“Tax Cuts Don’t Increase Revenue”: This Is What Happens When Republicans Actually Enact Their Radical Agenda
A persistent elite Washington trope, embodied by folks like Ron Fournier, says that bipartisanship is the key missing ingredient in our system of government. The two parties just need to stop their partisan bickering and join hands to hammer out serious, substantive compromises (read: slash social insurance).
It’s certainly the case that because of U.S. constitutional design, compromise is necessary during times of divided government — and the ones who won’t do it are ultraconservative Republicans. But there’s another model of governance that gets short shrift among the lovers of bipartisanship: letting election winners implement their agenda. By providing clear lines of accountability and making clear who is responsible for which policy, allowing an election winner to govern makes democracy work.
We see this today in Kansas of all places, where Gov. Sam Brownback is in an unexpectedly tight re-election race:
Although every statewide elected official in Kansas is a Republican and President Obama lost the state by more than 20 points in the last election, Mr. Brownback’s proudly conservative policies have turned out to be so divisive and his tax cuts have generated such a drop in state revenue that they have caused even many Republicans to revolt. Projections put state budget shortfalls in the hundreds of millions of dollars annually, raising questions of whether the state can adequately fund education in particular. [The New York Times]
Brownback’s tax cuts were passed back in 2012 with the help of Arthur Laffer, the conservative policy hand who has made his career insisting in the teeth of contrary evidence that tax cuts increase revenue. Multiple experts warned that the Brownback-Laffer plan would actually crater the state revenue collection, but Brownback ignored them and did what he wanted. The results are in, and it turns out when you cut taxes, you decrease revenue:
Kansas has a problem. In April and May, the state planned to collect $651 million from personal income tax. But instead, it received only $369 million. [The New York Times]
Naturally, the cuts have required more cuts to critical government services, and most of the tax benefits have been vacuumed up by the rich. Worse still, the promised job-creating effects have also failed to appear. On the contrary, Kansas has actually been performing worse than its neighbors on the jobs front.
In short, movement conservatism produces garbage economic policy. But the beauty is, now that fact is obvious to almost everyone in Kansas, including a bunch of Republicans. To his credit, Brownback actually believed in his ideas and put them in place. He is now paying the price for taking that risk.
Contrast that to the elite D.C. idea of bipartisanship, in which the ancient grandees from both parties get together, and through the magic of high-minded civil discussion, iron out a compromise to cut Social Security and Medicare, preferably by enough to be called a “Grand Bargain.” This has the not-coincidental effect of making it impossible for most people to figure out who is responsible for what — and very easy for either side to spin negative consequences as the other side’s fault.
Now, Brownback may well pull out a victory in the end. But Kansas is a very conservative state, and he ought to be cruising to a huge reelection. Future Republicans may well try to jam through similar tax policies copy-pasted from a conservative think tank’s guide to enriching the wealthy, but the colossal failure of the Brownback cuts will surely give them pause.
Government by the permanent D.C. establishment used to at least keep the country on two legs, but with ideologically well-sorted parties, one of them increasingly extreme, it’s come perilously close to breaking down multiple times. When considering reforms to the structure of government, as I believe will be necessary sometime in the future, we should keep in mind stories like this one. Democracy works best when the voters have meaningful and comprehensible choices.
By: Ryan Cooper, The Week, September 17, 2014
“Not A Good Sign”: Wisconsin’s Walker, Struggling, Rolls Out New Platform
Wisconsin Gov. Scott Walker (R) had a plan: win a second term, take advantage of a good year for Republicans, and soon after prepare for a national campaign. The plan is looking a little shaky right now, with polls show him in the midst of a very competitive re-election campaign against Democratic businesswoman Mary Burke.
A month ago, the Republican incumbent and his allies tried moving to the left, blasting Burke as an “outsourcing one-percenter.”
That didn’t do much to improve Walker’s standing, so the governor is now moving back to the right, promising big tax cuts and drug testing for those receiving public aid in a second term.
With less than two months to go in a tight re-election race, the Republican governor put forward a 62-page plan that sums up the actions of his first term, defends them against the critique of his Democratic rival, former Trek Bicycle executive Mary Burke, and offers several new proposals.
“It’s our next wave of the Wisconsin comeback. It’s our plan to make sure that everyone who wants a job can find a job,” Walker said in a telephone interview.
As a rule, when an incumbent is still scrambling seven weeks before Election Day, looking for a platform while struggling to defend his record, it’s not a good sign.
Walker, referencing a one-page summary of his agenda, told the AP, “That’s our plan of action for the next four years. Tear it off. Hang it up. Put it next to your computer. Put it on your fridge.”
Part of the trouble is, Walker used similar rhetoric four years ago, when he promised Wisconsin he’d create 250,000 private sector jobs by the end of his first term – and said he should be judged according to that standard. Nearly four years later, the governor is less than halfway to his goal, and has yet to explain why he couldn’t keep his highest-profile promise.
But even putting that aside, the two key tenets of the Republican’s new agenda – tax cuts and drug testing – probably polled well, but they each come with one big flaw.
On the former, Walker already cut taxes in his first term, and it’s caused a mess for Wisconsin’s state finances. The Milwaukee Journal Sentinel editorialized last week:
Wisconsin’s state budget may be out of balance by nearly $1.8 billion when the new two-year cycle begins next July, and for that you can thank Gov. Scott Walker’s fiscal policies.
While the expected shortfall may end up being smaller – or larger – than it appears to be now, it’s clear that a combination of Walker policies and lagging growth in tax revenue blew a hole in the state’s finances.
The governor, facing this reality, is calling for more tax breaks. Perfect.
But the latter is arguably even more offensive. The plan would require “drug testing at an undisclosed cost for able-bodied adults receiving unemployment insurance payments or benefits under FoodShare, the successor to the food stamps program.” It’s part of a political phenomenon we discussed earlier this year: conservative policymakers keep targeting welfare recipients with drug tests, and the policies keep failing rather spectacularly.
We know exactly what drives these efforts. For many, especially on the right, it makes sense to assume those who are struggling are to blame for their plight. If you’re relying on TANF aid to help your family keep its head above water, maybe there’s something wrong with your lifestyle. Maybe the state should assume you have a drug problem.
But recent real-world evidence points in a different direction. Requiring those who are relying on the safety net to give the government their bodily fluids in exchange for benefits is not only legally dubious; it’s also ineffective and a waste of money.
If Walker doesn’t know these previous experiments have failed, he should. If he does know and chooses to push the idea anyway, it would seem the governor’s plan for the next seven weeks is built on little more than callous cynicism.
By: Steve Benen, The Maddow Blog, September 16, 2014
“The Secret Sauce”: Paul Ryan; “I’m Keeping Tax Cuts For The Rich”
Reducing the top tax rate has been the Republican Party’s highest priority for a quarter century. Since the 2012 election, a handful of apostates have gently urged it to change course. Paul Ryan, who remains the most powerful figure within the party, has just given an interview to John McCormack, and he has a message for the reformers who want to change course: forget it. Ryan, reports McCormack, “made it clear that he disagrees with some conservatives who are willing to accept a high top tax rate in order to increase the child tax credit.”
If the significance of Ryan’s statement here doesn’t immediately strike you, let me explain. Starting in the early 1980s, supply-side economics emerged as the Republican Party’s policy doctrine. Supply-side economics holds that the marginal tax rates hold the key to economic growth, and thus that even tiny changes to tax rates can unleash massive changes to economic performance. Accordingly, Republicans have valued low tax rates over absolutely everything else.
In the 2012 election, that commitment turned into a major liability for the party. The Republican ticket ran on a somewhat sketchily defined plan to reform taxes, the impact of which would have been to give the richest one percent a huge tax cut and impose higher taxes on the middle class.
The Republican reformers have, correctly, identified the commitment to reducing the top tax rate as a major (or even the major) liability. The most important theme of “Room to Grow,” a policy manifesto by “reform conservatives,” is that the GOP should abandon supply-side economics. In some ways, this is the key to many other policy choices the party faces. If they keep their traditional commitment to low top tax rates above all else, there’s simply no money to spend elsewhere. On the other hand, if Republicans stop proposing to cut rich peoples’ taxes by hundreds of billions of dollars, they’ll be able to spread that money around on other things — tax credits for middle-class families, maybe some kind of health insurance — that would benefit a vastly larger bloc of voters. The policy champion for this bloc is Utah Senator Mike Lee, who has at least tried (the math is tricky) to craft a tax-reform plan that would hold taxes for the rich constant while expanding the child tax credit.
The reformists cast their argument in the most soothing possible tones. Cutting marginal tax rates was the correct policy in 1980, they agree. (It is axiomatic among Republicans that everything Ronald Reagan did was correct, even the things that contradicted other things he did.) But the world has changed, tax rates have fallen, and what worked for 1980 does not apply today.
With predictable fury, supply-siders have denounced this heresy. You can get a flavor of the intra-party debate in columns appearing in places like Forbes or The Wall Street Journal, the later of which retorts, “Good economic policy doesn’t have a sell-by date. (Adam Smith? Ugh. He is just so 1776.)”
Ryan has positioned himself as a reformist in some ways. He acknowledged that calling people who get government benefits “takers” is mean. On the other hand, Ryan is a longtime, deeply devoted supply-sider. As a teenager, he immersed himself in The Way the World Works and Wealth and Poverty, the two foundational texts of the supply-side economics worldview (both of which happen to be barking mad), which teach the absolute primacy of marginal tax rates.
So Ryan is cross-pressured here, between a faction that is attempting to excise the party’s weaknesses and his own most fundamental convictions. His answer to McCormack is surprisingly blunt:
“I’m a classic growth conservative. I believe that the best way to help families, the best way to help the economy is to reduce rates across the board,” Ryan said when asked about Utah senator Mike Lee’s plan to increase the child tax credit and create two income tax brackets of 15 percent and 35 percent. “Growth occurs on the margin, which is a wonky way of saying, if you want faster economic growth, more upward mobility, and faster job creation, lower tax rates across the board is the key—it’s the secret sauce.”
That’s Ryan’s conviction. He disagrees with Lee that subsidizing middle-income families with children ought to be the party’s priority. He still believes marginal tax rates are the “secret sauce.” To Ryan’s credit, in this case, he is not hiding it.
By: Jonathan Chait, Daily Intelligencer, New York Magazine, August 20, 2014
“Hawks Crying Wolf”: The Usual Republican Inflation Suspects Are Saying The Usual Things
According to a recent report in The Times, there is dissent at the Fed: “An increasingly vocal minority of Federal Reserve officials want the central bank to retreat more quickly” from its easy-money policies, which they warn run the risk of causing inflation. And this debate, we are told, is likely to dominate the big economic symposium currently underway in Jackson Hole, Wyo.
That may well be the case. But there’s something you should know: That “vocal minority” has been warning about soaring inflation more or less nonstop for six years. And the persistence of that obsession seems, to me, to be a more interesting and important story than the fact that the usual suspects are saying the usual things.
Before I try to explain the inflation obsession, let’s talk about how striking that obsession really is.
The Times article singles out for special mention Charles Plosser of the Philadelphia Fed, who is, indeed, warning about inflation risks. But you should know that he warned about the danger of rising inflation in 2008. He warned about it in 2009. He did the same in 2010, 2011, 2012 and 2013. He was wrong each time, but, undaunted, he’s now doing it again.
And this record isn’t unusual. With very few exceptions, officials and economists who issued dire warnings about inflation years ago are still issuing more or less identical warnings today. Narayana Kocherlakota, president of the Minneapolis Fed, is the only prominent counterexample I can think of.
Now, everyone who has been in the economics business any length of time, myself very much included, has made some incorrect predictions. If you haven’t, you’re playing it too safe. The inflation hawks, however, show no sign of learning from their mistakes. Where is the soul-searching, the attempt to understand how they could have been so wrong?
The point is that when you see people clinging to a view of the world in the teeth of the evidence, failing to reconsider their beliefs despite repeated prediction failures, you have to suspect that there are ulterior motives involved. So the interesting question is: What is it about crying “Inflation!” that makes it so appealing that people keep doing it despite having been wrong again and again?
Well, when economic myths persist, the explanation usually lies in politics — and, in particular, in class interests. There is not a shred of evidence that cutting tax rates on the wealthy boosts the economy, but there’s no mystery about why leading Republicans like Representative Paul Ryan keep claiming that lower taxes on the rich are the secret to growth. Claims that we face an imminent fiscal crisis, that America will turn into Greece any day now, similarly serve a useful purpose for those seeking to dismantle social programs.
At first sight, claims that easy money will cause disaster even in a depressed economy seem different, because the class interests are far less clear. Yes, low interest rates mean low long-term returns for bondholders (who are generally wealthy), but they also mean short-term capital gains for those same bondholders.
But while easy money may in principle have mixed effects on the fortunes (literally) of the wealthy, in practice demands for tighter money despite high unemployment always come from the right. Eight decades ago, Friedrich Hayek warned against any attempt to mitigate the Great Depression via “the creation of artificial demand”; three years ago, Mr. Ryan all but accused Ben Bernanke, the Fed chairman at the time, of seeking to “debase” the dollar. Inflation obsession is as closely associated with conservative politics as demands for lower taxes on capital gains.
It’s less clear why. But faith in the inability of government to do anything positive is a central tenet of the conservative creed. Carving out an exception for monetary policy — “Government is always the problem, not the solution, unless we’re talking about the Fed cutting interest rates to fight unemployment” — may just be too subtle a distinction to draw in an era when Republican politicians draw their economic ideas from Ayn Rand novels.
Which brings me back to the Fed, and the question of when to end easy-money policies.
Even monetary doves like Janet Yellen, the Fed chairwoman, generally acknowledge that there will come a time to take the pedal off the metal. And maybe that time isn’t far off — official unemployment has fallen sharply, although wages are still going nowhere and inflation is still subdued.
But the last people you want to ask about appropriate policy are people who have been warning about inflation year after year. Not only have they been consistently wrong, they’ve staked out a position that, whether they know it or not, is essentially political rather than based on analysis. They should be listened to politely — good manners are always a virtue — then ignored.
By: Paul Krugman, Op-Ed Columnist, The New York Times, August 21, 2014
“An Explosive Failure”: Brownback ‘Experiment’ Blows Up Laboratory Of Democracy
When Louis Brandeis wrote in 1932 that a “single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country,” he was suggesting that state innovations might advance reform on the federal level. The progressive Supreme Court justice surely wasn’t imagining anything quite like Brownbackistan.
Under Governor Sam Brownback, however, the old Brandeis metaphor is especially apt for Kansas, where a highly publicized “experiment” in extreme tax cutting has just blown up the entire laboratory. As Kansans peer through the still-smoking ruins, they evidently don’t much like what they see.
What makes the Brownback blowup feel so familiar is that the same experiment was mounted more than three decades ago, on the federal level, under the rubric of Reaganomics – by some of the same people. It crashed miserably then, too. But the Republican right has a special knack for dressing up old mischief as fresh policy. To put this one over, Brownback has enjoyed heavy support from the Koch brothers — chief financial backers of the ultra-right Tea Party — whose industrial empire is headquartered in Kansas.
The statewide tax cut that Brownback pushed through the legislature in 2012 certainly benefited the most wealthy Kansans – people just like the Kochs – while inflicting higher taxes on middle income and working-class families through sales and property tax increases. Proceeding with expert advice of Arthur Laffer, author of the “supply-side” theory underlying the Reagan tax cuts, the gung-ho governor promised that these regressive changes would promote rapid economic growth. He predicted that his plan would produce 23,000 new jobs and over $2 billion in new disposable income for Kansans. Their tax payments were supposed to offset the loss of nearly 8 percent of state revenues.
But the results have yet to justify the hype. Today, the fruits of Brownback’s experiment include a state budget deficit of nearly $340 million this year; a decision by Moody’s to lower the rating on Kansas bonds; a growing gap in education funding at every level, from kindergarten through college; a ruinous reduction in state and local workforces across the state; and a future that promises even larger deficits and service cutbacks to come.
Advocates of the Brownback cuts – who are much more likely to be found in New York and Washington think tanks than in Kansas itself – insist that with patience, the governor’s vindication will come. Noting that the tax cuts took effect less than two years ago, they say that with time will come the jobs and revenues that Kansans expected. But over the past several months, as most states have added jobs, their state has fallen behind.
The Kansas City Star, leading newspaper in the state, recently analyzed federal employment data compiled by the Bureau of Labor Statistics – and published an editorial comparing Kansas with other states in seasonally adjusted, non-farm total job growth. The bottom line was not encouraging. From January 2011 through June 30, 2014, job growth for Kansas at 3.5 percent was lower than its four neighbors, other Midwestern states, and even “extremely high income tax” New York, not to mention the national average of 6.1 percent. “Kansas has had one of the nation’s poorest rates of employment growth during Brownback’s time in office,” noted the Star editorial, “including since the first tax cuts took effect in 2013.” Moreover, the state actually had fewer jobs at the end of June than it did seven months ago.
As a creature of the Koch machine, Brownback naturally blames this embarrassing data on Barack Obama, the devilish socialist in Washington. But polls show that whatever Kansans may think of the president, they aren’t so easily bamboozled by such arguments anymore. Their opinion of the governor is declining almost as quickly as the state’s revenues — and in some polls he is trailing the lesser-known Democrat, Paul Davis, who bravely challenged him this year. Even some prominent Republicans recently declared they would rather elect Davis than continue the destruction that Brownback is inflicting on their state.
Nationally, the Republican Party still promotes Brownback as an innovator with expertise in growing the economy. The Koch brothers will deluge their home state in dark money and Tea Party propaganda before they let him fall. But if the voters boot him in November, this latest experiment in extremism will be ranked as an explosive failure.
By: Joe Conason, Editor-in-Chief, The National Memo, July 25, 2014
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