second highest sales tax in the nation? Kansas? Wha?

Is this where Wisconsin is heading now that the GOP has solidified it’s hold on the state capitol? Is this the path that Donald Trump will lead the nation down? Pay attention to the ailing canary in Kansas. Supply side is an interesting theory but we can’t afford to live there.

But you know, how could anything go wrong?

“We’re going to continue to grow the economy,” Brownback has said in response to questions about each new revenue shortfall.

Scott Walker’s plan to shift taxes to poor, middle class in WI

Last week, Gov. Scott Walker said he is interested in the possibility of eliminating Wisconsin’s state income tax and raising the sales tax to make up for the lost revenue. As noted by the Wisconsin Budget Project, eliminating the state income tax and raising the sales tax would result in a tax increase for all but the wealthiest taxpayers.

To replace the revenue lost by the income tax, the state sales tax rate would need to be raised to 13.5%, giving Wisconsin the highest state sales tax rate in the nation.

The tax shift endorsed by Governor Walker would mean the bottom 80% of taxpayers would be paying more in taxes – some of them, a lot more. For example, a taxpayer in the lowest 20% by income would pay nearly $750 more in taxes, on average. Taxpayers in the top 1% — a group with an average income of $1.1 million – would receive a tax cut averaging nearly $44,000.

Here’s a graph outlining how eliminating the state income tax and raising the sales tax would lower taxes on the top 20% of income earners in Wisconsin, while raising taxes on everyone else.

Click for full size
Click for full size

President Obama and Speaker Boehner Are On the Wrong Side of Tax Discussions!

First of all the Democrats once again experienced a massive fail in branding the tax reductions implemented during President George W Bush’s administration. Since they were enacted with a hard sunset date, the Democrats should have loudly and consistently referred to them as the Bush Tax Holiday. Which is exactly what they were!

So now, President Obama and House Speaker John Boehner have their positions on taxes all wrong. They are actually in the opposite corners from where they think they are!

The President didn’t win a huge tax increase for the top tax brackets…taxes just returned to their pre-holiday levels for this small group. And it’s the GOP and Speaker Boehner who won a significant victory by permanently securing the tax holiday rates for the rest of the nation.

Well played GOP!

So why are you continuing to play the injured party here?

Offshore Tax Havens – Say Hello To The Tax Man

Corporations munching on taxpayers

Death and taxes are the two main constants in life. While most of us worry when April 15th comes a knockin’, the corporate CEOs take the Bobby McFarrin approach – Don’t Worry, Be Happy. The reason for this laid back attitude when it comes to paying the tax man is that they’ve got their money stashed in tax friendly places like the Cayman Islands and Bermuda. Senator Bernie Sanders (I-VT) and Representative Jan Schakowsky (D-IL) plan to put an end to it all. Today they introduced in their respective chambers the Corporate Tax Dodging Prevention Act.

According to figures that Sanders used from the CBO, if just 29 top corporate CEOs were forced to repatriate their earnings back to the U.S., the federal government would stand to rake in over $128 billion in tax revenue. That revenue would come from monies in excess of $395 billion stashed away by companies. If you take into account the Fortune 100 companies, there’s over $1.7 trillion hiding in tax havens. How do companies do this while the rest of us have to sweat it out every April?


Top Fortune 100 Companies tax havensOne of the ways that corporations do that is through a loophole that allows companies to stash the money for as long as they like. As long as the money stays elsewhere, no taxes need to be paid. The bills that Sanders and Schakowsky are introducing closes that loophole. The second reason for this is a tax deduction that actually encourages companies to ship jobs overseas. Companies can write this off on their taxes due to costs that are incurred. While this makes sense if the company were in the U.S., it doesn’t make sense for use elsewhere. Not only are jobs lost with the company, but there’s also a ripple effect. Money that would have been paid for construction, utilities, and countless other feeder jobs and associated revenue to smaller companies is lost.

For the average person, these amounts are dizzying. So you may ask, ‘What does this mean to me?’ Besides the loss of revenues for the federal government, state and local governments lose out too. The result is you and I have to make up for those lost revenues. According to estimates by the New Mexico PIRG or the New Mexico Public Interest Research Group, the average taxpayer in New Mexico would have to pay an extra $206 in taxes. That’s nothing for a huge corporation, but that’s a lot for a family struggling to put food on the table. If put in terms of the cost for small business, it’s an extra $1,106 in taxes that they’ll have to pay to make up for loss in taxes.

It’s true that this legislation has a tough fight ahead. However, the fight may be less difficult this year as compared to last. People are starting to wake up and realize that even though they are a small fish in the sea with some very large fish, we learned that if we work together to pressure our legislators, we can make progress. If successful, these CEOs will no longer be whistling ‘Don’t Worry, Be Happy’, but instead the Beatles medley ‘Tax Man’.

Romney Assails His Own Tax Plan as Garbage In!

Any number of times over the three Presidential debates, President Obama and Mr. Romney faced off over the potential effects of the Romney tax plan on the American economy and the Federal Deficit. The President has been quoting data saying that the Romney tax plan would increase the federal deficit by $5 trillion. Of course Mr. Romney denies this and suggests that the President doesn’t understand the tax plan. May I suggest that no one including Mr. Romney and Rep. Ryan understand the tax plan and they have even less understanding of it’s ramifications.

But in fact there is a study of the tax plan or of as much of a plan as there seems to exist on paper. And it was conducted by a nonpartisan think tank, the Tax Policy Center and it was released this past August. The basics of the report simply state that Mr. Romney’s tax plan can not possibly provide the benefits he purports…and in fact, the math just does’t work!

From a recent article in the New York Times:

Mr. Romney criticized the center as performing a “garbage-in, garbage-out” analysis and his campaign accused it of partisan bias. The Obama campaign used the center’s numbers to argue that Mr. Romney had proposed a $5 trillion tax cut. Economists jumped on the bandwagon too, flinging analyses back and forth and picking apart the projections and assumptions in the report.

As a programmer the GIGO adage is second nature to me…and I assume that Mr. Romney understands what he is saying…that HIS tax plan is GARBAGE!

And of course the Romney campaign suggested that the Tax Policy Center is biased…but from the same artcle:

The center’s claim to provide reliable, nonpartisan information comes in part from its staff makeup. It has about four dozen affiliated staff members and scholars — most are economists, several are considered top experts in their fields, and a number have experience in either Republican or Democratic administrations.

It also is derived by virtue of its ownership of a highly sophisticated tax modeling system, one that took about two years to build and has a small coterie of specialists to tend it. The model resembles those used by government offices to forecast the effect of changes to the tax code, and it relies on about 150,000 anonymous tax returns and a wealth of data on pensions, education, consumer expenditures and economic growth.

Doesn’t sound much like a lynch mob of economists to me. Particularly given that the center’s director is Donald Marron, a former Bush administration economist.

And right up until November 6th the argument will continue…but for now Mr. Romney and I agree on one thing…that his tax plan is Garbage In!

Please Sir, May I Have Some More?

In a cleverly titled piece over at the Daily Beast, author Stephen King says Tax Me, for F@%&’s Sake!  This bit really tickled my fancy.

The U.S. senators and representatives who refuse even to consider raising taxes on the rich—they squall like scalded babies (usually on Fox News) every time the subject comes up—are not, by and large, superrich themselves, although many are millionaires and all have had the equivalent of Obamacare for years. They simply idolize the rich. Don’t ask me why; I don’t get it either, since most rich people are as boring as old, dead dog shit. The Mitch McConnells and John Boehners and Eric Cantors just can’t seem to help themselves. These guys and their right-wing supporters regard deep pockets like Christy Walton and Sheldon Adelson the way little girls regard Justin Bieber … which is to say, with wide eyes, slack jaws, and the drool of adoration dripping from their chins. I’ve gotten the same reaction myself, even though I’m only “baby rich” compared with some of these guys, who float serenely over the lives of the struggling middle class like blimps made of thousand-dollar bills.


Optimal Inheritance Tax Rates: Conservative Heads Exploding Edition

Barnabas Collins Is Displeased With The Optimal Tax Rates!

When you hear conservatives talk about inheritance taxes, they invariably refer to them as “death” taxes.  And like any tax, they want to eliminate this one too.  Never mind that labeling it a “death” tax is, of course, absurd on its face.  It’s not a tax on death, it’s a tax on inheritance.  Inheritance is unearned income for the person receiving it and should be subject to tax like any other income.

While it may seem perverse to tax one person’s earnings twice, a key feature of inherited wealth is that upon transfer it goes from being one person’s income to another’s. There is nothing unreasonable then, about asking the person who receives an inheritance to pay their fair share on their new income — particularly when all other earners, including minimum wage workers, pay taxes on the very first dollar they earn. To discuss whether to increase the size of estates exempted from taxation to $3 million, $10 million, or to make it unlimited is to move in the wrong direction in a society that values hard work. The current favorable treatment of inherited versus earned income is the opposite of what it should be.

So why am I talking about this now?  Because economist Brad DeLong pointed me to a paper which proposes an optimal results based analysis of intragenerational wealth transfer, something I’ve been curious about for a long time.  And the results are as I expected.  Everything the GOP is talking about is wrong.  Completely, totally, belly-laughingly wrong.  Big surprise, huh?

The paper, by  Thomas Piketty, Paris School of Economics and Emmanuel Saez, UC Berkeley and NBER, entitled A Theory of Optimal Capital Taxation was published back in 2011.  It outlines a normative approach to identifying the optimal tax rates for inheritance.

For realistic parameters, the optimal linear inheritance tax rate should be as high as 50% – 60% if the government has meritocratic preferences (i.e., puts higher welfare weights on those with little inheritance). Because real world inherited wealth is highly concentrated (basically half of the population receives close to zero bequest), our results are very robust to reasonable changes in the social welfare objective. I.e. the optimal tax policy from the viewpoint of those receiving zero bequest is very close to the welfare optimum for bottom 50% bequest receivers.

But the authors recommend a higher level for top capital transfers.

For top bequests, the optimal inheritance tax rate can be even larger (say, 70% –  80%), especially if bequest are are large, and if the probability of bottom receivers to leave a large bequest is small. Therefore our normative model can account for the relatively large bequest tax rates observed in most advanced economies during the past 100 years, especially in Anglo-Saxon countries between the 1930s and the 1980s.

Once again, the world is a very different place than Republicans think it is…. Can you hear the dominoes falling?

Conservative Mythbusters: Taxing the Rich Is Bad!

"Oh my! Whatever will the job creators do? More taxes? How will they survive???"

Those poor job creators!  They’re so put upon… So many regulations… So much to worry about…  Oh dear.  How will they survive?  We must enable them to create jobs by cutting their taxes and eliminating public spending to clear the field and stop “crowding out” the work of our titans of industry!

Or not.

A lot if [these papers] also reminded me of this: you know all those arguments we’re always having about supply-side, trickle-down economics?  Like every day in the Congress, on the campaign trail, and on cable TV?  Well, scholars have actually looked at this stuff and come up with consistent and compelling answers.  So, if we can just find our way back to The-Land-Where-Facts-Matter, we might be able to make some smart choices around tax policies.

More below the fold.

Continue reading “Conservative Mythbusters: Taxing the Rich Is Bad!”

Conservative Mythbusters: People Move Because of High Taxes

One of the popular myths that conservatives like to repeat is that the reason states lose jobs or have other economic turbulence is because business and “job creators” pick up and move to lower tax states.  You can’t raise taxes, they say, everyone will leave!

Yeah… Not so much.

Recent research shows income tax increases cause little or no interstate migration. Perhaps the most carefully designed study to date on this issue concerned the potential migration impact of New Jersey’s 2004 tax increase on filers with incomes exceeding $500,000. It found that while the net out-migration rate of this income group accelerated after the tax increase went into effect, so did the net out-migration rate of filers with incomes between $200,000 and $500,000, and by virtually the same amount. At most, the authors estimated, 70 tax filers earning more than $500,000 might have left New Jersey between 2004 and 2007 because of the tax increase, costing the state an estimated $16.4 million in tax revenue. The revenue gain from the tax increase over those years was an estimated $3.77 billion, meaning that out-migration — if there was any at all — reduced the estimated revenue gain from the tax increase by a mere 0.4 percent.

In fact, states that cut taxes often see more flight than states that maintain a sustainable tax rate.   Why?  Because taxes are used to provide infrastructure that businesses need to thrive.

Low taxes can prevent a state from maintaining the kinds of high-quality public services that potential migrants value. Studies show that such amenities as cultural facilities, recreational opportunities, and good public services are powerful attractions for potential migrants. Many of those services are financed with tax dollars. Therefore, while low taxes decrease the cost of living, they might also prevent states from preserving or improving valued public services, which would discourage potential migrants.

This is not to say that people never move.  They do.  Just not for the reasons that conservatives hold faith with.

The research does not, by and large, study the impact of taxes themselves on a household’s decision to migrate, but the insights it provides can help explain why taxes likely are only a minor part of the equation.

Once again, conservatives view the world as completely inverted from the way things really are.