Has fiscal conservatism met an impasse at the state level?

The latest from Louisiana is that taxes are going up, but in a strange way that won’t be called a tax increase:

One of the most critical parts of the budget plan, and the part that attracted most of the debate, would raise no revenue and lighten no one’s tax burdens. But because of a complicated arrangement of tax credits, this plan could, by some interpretations, allow Mr. Jindal, a Republican, to say that despite millions coming in from cigarette tax hikes and tax break rollbacks, the state had technically not raised net new tax revenue.

Read the whole article, it is even weirder than that sounds.  Combine that with the recent fiasco in Kansas, where the strongly Republican state government will be reversing earlier tax cuts.

It seems to me that, whether we like it or not, fiscal conservatism has been stymied at the state level.  No, that’s not true for Illinois, New York, or California, but it does seem to be true for many other states, especially those governed by Republicans.  (And yes, state pension obligations still do need to be reigned in and made subject to proper accounting.)  More concretely, trying to cut taxes at the state level doesn’t seem like a useful or productive way forward.

If you have a better revisionist take on Louisiana and Kansas, please do put it in the comments, I would gladly read it, and if you have something really good I will pass it along.  But I see myself as stating what has to be the default hypothesis for the time being — should we not all come out and admit this?

Comments

'Combine that with the recent fiasco in Kansas'

The fiasco of cutting taxes, one assumes.

'fiscal conservatism has been stymied at the state level'

Well, that whole cut taxes and watch the economy boom concept has been been played out in Brownback's tax cutting paradise. Delusions tend to be stymied when reality is unavoidable. Who knows, maybe another Bush running for president will publicly comment on the idiocy of voodoo economics.

Dead on from prior_approval. For this reason, the post really should be titled "Rightwing Fiscal Policy Has Met an Impasse." There's very little conservative about these turns. Surely you read Bruce Bartlett. Because of that original sin, so to speak, the whole post is confused: Way forward in what sense?

The post seems combine the idea of trying to turn back continual expansion in state governments (probably a good idea) with tax cuts for the plutocratic class (given the trends in America and globally, probably a bad idea). To spend is to tax, but the other side of the coin—apologies to the Laffer delusionists out there—to tax less is to cut. How is that a win given? See Yglesias's recent write-up of K Street Hipster's Twitter rant noting how America's have the wealth to support the ultra-lux Tesla brand but lack the ability to make sure they can drive those Teslas over roads that don't resemble one continual pothole? Or the complete lack of ambition in public works in the United States? You do know that LSU is facing devastating cuts: In a time where brainpower drives economies more-than-ever, how is this smart policy?

You get at all this with "More concretely, trying to cut taxes at the state level doesn’t seem like a useful or productive way forward" but that is burying the lede in a pretty mammoth fashion, and one that is completely counter to calling the Kansas rollback a "fiasco." One way or the other, no? These seem to contradict rather directly, and your post title makes it look like you favor the fiasco of cuts being rolled back interpretation, not the fact that these strategies were unproductive in the first place.

The usual absurd got-to argument is the "potholes and education" argument. Too bad for Matt Yglesia's hispters:

1) America's road infrastructure is arguably the...ehh...second best in the world. Sure, Germany is better, but then again they are the size of a US state. So not a fair comparison.

2) Infrastructure spending is a tiny amount of spending at both the State and Federal levels. And yet, read #1 above. (I'd bet whatever amount you want, that the road infrastructure in Houston is a lot better than the road infrastructure in NYC. In fact, I know this, having lived in both places. So tell me again about taxes)

3) Louisiana's spending on infrastructure is about $3 billion/year...in a state of about 4 million people. Give me a break!

4) Louisiana's spending on education is about $13 billion/year. Again, read above, for a state of 4 million people. Again, give me a break!

5) Louisiana's budget is $53 billion. You do the math as to where the money goes.

So, most of the spending at State levels goes to essentially paying for entitlement programs, but the Left's go-to response is always "but you can't decrease spending because of roads and LSU!". But, that's not where most of the money goes.

So here's the problem for the Matt Yglesia's of the world. A problem they have always faced: you can't have your cake and eat it too.

You can't say roads and schools are suffering (which they are not, in fact), while also wanting massive government spending on pensions and entitlements and a welfare state. Cause guess what will get cut when the entitlement state grows out of proportion?

You can't use as a justification to tax your brains away by citing "roads and education", since these only represent a modest amount of the budget of any state. Not when the rest of the budget blows out of proportions due to entitlement programs, which you also don't want cut, but grown.

So the "failure of right wing economics" seems to be it's inability to cut the entitlement state, not anything else. If roads and schools is what you and Matt Yglesias are concerned about, we can reduce the government's spending down to 5% of GDP :) How does that sound?

To demonstrate the flaw in this line of thought, let's look at LSU's numbers. LSU says that the budget cut will force them to forego hiring 120 new professors this year, and cut it down to 60 new professors. Ok. Let's assume an average starting salary of $100,000 per newly hired professor. 60 additional professors comes out to $6 million. LSU's budget is $475 million dollars/year. They can't scrape together $6 million?

At an enrollment of 30,000+ students, that comes out to about $200 per student. Hike tuition by $200. Tuition at LSU is only $8k for instate. It's already very low! Or hike it only for out of state students.

So is this such an insurmountable problem? Only if one wants extremely low prices, and extremely high spending, simultaneously, and isn't will to compromise.

This is how one gets to Greece.

I'm sure your back-of-the-envelope calculations are 100% accurate. Obviously you know more about the finances of LSU than the people actually responsible for writing and cashing the checks. Impressive.

Of course they can scrape together $6 million somehow, but after a couple to a few rounds of cuts that size, the quality of LSU education will suffer. Good professors will take jobs at other schools with openings, or that can pay them more. Less money makes does that. Also, LSU and other LA state schools are already not very good. These cuts suck if you're a Louisiana kid for whom in-state colleges are really the only affordable college option. Tuition has already been rising everywhere and quite a bit. Fiscal rectitude and all.

Yes, let's look at the numbers.

Wow, actually, it looks like Jindal is proposing and 82% cut in state funding for higher ed, the "biggest legislative downsizing ever faced by higher education in the U.S."

And "between 2008 and 2014, Louisiana's per-student state allocations dropped by roughly 43 percent."

Given this information, I have to dismiss your rationalization here as total fantasy.

http://www.theatlantic.com/education/archive/2015/05/bobby-jindal-budget-cuts-and-the-uncertain-fate-of-louisianas-public-universities/392552/

"Tuition has already been rising everywhere and quite a bit."

Why?

And of course a professor requires no support staff, no office and no lab space or supplies. :--(

"Let’s assume an average starting salary of $100,000 per newly hired professor."
Wild overestimate. In the past five or six years LSU has been bleeding quality young professors in my wife's (high demand, hard science) field, precisely because they can't match on salary, or really come close.
Tuition can probably be raised but this is a huge third rail in LA - the TOPS scholarship is the most popular middle class welfare program in state history and families now feel as though they have a constitutional right not to pay for college (hypocrisy alert, I am a former TOPS recipient).

This is the worst envelope calculation ever. Even if you only pay a professor $60,000 (which is the actual amount a starting asst. prof might make at a big state school), it takes nearly $2 million to hire just ONE new professor. With benefits, that's how much money you have to set aside to pay the professor for the rest of his/her career. I'm not back-of-the-enveloping this. I know firsthand that this is the actual amount. So hiring 60 new professors would cost approx. $120 million *up front*, not even accounting for office/lab space, research funds, and other incidentals.

This would be spot on if I was either part of "the Left" or wanted entitlement spending to continually grow. Since neither of those are true, you've wasted a substantial amount of time arguing with someone other than me.

"we can reduce the government’s spending down to 5% of GDP" ... well, sure, if you forget that this would not include either Federal spending or local spending. Did you ever think, you know, maybe people just use those two items as illustrative examples? And are you aware of just how much they are gutting spending at LSU? It's kind of a big deal down there, if you didn't know.

"1) America’s road infrastructure is arguably the…ehh…second best in the world." Lol. Srsly? What the function countries have you been too? Every country I've visited in Western Europe (most of them) had better maintained road infrastructure, as well as Canada. Even China's road infrastructure is (much) better, at least in the more developed areas of China. The two countries I've been to where we have unquestionably better roads are Mexico and India. Not exactly lighting the world on fire.

And yet, if only there were systematic looks at this? "While the U.S. benefits greatly from the sheer size of its economy, excellent universities, flexible labor markets, and innovative businesses, it's falling behind on the overall quality of infrastructure. The U.S. ranked 25 in this category, falling behind countries like Saudi Arabia, Spain, and South Korea." http://www.businessinsider.com/countries-with-better-infrastructure-2013-3?op=1#ixzz3cwBoRC98

25th ain't exactly 2nd. Finally, note their advantage for the USA: excellent universities. Now go look at what's happening at LSU, which wasn't exactly Harvard or the University of Michigan to start with.

Finally, it may have escaped your notice, but New York City may have weather issues that explain roads in worse repair than Houston. So I probably wouldn't go to relative tax rates as the explanatory variable there. In other news, you may have noticed that NYC, with higher tax rates and higher levels of government services, generates a mammothly larger amount of prosperity and wealth than Houston on a per capita basis.

By the way, there's lots of dark matter in Louisiana government: Yes, about 40% is entitlement spending or pensions, but 33% is "remainder." Prisons, state police, state parks, etc. etc. are not free: http://www.usgovernmentspending.com/Louisiana_state_spending.html

So 5% of GDP and you're accusing the Left of wanting to have their cake and eat it too? That's a bit rich. Argue with reality, not straw men. Because 5% of GDP sounds like Somalia: aka a lawless, government-less hell hole, where the government actually can't achieve much of anything, including basic security. But if you can point to a place where the government only spends 5% of GDP and it's a great place to live, I'm happy to reconsider.

"So the 'failure of right wing economics' seems to be it’s inability to cut the entitlement state, not anything else." Umnnn... It's a well established fact that Democratic Presidents deliver better growth than Republican. They also deliver income growth at the individual level that makes everyone richer, whereas Republicans only deliver income growth for the rich. Furthermore, right wing states are generally poorer on a per capita basis than liberal states. And what's happening in Kansas and Louisiana was utterly predictable to people who don't drink the Laffer Kool Aid. I do call that failure.

Anyway, I'm wasting too much time. Try to argue more carefully and better next time.

FWIW, the US has the *most* roads and the *widest* roads. They are pretty terrible roads, poorly maintained. Because there are too many of them and they're too wide.

We need fewer, smaller roads -- we do not need multiple parallel 20-lane freeways -- and then we need to better maintain the ones we have left.

@AIG - "So the “failure of right wing economics” seems to be it’s inability to cut the entitlement state, not anything else. " This is really the crux of all budget issues at both the Federal and state level. The annual Federal deficit is larger than ALL annual Federal discretionary spending combined (less the millitary). We could cut EVERY program everyone thinks is wasteful pork and still not be able to cover the entitlements and military. In that situation, it's impossible to get ahead of your obligations. The only solutions are to cut entitlements, raise taxes, or do both, and Republicans are lothe to do any of them, not that Democrats are jumping to cut entitlements either.

You simply can't have high entitlements and low taxes. The mytical economic boost that is going to come from lower taxes is not going to be of enough volume to cover the entitlements. And a better eonomy brings more people into the entitlement system making that problem worse.

In my township they are closing a township owned golf course and trying to decide what to do with the open space. Residents don't want to turn it into any sort of revenue-generating (and tax generating) enterprise because that will increase traffic and create other problems. But they also don't want to turn it into a park or open space, because that generates no tax revenue and that might mean a tax increase. Everyone wants it both ways. I want all the entitlements that are coming to ME, but I don't want to pay any taxes for them, let the other guy pay for my entitlements. That works great until you realize the "other guy" is saying the same thing about you.

From where are you getting these numbers? Louisiana's budget is listed as $29.1 billion, according to a quick Google search.

Where did you get those numbers? The published budget for FY2014-15 was about $25B[0], of which $10B was Federal funds. (That's right, 40% of LA's state spending comes courtesy of Washington D.C.).

[0] http://doa.louisiana.gov/opb/pub/FY15/StateBudget_FY15.pdf

See Yglesias’s recent write-up of K Street Hipster’s Twitter rant noting how America’s have the wealth to support the ultra-lux Tesla brand but lack the ability to make sure they can drive those Teslas over roads that don’t resemble one continual pothole? Or the complete lack of ambition in public works in the United States?

These are not spending issues. The US has infrastructure costs that are absurdly higher than in Europe and Asia. In the case of transit, it's an order of magnitude difference per mile. I assume that it stems from a variety of causes, so I don't want to blame any one particular hobby horse (NEPA, Davis-Bacon, Buy America, the bidding process, inflexible contracts, corruption, etc.) It's at least as bad in most of the higher taxing US states as in the lower ones.

Or rather, it's not about the quantity of inputs, but about how that gets transformed into output.

I agree very much that we need to get the cost issues in infrastructure under control. That's a smart debate to have. Let's put a lot more attention to fixing that real productivity and overall wealth problem, and less on these questions that fundamentally have more to do with distribution. If we gave 10% of the attention that gets sucked up in the distribution debate into that one, we might start making real progress.

Remember, too, thought that it was a spending issue, or at least a priorities issue. Because the K Street Hipster was wrong about one thing: the United States did conduct one massive public works project in the last 15 years. Unfortunately, that project was not investing in our infrastructure, but rather the invasion of Iraq. The return on investment on that decision looks pretty negative. Even if our infrastructure is too expensive, spending on our country would have been waaaay better than that God-awful mess.

That's really weird, I would always think that in the US it would be much cheaper to build a highway than in EU on average: less densely populated country, "free-market" and all, (very) cheap work force....

The only articles about this I've seen discuss the absurdly high U.S. costs for 'big projects' (particularly rail projects, but also, for example, the Tappan Zee bridge replacement), not ordinary road-repair. And when it comes to roads, it appears that U.S. states are all over the map when it comes to costs/efficiency:

Spending on state-owned roads totaled $132 billion in 2012, up 6 percent from 2011. Spending varied wildly from state to state according to the Annual Highway Report. South Carolina and West Virginia spent just $39,000 per mile of road in 2012 while New Jersey spent over $2 million per state-controlled mile. Rhode Island, Massachusetts, California and Florida were the next biggest spenders, outlaying more than $500,000 per state-controlled mile.

High administrative costs in some states could be siphoning away money for road repairs. Hawaii spent $90,000 on administrative costs for every mile of state road. Connecticut had the next highest administrative costs at $77,000 per mile. Meanwhile in Texas administration costs were less than $4,000 per mile and Kentucky spent less than $1,000 per mile on office costs, best in the nation.

http://reason.org/news/show/21st-annual-highway-report

One of the problems, which is well-documented, is that state DOTs spend more money on *new* roads and *road expansions* (widening, extra lanes, etc.) than they spend on actually maintaining the existing roads.

See how this could generate a problem situation?...

Yes, Europe has much more dense population.

But what about Canada. Their population is less dense and their infrastructure is better.

Once again, p_a does the yeoman's work dismantling one of the shallowest public intellectuals.

Cutting taxes does cause the economy to grow, but the actual amount of growth is highly dependent upon where the tax level is cut from and by how much. Drastically cutting taxes from a very high level will stoke a lot of investment and production. Cutting taxes a little bit from an already low level? Not so much. And the positive effect that such a cut does have has the possibility of getting drowned out by other non-tax effects.

Ask most businesspersons and they'll tell you that taxes are low on their list of issues with the government. Far higher on the list are things like regulatory burden and crumbling/inadequate infrastructure.

The Goldilocks theory, there's a perfect ratio between taxes and spending that has to be found. Regulatory burden is a tax in itself, the regulators and their accomplices are recipients of public funds and the expenses of their mandated requirements are essentially a tax. Sprinkler systems in fire-proof buildings and ADA are taxes in another guise.

Brett Champion: "Cutting taxes does cause the economy to grow, but ...is highly dependent upon where the tax level is..."

The answer is also dependent on whether we are talking about short-term (cyclical) growth, or long-term (secular) growth.

Tax cuts can work in a short-term downturn; that's a standard part of Keynesianism.

As to long-term growth, the effect of tax cuts are much less clear. If tax cuts beggar developments in human capital, gov't basic R&D, and infrastructure, there may be less growth.

One of the most interesting things about the "US vs Nordic" debates is that the US should have average growth rates far surpassing the Nordic countries, according to Wealth of Nations book I chapter 3. It is quite possible that the real US growth problem is that taxes are too LOW, and that its citizens beggar themselves with stingy welfare and increasing inequality, stemming out of the chosen psychology of individual merit.

To make things worse, now the US has entered an era when globalization and automation are remanding increasing numbers of people -- both labor and small entrepreneurs -- to occupations which do not admit of much productivity growth (e.g. hands-on, services, etc.), therefore not much individual market growth, therefore little relative incomes growth. The political fallout from this should be interesting.

Love this bait and switch.

"If tax cuts beggar developments in human capital, gov’t basic R&D, and infrastructure, there may be less growth."

becomes

"and that its citizens beggar themselves with stingy welfare"

Infrastructure and education is a complete red herring. Anytime a leftist brings it up what they are really saying is that their voting groups demand voracious subsidies in exchange for votes and how dare Republicans deprive them of those subsidies.

Government always threatens to cut the most popular programs as a way of frightening the public into supporting higher taxes.

Sam Haysom, if you read carefully,

“If tax cuts beggar developments in human capital, gov’t basic R&D, and infrastructure, there may be less growth”

did NOT become,

"and that its citizens beggar themselves with stingy welfare”.

Far from it.

Back to reality: How can Nordic countries have better welfare and lower inequality, yet comparable GDP growth rates? How can the Nordics have higher business start-up rates than the US? and per capita, higher business R&D than the US? and higher levels of venture capital than the US? and higher numbers of international triadic patents than the US?

The US has many more individuals, thus should have more innovation, and more division of labor.

Don't bother us with the "too much regulation" nonsense. Regulation is just as high in the Nordics. Anyway, on February 15, one of the co-owners of this very blog, Alex Tabarrok, presented a paper co-authored with Norman Goldschlag showing that regulation is NOT a primary cause of the 3-decade decline in business start-ups in the US. In fact some sectors with higher regulation have done better on start-ups.

And how are infrastructure and education a "complete red herring" in regard to growth? Doesn't that just switch-and-bait your own red herring? Or have you found a magic elixir allowing growth with no infrastructure nor education?

Ever considered looking at tge other side of the ledger, prior?

Meanwhile, the whole increase government spending and watch the economy grow concept is reaching its logical conclusions in Greece and Venezuela. Hmmm, Kansas suddenly doesn't look so bad.

Wait, is this not simply the well known in all 50 states phenomena of the past generation of state governments expanding (in payroll as well as share of income) compared to Federal government? Why is this story even newsworthy?

What is dead is the passthrough exemption gimmick, that undermined the collection of the regular income tax in Kansas and Ohio. Apparently tax arbitrage is alive and well. Kansas had twice the number of entities claim the exemption as planned, so naturally the planned revenue was off too. The relatively successful reforms in Indiana and North Carolina were better planned and had better results. While 41 states have more cash liabilities than cash assets, short term tax cuts without spending cuts have little credibility with investors and workers.

Joseph Henchman has this analysis of the exemption carve out, and I fully agree: http://taxfoundation.org/blog/kansas-may-drop-pass-through-exclusion-after-revenue-projections-miss-mark-again

:

Reined, not reigned.

Tax rates are a small fraction of fiscal conservatism which gets a ton of attention because it's the easiest thing to grasp.

"state pension obligations still do need to be reigned in"

No, they need to be paid. States have essentially made contractual obligations to workers who bargained for parts of their compensation to be paid in the form of pensions. States underfunded plans and used the funds to cut taxes. Why should workers have to give up their pay for this?

The problem isn't really that pension obligations are too high, the problem is that state revenue is too low and that states have been playing games in order to bring about the current situation.

The problem isn't that I eat too much! The problem is that I live on a planet with the earth's gravitational pull! If I lived on the moon, I'd be light as a feather.

Saying that pensions aren't too high, it's revenue that is too low...is the same thing. I could much more easily argue that States have promised their state workers increasingly more lavish benefits, which they could never actually fund.

But let's not quibble. I have a proposition for you: let's stop giving them pensions from now on, and give them a 401K. At least, whichever the problem is, it won't happen again in the future. How does that sound? Hey, I think I just saved about 30% of every State's budget, right there. Can I cut taxes by 30% now?

The problem isn't that my house costs $1500/month! It's that I chose to have a house! If I lived as an acsetic desert nomad, I'd be financial obligation free.

The benefits were not generally lavish at all, the bill is just coming due, which conservatives hate.

Here's a secret: many states have overhauled their retirement benefits a lot already, most transitioning from defined benefit to defined contributions systems. Your favorite! You can read all about here! http://www.pewtrusts.org/en/projects/public-sector-retirement-systems

Now, can we pay the benefits we already owe? How about we raise taxes just a teensy bit to cover these obligations?

You and all other like-minded people are perfectly free to pay more than your current tax obigations to make up the shortfall.

You and all the other like-minded people are perfectly free to move to a state that hasn't made very specific, contractually-protected (sometimes constitutionally-protected) promises to its workers that must be paid for.

Make me. Like I said, the tax base is the ultimate sovereign. You can flap around and screech all you want.

Trust me. Your taxes are going up. They have to and they will, and they will still be relatively modest. You can piss and moan and refuse to pay if you want. That will ultimately be your problem. And while you're at it, stay off the roads you're not paying for. Na na na na boo boo.

The endgame is Detroit and Chicago. Neither place had the problem of too low taxes. The problem was where the money went. And yes, the people with money will move somewhere else rather than pay.

Jindal made a big mistake. It is very very easy to solve all your problems with a price increase. Cutting costs requires restructuring how things are done and it is hard to run for president all the while taking on the various vested interest groups that do very well on the public purse.

I'd like to see government forced to do the same amount with 2% less money every year. Productivity growth. Enforced with pensions and benefits rescinded if the results are not met. Welcome to the real world.

I'd like to start with cutting tax expenditures that different special interest groups have gotten over the years. Lots of very ineffective tax incentives that are never even evaluated--or actually are evaluated and proven to do absolutely nothing to encourage growth. Yet they rarely get repealed.

Jan: then you shoud be campaigning to get rid of the capital gains tax break, which is the single biggest tax expenditure on the books, specifically designed to benefit gazillionaires.

That's my acid test for whether people are genuine fiscal conservatives or just right-wing parrots.

The negotiation was never fair, the workers are basically just a rentier class mooching off the productive class.

Never fair? Just refuse to negotiate or don't have public employees. Sounds pretty simple.

Can we hang Democrat politicians who use public sector money to get elected then give them a bunch of goodies?

I mean, you CAN. But typically how it works is you just elect someone different. You might find it hard to believe, but even Republicans vote for budgets and compensate public employees for their shitty, low-compensation jobs.

Jan: "Elect someone else! In the meantime, continue to siphon billions of dollars to Democrats through tax expenditures to favored groups"

Lol. Maybe we should just pull ourselves up by our bootstraps while we're at it.

Hey Derek, can we also hang Republican politicians who use public sector money from defense contractors to get elected and who then vote to give defense contractors a bunch of money?

Cry me a river. The tax base is the ultimate sovereign. If the tax payers can't or won't pay, tough.

Oh, but they will. Already are in most cases.

If they can or will, great. If they can't or won't, then you end up like Jefferson County AL. It's hard to convince current taxpayers to pony up for promises made by past voters to people who don't work for you any more.

Jefferson County, AL lost its shirt through extremely ill advised interest rate swaps via JP Morgan.

Read much?

http://www.businessinsider.com.au/the-incredible-story-of-the-jefferson-county-bankruptcy-one-of-the-greatest-financial-ripoffs-of-all-time-2011-10

It doesn't seem like North Carolina is reversing its tax changes that eliminated almost all of the deductions and went to one flat rate (with a larger exemption.) Unlike in Kansas and Louisiana, the previous tax cuts did not lead to a large deficit but they currently have a surplus (leading of course to calls to cut taxes further.) The defenders of tax cutting and reform at the state level are pointing to North Carolina as a model while trying to deflect from Kansas (and Louisiana), so I think that any attempt to meet them on their strongest terms requires addressing your neighboring state to the south.

In particular, North Carolina's form of fiscal conservatism included cutting spending as well, whereas it roughly seems like Kansas and Louisiana attempted to cut taxes and hope that the Laffer Curve would work to an implausible degree in an implausibly short amount of time.

It looks like the relative "success" of these tax programs simply reflects the relative population growth of the states: 4.3% for NC (12th in US), 2.6% for LA (28th in US), and 1.8% in KS (31st in US).

Cause and effect are a little tricky here, but I have the feeling that the population growth rates are largely independent of the tax cuts. For example, Raleigh, NC grew by over 40% in the '90s -- before these tax cuts. Having just visited Raleigh, I can see why people would want to move there. Having not visited KS, I can guess why people don't want to move there. Except in extreme cases, taxes are not the driving factor in people's relocation. For example, a negative income tax _might_ get me to move to KS, but short of that...

So, tax cuts work in NC in part because their tax base is growing relatively quickly, but tax cuts in KS don't work in part because their tax base is not growing fast enough.

(On an unrelated note, as a PA native, these "low" income tax rates don't seem that novel. PA has had a 3.07% flat income tax for ages.)

The changes to North Carolina's tax laws shouldn't simply be called tax cuts, because the laws changed to include sales taxes on previously untaxed transactions. Granted, economists are fond of saying that VAT taxes are more economically efficient than income taxes. But I have to say that changes in tax laws that don't really result in individuals paying less in taxes to the government aren't really tax cuts, and so North Carolina shouldn't be taken as a test case of what happens when states cut taxes. Now, if what Republicans mean by tax reform and tax cutting is that they will decrease taxes on some and raise taxes on others, then alright, call them tax cuts. But at the very least I was surprised at the tax changes that Republicans endorsed, especially because removing medical deductions is likely to raise taxes on seniors, who are more Republican (and more Southern) than the general population in the state. I was simply shocked that Republicans raised taxes on their own supporters, because that strikes me as breaking the fundamental promise of the Republican brand, i.e., vote for Republicans if you want lower taxes. I always thought that the liberal "false consciousness" arguments about Republicans voting against their own self-interest were BS, but what the Republicans in NC did with taxes has made me rethink that position. I am not sure that it is accurate to call Republicans the party of tax cuts if Republicans want to simultaneously raise taxes on a large number of people while lowering rates.

John Thacker, I was wondering when someone was going to mention North Carolina, where they cut both taxes and spending (rejecting Federal money which would have provided a short term boost but resulted in higher state spending long term) and got a booming economy and budget surplus. There was a recent piece on North Carolina in the Wall Street Journal. http://www.wsj.com/articles/the-tax-cut-payoff-in-carolina-1433373095

NC raised taxes. Yeah, they also changed who got taxed.

Anyway, most of NC's boom is completely unrelated to tax policy, it's been going on for a while; I could talk about Research Triangle Park, but the tax-obsessed probably wouldn't listen.

The fiscal conservatism of the near future (at both the federal and state level) will center on tax-spending reform, not simply net reductions on either or both sides. Conservatives-libertarians have to adapt to fight for fiscal causes that improve efficiency and not allow the pundits (from both Right and Left) to harangue or taunt them in these efforts.

By the way, I am pretty sure thatFederal tax reform that eliminates the deductibility of state and local taxes and the block granting of federal benefits would re-start fiscal conservatism at the state level. This is a risk to your prediction and an explanation as to why (discretionary) fiscal conservatism at the state level is always an uphill battle.

The future of fiscal conservatism is going after public employee benefits. Either the Wisconsin way or the Detroit way.

Given that public employee pension/health care costs are eating up the budget, that's a reasonable place to look for savings.

The city of Los Angeles went from spending $157 million in 2002 to spending $1.3 billion last year on pension. The burden went from 3% to 18% of the budget.

If you think that's sustainable, I've got a bridge to sell you.

Fiscal conservatism and tax cuts are working quite well in Ohio.

Well, ALEC disagrees, at least in placing Ohio 23 in '2015 Economic Outlook Rank' and 49 in 'Economic Performance Rank' - http://www.alec.org/publications/rich-states-poor-states/

They find Ohio's growth prospects to be middling, at best, according to this framework - 'Using years of economic data and empirical evidence from each state, the authors identify which policies can lead a state to economic prosperity. Rich States, Poor States not only identifies these policies but also makes sound research-based conclusions about which states are poised to achieve greater economic prosperity and those that are stuck on the path to a lackluster economy.'

LOL -- did you really mean to use that link in support of your position? Yes, yes, they do rate Ohio in the middle of the pack, but look who's at the top and bottom. Spoiler alert -- the top 10 are all 'red states' and the bottom are all the usual 'blue state' suspects -- New York, Connecticut, New Jersey, Vermont, Minnesota, California. I was a little surprised, though, not to see Illinois in the bottom 10...it only comes in 11th worst.

Why are these (fiscally) low-rated states almost always the richest states? I know accounting for cost of living and taxes makes a big difference, but there must be something to the association.

Blue states are good places to be rich, not to get rich. That's why most minorities vote with their feet for jobs in low-tax, right-to-work states.

Blue states are not good places to get rich? I haven't heard that before.

Have you looked at upward mobility data? There isn't a crystal clear red/blue divide on this, but the deepest red states have by far the lowest mobility. Most blue states seem to be at least middle of the road, and some are quite good. The plains states, which are a mixed bag politically, have the best mobility.

http://www.theatlantic.com/business/archive/2014/01/the-geography-of-the-american-dream/283308/

'Yes, yes, they do rate Ohio in the middle of the pack'

Well, for ALEC's 'researched' growth metrics. Actual performance comes in at 49, though.

'Spoiler alert — the top 10 are all ‘red states’ and the bottom are all the usual ‘blue state’ suspects — New York, Connecticut, New Jersey, Vermont, Minnesota, California.'

Double spoiler alert - this effect just might explain why a state where unions play a role in a functional manufacturing economy is so disfavored in terms of its actual performance by ALEC.

And questioning ALEC for anything it writes is a good first step. One can remain confident that commenters here will easily understand just how narratives are created and sustained.

ALEC disagrees with the idea that Ohio is doing particularly well, either in the future or currently, compared to a commenter here. Who is actually likely to be more reliable? And who claims to be 'research based?'

There's a manufacturing economy in these states?

How about you compare Ohio's economic performance before and after implementation of fiscal conservatism/tax cuts. Your snapshot in time is not a persuasive piece of evidence.

"And questioning ALEC for anything it writes is a good first step."

And do you think perhaps you should have considered that *before* using ALEC to support your argument?

Arguably, tobacco taxes could now be considered a fine (punative), or a use tax, rather than lumped in with sales and income taxes...

Stymied yes, but only when & where the form of the impasse is sufficiently convoluted such that it cannot be reduced to 140 characters or less, thus insulating the fiscally conservative bona rides of those who have been stymied.

I dunno about any other state, but Connecticut (under single party Democratic rule) has raised income and other taxes several times since the Financial Crisis, with the result that the economy here is now completely dead in the water.

Connecticut's economy is doing just fine. You've got higher growth than New York, for chrissake.

Quite honestly, I think most of this simply stems from the basic "overstated Laffer effect" conception among many Republicans. The DC establishment(the ALECs and ATRs of the world) had warned the people in Kansas about this specifically, yet they promised growth that would not come.

And it's only logical that exactly that happened. They were counting on lots of relocation of business to Kansas, a state that's not trivially remote from international markets, with weaker than average causes of growth (lower human capital levels and good-but-not-great universities, small cities without notable non-agricultural clusters, and a population that's not particularly young and/or entrepreneurial).

The other notable problem is the Republican grassroots particular issue with painful, transparent taxes, namely property taxes. They're similarly averse to tolling to address the infrastructure problem people raised above. The base, motivated by personal tax pain above all else, clamors for cuts to such taxes in favor of things like severance taxes on mineral extraction and cigarette tax hikes. And just wait until red states legalize cannabis. The pressure to use/raise those revenues to drop property taxes will be enormous, and we're already hearing groundswell making exactly that argument in Texas.

Wait, are people only now realizing that you cannot, in fact, cut taxes to reach prosperity? Empirical evidence trumps theory, not the reverse.

Which is why Argentina and Brazil have such dynamic economies, I'm sure.

The empirical evidence of prosperity would be the price of real estate in northern Virginia, difficulty in getting reservations at fancy eateries in Rockville, MD, and the percentage of expensive automobiles on I-66.

chuck - the price of real estate in rockville and northern virginia merely reflects the cash flowing out of the federal government from the taxes collected from everywhere else and the parasitical activities set up to harvest that cash. Not much to do with local policies.

Um....lets look at the empirical evidence shall we? See:
http://taxfoundation.org/article/what-evidence-taxes-and-growth

"So what does the academic literature say about the empirical relationship between taxes and economic growth? While there are a variety of methods and data sources, the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy. In this review of the literature, I find twenty-six such studies going back to 1983, and all but three of those studies, and every study in the last fifteen years, find a negative effect of taxes on growth. Of those studies that distinguish between types of taxes, corporate income taxes are found to be most harmful, followed by personal income taxes, consumption taxes and property taxes."

These are what are known as "bullshit studies". I went through a bunch of these and they are garbage.

Specifically, the ones which claim that corporate income taxes are harmful are garbage. Those were the ones I looked at carefully. Not one of them is honest; they're mostly using obvious false assumptions to get their conclusions.

The political will to cut taxes is gone because of demographics. Even if you cut taxes at the state level, you're stuck with bad regulations. The best move today would be to abolish Obamacare at the state level, ignore federal regulations, and use Medicare money to fund the construction of nuclear reactors.

'and use Medicare money to fund the construction of nuclear reactors'

Truly Commentor level satire - especially when you realize that the only group in America that truly cares about government paid for health care is the group 65 and older that receive it.

Hey!

Keep your hands off my Medicare!

Old, white Democrats are going extinct at the same rate as old, white Republicans. Eventually, the Boomers will be too infirm to vote, or they'll be dead. I think a tipping point in fiscal priorities will come sooner rather than later.

Because Gen X's will stop aging at 29?

Because the new, vibrant tax base will have different time-preference and priorities.

And substantially smaller.

But I think we will be seeing old white Republicans will be growing for a while to come with the Boomers, right? The white people that aren't born conservatives age into it.

No, actually, they don't. People did studies on this recently, and the common idea that people get more right-wing as they get older is... simply false at the moment. People stay just as liberal as they were when they turned 18, forever.

I don't know whether it's always been false, but it's been completely false since the 1980s. Maybe something to do with the right-wing politicians going BONKERS around 1980.

You're the best sometimes serious-sounding probable troll on this website. I can never tell if you're screwing with everyone or really a whacko. Props to you!

Maybe universities provide an archetype for state spending: they spend more and more on a parasite-administrator class, and lavish capital on extravagant buildings, while neglecting the job they are meant to be doing.

Those are real issues, but the international consensus seems to be that US universities continue to be by far the best in the world. Wouldn't you start to see indications that US education is really going downhill if that were true?

In any case, state and local employment went way down starting 08 and it is not even close to returning to those level, despite the recovery and population growth since then. I don't think the narrative really fits. http://2.bp.blogspot.com/-5e59nBg6RU8/VC6kbyX9LzI/AAAAAAAAgz0/mItqHJiUyEQ/s1600/StateLocalSept2014.PNG

That's why people shopping at Goodwill prefer a Harvard U sweatshirt to one from Universiteit Antwerpen.

"but the international consensus …": not if the parasite-administrator class is infecting universities everywhere. It could leave relative positions unchanged while still being a burden on whoever finally foots the bill.

The parasite-administrator class is, in fact, infecting universities everywhere.

"Reined in" "free rein," not "reign." This drives me nuts.

I would think self-styled fiscal conservatives could get popular mileage by pointing out that you either raise revenue, cut spending or go into debt. But, dumbocracy.

Ever since Reagan, political "conservatives" have been big fans of racking up huge amounts of debt. I think that kind of broke the ability to argue about that?

OK I'll bite.

In nominal terms, between 2002 and 2012 state receipts grew 50%. Inflation in this period was 28%, and probably significantly lower for Kansas, while population growth has only been about 10% since 2000. Even the "low" 2014 receipts are $1.5 billion more in revenue from when Sebelius first took office and the government started rapidly growing. In the past 15 years expenditures have grown over 50%, exceeding $6 billion today. The shortfall is $300 million, or about 5%. While the growth of the Kansas government in the past 15 years is smaller than other governments in the country, it still explains the shortfall. We can justify this increase by saying that education and health are rising faster than everything else, but that is not a revenue problem. Tax rates have to rise because education and health costs are growing faster than our economies. That says nothing at all about the optimum size of taxation for state governments with regard to growth, jobs, or even revenue. The tax and spending levels Brownback choose would have been adequate ten, maybe even five years ago. With a bit of luck, he could have ignored the shortfall because of variance, which for receipts can be a few hundred million a year.

Republicans should be wise enough to not depend on luck, and they should be wiser predicting how trend lines go. Cutting the size of government was never a serious option.

I haven't looked at the votes in depth, but it looks like a classic case of urban // rural split that typically troubles the state's politics. Just under half the state's population lives around Kansas City or Wichita, which are both five times than the next largest city. These places have as many votes as the rest of Kansas combined, but their needs are radically different.

Rural Kansas has two unique problems. First, there's the problem of population collapse, which all farm states are seeing. What few children are born move out when they come of age and new people are not moving in. Fixed costs like "We need at least one school building" or "We need at least one teacher per grade" start to add up for small towns of 1000 or less. Those are the obvious problems, not to mention any number of federal or state concerns dealing with food, medical, or disability services that have to be met. As a matter of geography, 98% of the state is rural, and I think I heard 25% of the state is in towns less than 2500 - with over 400 municipal governments servicing less than 1000 people it's probably the highest per capita in the country (This is FIVE times the national average).

This is a non-trivial growing problem related to scale government services that has been an issue of intense legal debate in the state. Wichita School District's scale is such it can use its buses to deliver free or low cost lunches to children in the summer. Small cities don't have buses. Is that fair? How should taxes be structured to compensate? The only political viable solution to this problem has been to spend more money. If all the small towns could magically consolidate into a super smallville, taxes would (back of the envelope) be 10-15% lower.

Government services to low population areas are subsidized by high population areas, and it costs much more to deliver the same services to small towns. The US Postal Service paid for delivery to small towns across the country by charging monopolistic prices on first class letter mail in cities (Which cost almost nothing to deliver). NPR's national budget mostly goes to setup stations in small towns. The small towns in Kansas are both relatively and in many cases actually getting smaller, older, and poorer. They are costing more and delivering less.

The other problem is that some rural areas are *growing*, but they're growing because of immigration attracted to the agriculture and food packaging industries. Which is not the same as growing from a resource boom which can be taxed heavily to compensate. Liberal, KS is the largest per capita immigrant community in the United States. While this influx of people is necessary for the health of these places, the new population has more expensive demands on government services and pays less in taxes. Some of these small towns are the same ones that a decade ago were collapsing. Services and infrastructure might have been allowed to lapse or removed, and now rapidly needs to be replaced. That's expensive! In the long run this problem might replace the first problem, but for now it's the worst of both worlds.

The economy of the small cities is based largely around food production, which mostly can't move, and food packaging, which probably can't for logistical reasons. These places are poorer, getting relatively poorer per capita, and demanding more in services both directly (immigration / aging) and through scale issues. Their populations are either getting very old or very Hispanic, or both.

In contrast, Kansas City is a stable metropolis whose economy depends on manufacturing is built around a national centralized hub for trains. It also has some finance and telecom sprinkled in, though those guys can probably go anywhere. Wichita, is a moderately growing city based around aircraft manufacturing. When state taxes can't provide enough government services, local taxes for these areas easily rise to compensate. Their economic concerns are how to stop businesses from going across the border to Omaha, Oklahoma City, Tulsa, Springfield, or Kansas City, Mo - places which are functionally identical and just as close. Given their dependence on manufacturing, they also have to consider movement across international borders to China and Mexico. Their demography is much closer to the national averages rather than the extremes. They are large enough that they can take advantage of scaling for government services, without being so large that there is decreasing actual returns. I don't have figures, but I'd guess income rates in the urban areas to be between 150 and 200% those of the rural areas, which are themselves typically around 2/3rds the national average. This is an industry effect, a farmer in Kansas City and an aeronautical engineer in Greensburg, KS would not make much money. The cities are richer, but they're richer because they have industries that are becoming increasingly easier to move.

On a political level, normally cities become more liberal, and poorer as you go deeper into the city - a leftover of 19th century industrialization competing against 20th century transportation. Deep urban cores produce these deep blue constituencies that act as checks on conservative suburban rings. In some states this manifests itself as a coalition between the poor rural areas and the poor urban areas against richer suburban areas allowing normal American class politics to balance itself. Cities produce political equilibrium: The richer and denser it becomes, the more liberal, which pushes more money and voters to suburbia, diluting the power. In short, declining rural power (D) and rising urban power (D) offset each other, but rising urban power (D) enhances suburban power (R), and so at a state level you get a balance.

The problem is that the inner core of Kansas City is in Missouri, so Kansas only gets the rich (Republican) suburban ring and a tiny blue part. Typical democratic concerns like maintaining a progressive tax structure can't really find a foundation. While Wichita also has an urban core that does provide a Democratic representation, the city isn't constrained geographically by anything (No ocean, mountain, lake, and transportation goes around, not through, the city) means concentration, an ingredient for populist politics, is lessened. The city spreads, and the poor can easily move up the class structure by moving further and further out. Wichita has half the population density of Syracuse and two thirds that of Madison, two close sized metropolitan areas. I haven't done a county level comparison, but I suspect that Sedgwick has half the density of the 'average American county with half a million people' in it. There are other places in America like that, but guess how they vote.

Nor are either cities big university cities, like Madison or Boston. The two big universities in the state are in the small towns of Lawrence and Manhattan, which are quite separate from the rest of the state. Urban centers are places of "Commanding Heights" industries, like health and education that can't easily move, but Wichita and Kansas City are based around manufacturing.

The political outcomes are not that surprising at all. There is nothing 'the matter with Kansas'. The power structure easily shifts between slim majorities formed from predominately suburban populations who are wealthier, and whose jobs are most likely to move, and slim majorities formed from the small urban cores and rural parts of the state.

There's no possible political coalition that you could form that would pass a constitutional amendment allowing a floating balanced budget over a 10 year period. Nor are the populist pressure strong enough to push against regressive taxation. You have 'fiscal hawks' in the rural areas who never vote for cuts, and suburban conservatives who never vote for taxes. When the storm gets too bad, they vote a nice moderate democrat in to raise taxes and crack down hard on whatever (Non manufacturing / agricultural) big business they can put pressure on. Obviously something that can't move easily like Health Insurance.

In summery, this really is an issue of Urban vs Rural politics. Unlike other cities, the kind of industries around Kansas City and Wichita can move. The jobs in the rural areas can't. The rural areas require more per capita government services, and the urban areas have more money. They both have half the vote. Solve for equilibrium.

==
As for the deal:

It's mostly a .4% sales tax increase, which is less than some of the more fanciful projects done by local governments in the past 15 years, which have included sports arenas, loans to movie theaters, and waterfront improvement. A half cent increase in sales tax does move the state into the top 10 for the country, but the overall tax burden is still quite low. The real problem is that city/county sales taxes are a function of distance from Wichita, and the inverse of population. The smaller your city, and the farther you are from Wichita, the more the county depends on sales taxes. In places like Junction City, this could put the sales tax close to 10%! The real disparity is going to be at the border towns: After the change there will be a .7% difference between KC, KS and KC, MO, though I bet the Missouri side will raise taxes to compensate. After the increase, there's a 1.5% difference between Pittsburg, KS and Joplin, MO - big enough that I could see some people consider driving for purchases more than $300 (Biweekly grocery shopping for a large family?), especially if retailers on the Missouri side are not dumb. As a general rule, the money and the shopping is on the Kansas side of the border, so stuff isn't going to transition immediately, but I expect some Laffer curve effects here for local governments, and I would hope they'll respond by dropping taxes to compensate.

This is probably WHY such a deal was able to pass. Most of the damage goes on the poor and rural parts of Kansas, which is where most of the balance budget hawks are. The rich living near Kansas City will have the easiest time dodging the increase and avoid it more often. A regressive tax, but an efficient one.

As for the other parts of the deal, $90 million in itemized deductions are being removed. I don't actually think this will amount to much, since there aren't many itemized state deductions left. What remains are things like adoption, historical preservation, or disabled access. I don't see much money coming in this way, and the state will almost certainly reverse itself the first chance it gets (As it did the last time it got rid of the adoption credit).

Rural Kansan here. This is a great comment, thank you. I benefit significantly from Brownback's self employment tax cut and am glad it is staying. The sales tax issue is not significant enough for me to plan around.

Why do states have budget issues? Health, Pensions, Welfare, Education. We simply spend money terribly inefficiently and don't have a political process or the will to fix it.

Kansas 1970: Education 35%, Other 28%; Transportation 25; Health 12%
http://i.imgur.com/mxURbTA.png

Kansas 2014: Health 39%, Education 22%, Pensions 13%, Welfare 10%, Transportation 8%, Other 8%
http://i.imgur.com/LN8JlkI.png

And it can't be fixed at the local level. Excessive cost growth in health care is eating the budgets of every state, leaving nothing left for the core functions of government.

Yes, it all leads back to the guys in charge. The federal government

Wow. Great analysis.

Unfortunately, the high rural sales tax rates are only going to accelerate the rural depopulation. It's probably already cheaper to order almost everything you can off the Internet (and evade sales taxes) than to buy it locally. On top of this, farming in this area is already not terribly profitable, and climate change is going to make it *less* profitable (at least until they figure out how to adapt).

What's the endgame for the rural local governments? I don't see one, other than total collapse.

All of the states- all 50 of them- are bankrupt and don't know it yet. When I look out into just the next decade, I see an pension underfunding crisis of epic scale. You tell me how these pensions are paid going forward with interest rates and stock prices where they are today? Kansas and Louisiana are moving the chairs around a little bit.

They aren't, people won't be paid. They'll suffer and move on. The new voters won't care, not their problem.

I think this is very reflective of the growing libertarian consensus. Basically every thing but extreme permissiveness and wide spread immigration (into American only libertarians don't care about any one else's immigration policies) is negotiable. That this conforms perfectly with with the corporate donors that keep the libertarian movement afloat is purely coincidental. It's just a coincidence that now that companies have learned how to demand tax carve outs from state legislatures that libertarian obdurancy on taxes is disappearing.

stop promising citizens growth via tax cuts. stop negotiating state pension plans in bad faith. stop thinking you're going to get anything other than third world infrastructure if you're not willing to fund first world spending.

"stop negotiating state pension plans in bad faith"
-Namely, in the bad faith that they're affordable.

sure, that's fine. we can argue about whether or not full pensions for public employees are a good or bad idea. but promising people a planned retirement as part of their compensation and then pulling the rug out from under them decades down the line is a shitty thing to do and destroys public faith in government.

Those that made the promises won't be the ones that pull out the rug, and they knew it. Public faith in government should be destroyed.

Extended family; Church/Temple/Mosque; the Volk--ever heard of them? The State is not the be-all and end-all of human existence.

The government made volumes of promises to the native Americans and has kept none of them. Naturally, most native Americans justifiably have little faith in government.

is that really the end-game for 'drown it in the bathtub' conservatism? 'this section of I-95 constructed by our lady of guadalupe, tithe booth in 200 feet'? 2.2 million extended families of 150 people each setting their own rules? i literally cannot comprehend a functioning 21st century society without a robust civil government.

What does a robust civil government have to do with treasury capture by intrested Democrat voting state employees and Republican voting businesses?

So what the hell are you doing living in the United States of America?

Somalia & Yemen beckon!

the dream of sao paulo is alive

Why are Rs governors having such a problem with supply side economics?

1) Governors and states have little effect on state economics. What is driving Kansas and Louisana results is the fall in commodities and Wisconsin and New Jersey is being a exurb to the big city in another state.

2) These states have hit diminishing returns on supply side economics. It would work great in California or other liberal states but not very conservative.

3) The big problem with supply side economics is the state is lousy place to live for the lower middle class and so businesses don't want to move their because the skilled labor supply won't move there. (Just think Minnesota vs. Wisconsin here.)

4) Texas...Simply put Texas has done it better, is so big that it take all the businesses from liberal states and they have the labor supply for this economics. Kansas does not have labor supply to beat Texas.

3.

Is there evidence for that claim? Are machine shops in Wisconsin losing workers to machine shops in Minneapolis?

I don't have any data here, just curious.

#3 is laughable. I'm not even sure what you're trying to say. Plenty of great places in Wisconsin (everyone raves about Madison). The Wisconsin v. Minnesota recovery is really pretty good evidence of the failure of the rightwing agenda vis-a-vis a moderately progressive approach. Minnesota has absolutely dominated Wisconsin since Walker was elected, which was not true in the past.

Wisconsin Badgers 34, Minnesota Golden Gophers 24

How many machine shop workers are there? Maybe the comment makes better sense of the upper middle class. So how can an office move its tope people to Wisconsin? So how many in good Minnesota schools would agree to move to Wisconsin with worse schools? (And who would want to be a school teacher in Wisconsin with big boss of Scott Walker?) The jobs growth has been better in Minnesota than Wisconsin since the Great Recession.

Admittingly, I lived happliy in Minnesota so I think it is a good place the live and we looked down upon Wisconsin.

If states want to balance their budget, they need to start focusing on the denominator not the numerator. Cut costs, we waste plenty of money for the outcomes we get. Why is this so hard and what can be done to fix it?

Being "fiscally conservative" at the state level like the national level implies first being sensible -- spending/taxing so that government expenditures (and to the extent that tax policies can influence them) taxes imply that expenditures with NPV greater than zero are executed. The "conservative" part would come in the evaluation of the distributional effects of the taxes and expenditures. Reducing transfers to the poor to expand tax cuts for the rich could be sensible (if cruel) but deficits would still increase during recessions and decrease during booms unless borrowing costs are strongly pro-cyclical.

Brownback seems to have been caught by hyperbolic discounting; cutting those income taxes really felt good at the time.

It's probably true that, in most states, even red states, the political landscape won't allow for cuts in real terms. But the right has been able to redirect revenue to come more from the poor and redirect spending to do more to benefit the rich, and that's good enough for me, for now. In my own very blue state of Washington, the state's Republican legislators are doing great on a program of not letting spending rise as fast as the recovery is increasing revenue, redirecting money from programs for the poor to programs with broad benefits for the middle and upper classes, such as road spending and lowering public university tuition, and taking more revenue (already mostly from a regressive sales tax) from use fees, while fighting off Democrats proposed introduction of a state capital gains tax.

So, basically, Republicans are in favor of soaking the poor in order to help the rich -- the opposite of what Jesus advised -- class war by the rich against the poor -- and you're all in favor of it?

Good to know some Republicans are honest. Most Republicans are embarassed to admit that they're that evil!

" More concretely, trying to cut taxes at the state level doesn’t seem like a useful or productive way forward."

No. State spending and tax receipts are not the most predictable and making pronouncements based upon two states' experience in such a short time period would seem a tad hasty. Also, its not just Republicans who are cutting taxes. Lets go to table 24 (page 49) the National Association of State Budget Officer's Fiscal Survey of the States, Fall 2014:
https://www.nasbo.org/sites/default/files/NASBO%20Fall%202014%20Fiscal%20Survey%20of%20States.pdf

For FY15 New York is cutting taxes by $525 million, second only to Texas. Followed by Florida and Minnesota. Other of the 21 states that are on net cutting taxes include West Virginia, Kentucky, Pennsylvania, and Rhode Island, all with Democrat governors. Oregon, on the other hand, went big with tax increases. Let's see if they are still on the fastest growing list (http://money.cnn.com/gallery/news/economy/2015/06/11/6-fastest-growing-states/ ) two years from now.

You think an economist might be able to provide a more granular analysis than this? Just what is not being cut and why?

Louisiana has passed many constitutional amendments in the past to protect funding for sacred cows. This means that nothing can be cut from the budget except higher education and healthcare making balancing a budget almost impossible.

A system that uses a combination of taxes and credits to achieve what could have been done with neither is a success for the political class, because it creates more favors and experts that can be shuffled around between industry and government.

First of all, its very simple to solve the problem of cutting taxes too much: you just raise them back a little. Meanwhile, with welfare spending...good luck "rolling that back a little."

Secondly, state spending is small potatoes. Did you read the linked story? Every sum was in the millions. Nothing broke 100 million.

Meanwhile, in Colorado, the VA wasted close to ONE BILLION dollars on one single 182 bed hospital.

They could have funded Kansas "massive deficit" for a decade!

I don’t think we will ever find the debates ending, but all we could do is to just ignore and continue on the work we do, I usually don’t face any difficult with doing trading. I am a long term trader, so most of my trades are going beyond weeks or even months. I find it much easier because of my broker OctaFX, it has swap free option that I use and that helps me trade much better without requirement of any extra charges on overnight trades.

This is still playing out in WA, but after revenue projections showed much more money than expected coming in, the governor actually dropped his tax proposal. There are still folks trying to impose a capital gains tax (by claiming it's an excise tax?) the Republicans are opposing it for a number of reasons, including the bit that it might well be ruled unconstitutional.
It's also interesting that the republicans signed up for a higher gas tax, which was for a time rejected by a group insisting on a carbon tax - but they could never explain how a gas tax wasn't already a carbon tax, and broader one than proposed. Also interestingly, the proposing party couldn't get a "carbon tax" proposal to clear their own committe without larding it down with subsizides and other crony spending for timber interests.

So, would any of this actually improve the fiscal affairs of WA state over time? I doubt it.

The real real problem is that the initiative process allows citizens to vote for spending, without voting to pay for it.

Anyway, w.r.t. the original post - see what happens in WA state over the next 3 weeks....

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