Scott Sumner on why no Kansas miracle?

He reports:

The past two years Kansas reduced its state income tax rates. As a result, the top rate of income tax faced by Kansas residents (combined state and federal) rose from 41.45% in 2012 to 48.3% in 2013 and then fell a tad to 48.2% in 2014 (if they don’t itemize.) That’s a pretty tiny drop in the top marginal tax rate in 2014, and a much bigger rise in 2013.

I consider myself a moderate supply-sider, but I certainly wouldn’t expect such a tiny tax cut to significantly affect behavior. And any effects that did occur would happen very gradually, over a period of many years. For instance, firms might be slightly more likely to move to Kansas. But even after the tax cut, the top rate is almost as high as in Massachusetts, so Kansas is certainly not a tax haven like Washington or Texas, which have no state income tax.

I can’t imagine any serious economist predicting that the Kansas rate cut would boost Kansas GDP by 25% or more. Why did I pick that figure? Because the Kansas state income tax top rate fell from 6.45% in 2012 to 4.8% in 2014, which is roughly a 25% rate cut. In order for that rate cut to boost Kansas tax revenues, you’d have to see Kansas GDP rise by more than 25%. That’s obviously absurd.

There is more here.


Most of the revenue gain from increased income would go to the feds.

10 seconds of simple math prove you wrong.

The past two years Kansas reduced its state income tax rates. As a result, the top rate of income tax faced by Kansas residents (combined state and federal) rose from 41.45% in 2012 to 48.3% in 2013 and then fell a tad to 48.2% in 2014 (if they don’t itemize.) That’s a pretty tiny drop in the top marginal tax rate in 2014, and a much bigger rise in 2013."


yeah The first paragraph is as clear as mud

To put it succinctly, decreasing the tax rate lead to an implausibly large increase in tax revenue. The 3rd paragraph makes it more clear

um, I don't think that's what he's saying at all.

This is a story about a broken Laffer curve. KS decreased taxes, probably won't see increase in consumption or investment (i.e. GDP).

It's more like saying if my neighborhood pool cut their fee to zero we might not see a snack bar open up next door to make up for the lost revenue. But no one said we would.

Numbers are a bit fuzzy, I agree, but I think the points are:

1. Top federal tax rates have gone up in the past couple years, swamping the impact of state tax cuts.
2. The name 'Arthur Laffer' is catnip to some, who suppose his napkin-theory held that tax cuts in all times and circumstances finance themselves. Handy strawman.

Right, but top federal tax rates affect residents of all states. The criticism of Kansas' recent economic performance focuses on its under-performance *relative to the rest of the country and its neighboring states*.

See for example:

Look, the point is that the Kansas tax cut (I'm agnostic about whether or not it was a good idea, not being familiar with the state's public finances) is small potatoes in a much larger sea. To expect to see a meaningful statistical impact over a very short horizon is silly. But Arthur Laffer has his nose in it, so let's pull out the 'go to' 3 x 5 cards.

I notice you linked to a Wisconsin article. Huh? Oh yeah. Walker goes before the people for the third time in four years this fall. I really wish that political betting website was still around.

Here's some agitprop from an evil Wisconsin capitalist:

No, Brian.

The point is that Kansas is doing worse than other states - which are also affected by federal rates - despite all the claims of Brownback and his supporters.

Oh ah. So they DID hold everything else constant, so we can isolate the impact of the tax cut that took effect in 2013, by looking at growth since 2011. Science!

Your comment is no clearer than Sumner's post. What point are you trying to get across?

That makes no sense as an explanation.

Sumner wrote:

The past two years Kansas reduced its state income tax rates. As a result, the top rate of income tax faced by Kansas residents (combined state and federal) rose….

As a result? WTF.

Federal tax rates have increased for those with incomes in excess of $200,000 excluding the expiration of the payroll tax holiday and making work pay.

Given few Kansas households are in the over $200,000 bracket, total taxes have gone down, excluding the ending of making work pay and payroll tax holiday.

The Kansas tax rate reduction was 1.65% of income while the payroll tax holiday was a 2% reduction. The Kansas tax does not hit first dollar income, so it does not help the low income worker much. The Obama making work pay and the Obama compromise on a 2% payroll tax holiday did apply to first dollar and were most beneficial to low wage workers.

No one claims Obama's making work pay or his compromise on payroll tax holiday created lots of jobs. Maybe they were lying because they wanted Obama to fail, but it was Obama's opponents who forced higher taxes on first dollar earnings.

The focus on top tax rate is on those earning more than $200,000, the "job creators". Using John Boehner's tax accountant, hiring a new worker will cost the small business man 100% of his wages and benefits which include payroll taxes, plus the 48.2% combined tax rate on all business revenue,

Using a liberal small business owner's tax accountant and the cost of hiring a new worker is only 51.8% of total wages and benefits (100%-48.2%) because hiring a worker in the US is a business tax deduction.

I'm not sure if Boehner hires workers outside the US or whether he pays them under the table so he can't deduct them from his revenue because he would need to issue a W-2 and pay payroll taxes or issue a 1099 sending the IRS after them, which if they are illegals wouldn't be politically beneficial.


But the top rate in Kansas kicks in at $30,000. So it seems a bit deceptive for Sumner to be talking about the top rate faced by Kansas residents going way up. You are not talking about the same set of people.

It's certainly true that the end of the payroll tax holiday had a slightly larger impact on workers than the state tax cut. But on the upper end of the income scale it didn't, because the payroll tax base is capped, and the tax doesn't apply at all to non-labor income.

I'm thinking Scott Sumner should get an editor. Those paragraphs make no sense what so ever.

I would put Scott in the category of "impish." He likes it. After re-reading 4 times they almost make sense.

Essentially, you aren't moving up/down the Laffer curve that far even if you bankrupt state and local government entirely.

More like the astrologers gag. Speak in riddles and let the suckers do the rest.

I don't think so. He's a pretty subtle thinker on a very slippery subject. Monetary economics is full of mind-bending nonsense. Sumner repays the effort, IMO.

Actually they make perfect sense. What is it that you do not understand? No one would expect a .1% drop in marginal tax rate to lead to 25% GDP growth.

The parts in English like where he starts by claiming rates went down and then says rates went up. The first graph is nothing but self-contradicting statements. Sure, I could interpret it a number of ways that make sense. In fact, I'd have to as the written text is gibberish.

This who thread has a "Discovering Nostradamus" vibe to it.

The text is not gibberish if you have even a little bit of background knowledge (namely the large increase in federal taxes).

I believe his point is that changes in federal tax laws due to expiration of tax cuts in the stimulus etc. undid much of what Kansas was trying to do.

As a result, you wouldn't expect much of a supply side effect.

It likely did have an effect. However, Kansas' revenue estimates still turned out to be much more inaccurate than other states', all of which were impacted by this one-time federal tax law changes.

"Why am I even discussing such crazy ideas? Because Paul Krugman seems to want to convince his readers that lots of supply-siders believe such nonsense". Why would readers think supply-siders believe in nonsense?

So to elect democrats.

And another thing. who said that short-term tax cuts work like short-term stimulus? Who said supply-side motivated tax cuts work like aggregate demand side stimulus? Turing fail?

Krugman wants his readers to believe that supply-siders believe in nonsense so that he can bash any right wing policy (supply side or not) and sell more NY Times articles to people who think they suddenly understand economics because they read Krugman's editorial journalism (not any of his academic work mind you). Simple incentives.

Because they do. Or at least Sumner's statement that,

"supply-siders do not claim that tax cuts pay for themselves, is very far from universally true.

In fact, supply-siders presented with supply-side economists saying tax cuts don't pay for themselves will still believe

OK so why did Kansas do its tax cut?

Were proponents using the typical supply side arguments to pretend that it was going to be a non-disaster?

Why would reducing the ultimate state tax rate from 6.45% to 4.8% induce a 'disaster'? Or is it your contention that it's a 'disaster' whenever Democratic Party clients have not so much swag to play with?

Ha. The state legislature, governor, and administration appointees are Republican. What Dems are you talking about?

The ones on the payroll of local schools systems, the state education department, the state higher education apparat, and the state and county welfare departments, as well as any public employee who attends union meetings.

They don't appropriate funds to themselves. All decision-makers with any power are GOP controlled in Kansas. And as a matter of fact I'd bet that more people in most of the entities you list are Republicans than Dems.

And as a matter of fact I’d bet that more people in most of the entities you list are Republicans than Dems

And you'd lose the bet.

Tax cuts are short-term Keynesian, right?

By the way, since when was anyone was talking about Kansas?

All I remember is North Dakota.

Keynes calls for increased government spending to create jobs where the private sector won't. In a State which must balance budgets, tax cuts must kill jobs, so for every job that MUST be cut by the tax cut, the private sector must create more than one job as a result of the increased demand of millions of tax payers paying slightly less per week in taxes.

When taxes are hiked, the most likely result is savings are reduced more than consumption is cut at the household, but the tax revenue WILL BE SPENT probably creating jobs.

Savings today do not create jobs, but only buy US Treasuries, at best. Or pump up stock prices of firms cutting jobs to boost profits to boost stock prices, at worst, creating more incentives to kill jobs.

I thought the big change Kansas made was eliminating state tax for small business income. Brownback said this would result in a hiring and growth boom that so far don't seem to have come to fruition. However, these cuts and those described above certainly have reduced state revenue, which could have been the other main goal of the legislation.

+1, and also the statements about federal tax law changes don't make sense when you look across all states as a control in that many states growth rates went up, despite the change in federal taxes.

I'm Laffering at some of the comments.

Your comment about the cuts being designed to cut revenue and lead to reduce state spending is probably correct.

Starve the Kansas Beast.

Why are you condescending Bill?

Andrew', For some people it is probably difficult to distinguish condescending comments from those which are simply approving.

"I’m Laffering at some of the comments."

This is not an isolated observation Bill. It is what you do half of the time. Are you going to argue and then answer, or answer, or just let it slide?

I answered above.

Reducing state revenues is a worthy goal if ever there was one.

I'm sorry but the whole premise makes no sense. Kansas is not an autarky. Even assuming that the tax cuts lead to more discretionary spending for Kansas consumers, what's to keep them from spending it on things made elsewhere? Or to travel? Unless the tax refund is paid in Jayhawk Bux that disintegrate when you cross the 8 Mile Corner (think Indiana Jones' holy grail) that seems the most likely scenario.

Your confusing supply with demand here. If you're talking about lower taxes putting more money in my pocket, then yes I will spend that money on various things which is good for those selling those things (in state or out of state). However before the tax cut my tax money was going somewhere and that money was being given to someone. If it was state workers then they are now spending less. If it was paying down the state debt then it was bond holders who were getting that cash, who are now not.

A supply side argument, though, is supposed to be "since the tax rate is now lower, I will choose to work a bit more since the reward to me working is a bit higher than goofing off." This 'work' can be anything from working more hours to investing in expanding or starting a new business. That effect would be more in Kansas since I suspect fewer Kansasians work in other states.

That is why Tyler uses a 25% expansion in GDP as his metric for telling whether or not the cut will be self-financing.

But that may be too higher a bar. The gov't is not a private industry but an extension of the people. Suppose it happened to be that state GDP expanded by 10%. That would be insufficient to bring enough money into the state tax coffers to offset the tax cut but it would still be a huge increase to the state's well beign.

So the theory is that there is this untapped reserve of Kansas workers who are sitting on the sidelines at a 6% tax rate but will chomping at the bit to get out there and be economically productive at 4% tax rates? Color me skeptical.

Simple inconsistency in Scott Summner's argument:

PK: Gov Brownback claimed the tax cuts would...

SS: but show me the supply-side economists that would believe...

PK addresses the actual practice and political rhetoric of supply-side policy in Kansas. SS notes that supply-side economists would not support the rhetoric. There's no critique of PK there.

In fact, SS's point harmonizes with a leftist critique of capitalist economics: to remain academically relevant when performing as academics, orthodox economists are committed to complexity, nuance, etc... As public figures, however, they are either willing to push Republican/mainstream propaganda or at the very least remain strategically silent. Examples given by PK in the past include Milton Freidman, Mankiw, and many others. The academically-enabled (mis)use of the Laffer curve by mainstream economists, via strategic silence and strategic legitimation, is the paradigmatic example.

You can always pick out an idiot and berate him with great condescension. But if it has no relevance to policy discussions, what is the point other than to inflate your ego and that of your audience?

What the Governor of Kansas signs into law and the rhetoric he uses regarding the law isn't relevant to the purported goals of the law?

I must be misunderstanding your point.

I think the point is that politicians talk shit. You know, like "if you like your doctor..."

Yes, but the shit-talk is more relevant to which public policies are implemented and how they are perceived than peer-reviewed economics journal discourse.

The relevant idiots here is are Governor pushing the proposal, and presumably a fair number of Kansas legislators.

What was PK's intention? To criticize Gov. Brownback specifically, or to try and paint a larger caricature of supply-side theory?

From PK's op-ed on Kansas:

"The real lesson from Kansas is the enduring power of bad ideas, as long as those ideas serve the interests of the right people."

He goes on to focus on A.L.E.C., an institution that calls on the services of Arthur Laffer and Stephen Moore, to do "embarrassingly bad" research to support the conclusions that tax cuts will produce economic growth.

So, PK wishes to neither to criticize Brownback specifically, nor supply-side economics as an academic discipline (which can always retreat to nuance, complexity, contingency), but rather to describe the social phenomenon of supply-side legislation and criticize the enablers of the phenomenon.

Krugman clearly states, "Why, after all, should anyone believe at this late date in supply-side economics, which claims that tax cuts boost the economy so much that they largely if not entirely pay for themselves?" in very sarcastic tone. He's obviously trying to paint a caricature of any one trying anything that could be considered "supply side".

Sumner is simply pointing out the way that Krugman seems to be employing his favorite journalism tactics of attacking straw men or moving goal posts.

The reason it's not a straw man is because the most prominent voices for these supply side cuts (Brownback and Kansas legislators, Laffer and Stephen Moore as the intellectuals) are indeed making strident claims.

From Vox today:

"After the cuts became law, it was undisputed that Kansas's revenue collections would fall. But some supply-side analysts, like economist Arthur Laffer, argued that increased economic growth would deliver more revenue that would help cushion this impact."

The Wichita Eagle in Aug of 2012 reported Laffer saying that the effect of tax cuts on growth was as robust as cigarettes and cancer.

Now if Sumner wants to say "I'm a real supply-sider and I want to know that my academic discipline is being smeared by these yahoos (Laffer, Moore) he has every opportunity to write that and ask PK to enter a theoretical, academic argument about supply side economics that is divorced from actual contemporary policies and the rhetoric that accompanies them.

The tendency for partisans (who want to be considered legit inheritors of the enlightened academic tradition of seeking truth) is, I believe, to do the two-step:

1) remain silent and vaguely supportive of strident public claims (claim 1: there will be no clear public statements by academic supply siders disassociating themselves from or critiquing the claims of Laffer and Moore)


2) then rebut the "other side" as arguing against a straw man because, heavens, supply side economics is a serious economics that allows for nuance, complexity, and contingency.
(Claim 2: there will be these rebuttals defending against supposedly straw man attacks)

Exactly right.

Laffer and Moore are buffoons, but they are buffoons with political influence on the likes of Brownback. Sumner can line up with them by criticizing Krugman's comments, or he can make his own case, which would start by repudiating the likes of Laffer and Moore.

So far, he seems to be pro-buffoon.

Got links?

If in 10 seconds I find that PK is using Brownback as a strawman we are going to have a problem.

"Why, after all, should anyone believe at this late date in supply-side economics, which claims that tax cuts boost the economy so much that they largely if not entirely pay for themselves?"

We have problems.

"For example, five years have passed since Mr. Laffer warned Americans that “we can expect rapidly rising prices and much, much higher interest rates over the next four or five years.” Just about everyone in his camp agreed. But what we got instead was low inflation and record-low interest rates."

See, now I would say that the Supply-Siders simply didn't realize how much damage the Pre-Keynesianism had done to the economy and how long it would take to repair the damage. The inflation is still coming. But thankfully we have an crap-ton-ass-load of debt deflation to offset it.

"But how can you justify enriching the already wealthy while making life harder for those struggling to get by?"

Because you believe capital organization is the final frontier of human progress? There is technology, but it depends on capital organization and only goes so fast. If the government is doing it wrong, as in they are lining corporatist pockets, that's on them. The answer isn't depleting capital to buy votes for democrats.

Taxes should pay for public goods over the full business cycle. If they aren't fix that. Short-term, cuts can be used for stimulus, if you believe in that kind of thing. Long-term, they can be structured to support capital organization.

You know, all you guys have access to Google too.

PK referring to Brownback ("look out Texas") is a straw man only if he is unrepresentative of what is in fact a group of tax-cut proponents who are making modest, nuanced, and contingent claims about their policy.

And yet the link you provide is further evidence that Brownback is indeed representative. Stephen Moore of the Heritage Foundation:

"But what is irrefutable from the evidence in the states, not just Kansas, is that strategic tax-rate reductions can ignite growth and employment. Memo to Krugman: Read our new book: “An Inquiry into the Nature and Causes of the Wealth of States.”

Irrefutable? That sounds precisely like an opportunity for an economist (perhaps Scott Summner) who is also in favor of tax cuts to speak out so as to distinguish the economics profession from de-legitimizing false claims from political agents.

Thus far, not only is there the predictable silence, there is the "two step of terrific triviality":

1) when at your greatest influence and/or speaking to the most public of audiences, make the widest possible claim ("tax cuts ignite growth, it's irrefutable")

2) when trying to keep your reputation as a person who means what she says and practices an enlightened rhetoric of evidence and reason, narrow the claim dramatically ("in some circumstances in the past, tax cuts have correlated with faster growth").

On Stephen Moore, see Chait, New Republic, "Less is Moore"

On Milton Freidman, see Krugman, New York Review of Books, "Who Was Milton Freidman":

"Milton Friedman played three roles in the intellectual life of the twentieth century. There was Friedman the economist’s economist, who wrote technical, more or less apolitical analyses of consumer behavior and inflation. There was Friedman the policy entrepreneur, who spent decades campaigning on behalf of the policy known as monetarism—finally seeing the Federal Reserve and the Bank of England adopt his doctrine at the end of the 1970s, only to abandon it as unworkable a few years later. Finally, there was Friedman the ideologue, the great popularizer of free-market doctrine."


I'd suggest you look at the public commentary of James Tobin and the public commentary of Friedman or his confederate Sir Alan Walters during the years running from 1972 to 1985 and tell the rest of us whose recommendations proved more prescient. Just to give you a sneak peak, Tobin was insisting ca 1980 that re-stabilizing prices would take fifteen years of tight money and depressed growth. (The project was complete in less than three years).

Because it's simply not possible that Laffer and those who agreed with him simply don't understand what's going on. Because the "Krugman must be shown wrong at al costs crowd" can't deal with him being right, ever.

So states can now increase tax rates without fear of economic consequences.

In simple terms- If a state increases taxes and claims it won't affect economy and indeed it succeeds, they win. They can can claim true "Mission Accomplished". If economy tanks, they lose big time.

In this case, Bronwback claimed economy gains and it tanked. so Brwownback lost...

How does a 25% decrease in the top marginal tax rate equate to a 25% decrease in the overall tax rate? The top rate is only going to affect a small number of people, who account for a small percentage of GDP, therefore you are likely to see small effects from the change.

Kansas, like many states, has a fairly flat income tax rate, with only two brackets.

A 25% reduction in one tax bracket when only 41% of the state general fund budget comes from income tax receipts and only 36% of the total state budget comes from the general fund.

I just looked up the numbers and total receipts from income tax is up $500m from fy2010 to fy2013. The general fund is up from $5.2b in 2010 to $6.3b in 2013 and total budget is up from $17.7b in 2010 to $27b in 2013. If this is a tax cut then I have no idea what tax cuts are.

Sumner is almost onto something, but he lacks the logic and math skills to quite get there. After all this is a guy who has built his career on popularizing the science of confusing stocks and flows.

Ignore the first section, where he means to say the federal tax increase overwhelmed the Kansas tax cut. It's not clear it did - you'd need a better look at tax base details to know - and anyway that has nothing to do with Kansas' performance relative to other states.

It's the second part where he's trying to make a good point, which is really about the wisdom of slashing state income taxes and expecting a growth boost big enough to save the state from insolvency. Of course, cutting the top tax rate by 25% isn't the same as cutting the average rate by 25%, and of course you wouldn't need to raise GDP by 25% to equalize revenues after a 25% average personal income tax cut, because other revenue sources are also sensitive to economic performance. But it's true that the long-run boost to competitiveness (which in Kansas' case, is so far at best too small to be detected) is likely to be outweighed by the damage to the state's finances. Especially when, as in Kansas' case, the governor seems to have been motivated more by dogma than by any objective appraisal of the incentive power of a couple points off personal tax rates.

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