The return of trickle-down economics

Mississippi incumbent Republican Gov. Tate Reeves speaks to supporters during an election night watch party at The Refuge Hotel & Conference Center on November 07, 2023 in Flowood, Mississippi. Gov. Reeves (Photo by Brandon Bell/Getty Images)

In Kansas, Mississippi and other states, tax cuts for the wealthy could bring devastating reductions to education, health and other vital programs.

By Marcus Baram, Capital & Main

This story is produced by the award-winning journalism nonprofit Capital & Main and co-published here with permission.

Heather Ferguson loves to talk about her daughter’s school in Johnson County, Kansas, and the quality of the state’s education system, citing it as one of the main reasons that she moved here recently from Albuquerque. The school, which she says boasts excellent teachers, is an environmental lab that includes seven acres of woods and ponds where students can study hedgehogs and snakes.

But Ferguson has concerns about recent proposals to cut state income taxes and their potential impact on the education budget. “I don’t want to see wear and tear of the school system” if decreased revenues lead to budget cuts, a scenario which some Kansans fear could be a repeat of the “Brownback experiment” in 2012 and 2013.

That’s when then-Gov. Sam Brownback sharply cut income taxes in the state, guided by conservative think tanks and wealthy donors like Charles Koch. The experiment benefited rich Kansans but decimated the state budget, leading to massive cuts in education and vital services, which in turn resulted in early school closings, cuts to the state’s Medicaid program and delayed highway repairs. The bill cut the taxes of the wealthiest 1% of Kansans, while low-income families saw some of their taxes increase, according to the Center on Budget and Policy Priorities. It also hurt the economy, with job growth in the state trailing far behind that of its neighbors and ranking at less than half the national average, despite business tax cuts that Brownback promised would be a “shot of adrenaline” to the state’s economy.

Though these tax reductions were widely considered a failure, some of the same forces that backed them are now pushing through income tax cuts that largely benefit the wealthy in Kansas as well as in Mississippi and other states.

Trickle-Down Economics Makes a Comeback

The return of trickle-down economics — the much-criticized theory that tax cuts for corporations and the wealthy eventually result in job growth and higher wages for the middle class and working class — has inspired a fierce debate in the Kansas Legislature that has gone on for months. A bill that included a flat 5.25% personal income tax, an 8% reduction from the current rate for top earners, was approved by Republicans in both chambers, though critics say it would disproportionately benefit the wealthy in the state. The top 20% of earners in Kansas — those with average annual incomes above $315,000 — would get nearly 40% of the benefits, with Koch himself receiving an estimated $485,000 in annual tax breaks under the proposal, according to the Institute on Taxation and Economic Policy, a nonpartisan research group that favors a progressive tax system. It would also cost the state almost $650 million every year once fully implemented, per ITEP.

The bill was sponsored by two lawmakers who have received campaign contributions from Koch and who have significant ties to the American Legislative Exchange Council (ALEC), a national organization of conservative lawmakers and corporate interests that drafts “model legislation” for state legislatures to adopt and has long advocated for the elimination of state income taxes. Kansas state Sen. Ty Masterson was named the chairman of ALEC in December, and fellow Sen. Caryn Tyson was named the country’s legislator of the year in 2021 by the group. Neither lawmaker returned calls for comment to Capital & Main.

Among other groups pushing for the GOP proposals are Americans for Prosperity, a conservative think tank formed decades ago by the wealthiest men in Kansas, Charles and David Koch. While the proposals were being debated, AFP representatives set up a lemonade stand outside the Kansas State House in Topeka to advertise their views.

When the bill was first introduced, it was met with intense pushback from both Republicans and Democrats.  “I’m tired of the trickle-down economics. It doesn’t work,” said GOP Sen. Rob Olson in a speech on the floor of the state Senate.

Facing a likely veto from Democratic Gov. Laura Kelly, the plan was tweaked by Republican leaders in the Legislature but continued to face fierce opposition.

“The only true income tax relief that’s being given is being given to the top bracket, the wealthiest,” Democratic Senator and Senate Minority Leader Vic Miller told the Kansas Reflector. “If you’re going to give tax relief, it should be directed to those who need it the most, not the ones that need it the least.”

When Kelly threatened another veto, Republican lawmakers denounced her as “being a bit of a dictator,” though they failed to get enough votes to override her previous vetoes.

That pushed Tyson to plead with her colleagues: “When you cast this vote, you are the deciding vote … you will decide for the almost 3 million people in Kansas. You decide whether they have tax relief.” She has justified the tax cuts by pointing to the state’s $3 billion budget surplus as well as projections that its revenue is expected to grow 9.7% by the close of the current fiscal year.

The Long Shadow of the Brownback Experiment

Looming over the fierce debate are memories of the Brownback experiment, which Miller calls a “failure that bankrupted the state” and “relied on accounting gimmicks” to “survive the plummet in revenue.” He tells Capital & Main that he’s open to tax cuts, as long as they contain provisions that help middle-class and working-class voters.

Last week, Kelly vetoed the latest Republican proposal, blaming GOP lawmakers for playing “political games with reckless tax policies.” Previously, she had vetoed another bill that included a tax break pushed by Genesis Health Clubs, whose owner is a big donor to Republican legislators in the state. “Taxpayer dollars should not be diverted to political donors under the guise of tax cuts,” Kelly stated.

Education advocate Adrienne Olejnik, vice president of Kansas Action for Children, told Capital & Main she’s concerned that “a significant shortage of revenue in the future could make cuts to vital family support programs, transportation, K-12 education and Medicaid the first options lawmakers would seek instead of tax increases.”

Kelly called back members of the Legislature to Topeka for a special session, though she lacks the support for her own proposal that includes a smaller round of tax cuts, along with a child tax credit.

Kansas is not the only state pushing for major tax reductions. Mississippi has fully succeeded in instituting its version of trickle-down economics, with Gov. Tate Reeves pushing two of the biggest income tax cuts in state history. Having won reelection last year, he’s now calling for lawmakers to completely eliminate the personal income tax — which makes up about one-third of state general fund revenue. And  House Speaker Jason White has proposed replacing the income tax with a consumption tax, essentially taxing residents on what they spend rather than what they earn. Such regressive tax systems have been criticized by tax analysts for burdening working-class and middle-class people, who tend to spend more of their income on groceries and other essentials.(White’s predecessor, Philip Gunn, who helped push Reeves’ tax cuts through the state Legislature, has served as past chairman of ALEC’s board of directors.)

Painful Grocery Taxes

Among the most contentious issues in the state is the grocery tax, which at 7% is among the highest in the country and disproportionately hurts poor Mississippians, say advocates. Though there is bipartisan support for cutting that tax, Reeves hasn’t expressed a position on the idea. Reeves and White did not return calls for comment to Capital & Main.

“Sales taxes on groceries have an especially harmful impact on income and racial inequities since low-income families tend to spend a larger share of their income on groceries,” the Center on Budget and Policy Priorities wrote in a 2020 report. “State policymakers looking to make their tax codes more equitable should consider eliminating the sales taxes families pay on groceries if they haven’t already done so, or at least reducing these taxes or partially offsetting them through a tax credit.”

Such a high grocery tax has been an issue for decades, criticized by both Republican and Democratic lawmakers but failing to get enough support to lower it. Back in 2006, late Republican state Sen. Alan Nunnelee said that it “is just the most cruel tax any government can impose.”

The bottom 20% of wage earners in Mississippi (earning less than $19,300) pay 12.4% of their income in state and local taxes, more than any other income group. And the wealthiest 1% in the state, who make more than $362,300, pay just 6.9% of their income in state and local taxes, according to research from ITEP.

That inequity has been criticized by advocates for the poor like Kyra Roby, policy analyst for One Voice, who proposes the addition of a 6% income tax bracket for those earning more than $100,000 annually.

“There is not enough money to fund the programs that Mississippians need,” said Roby. “Our public schools are underfunded by $3.5 billion, our hospitals are closing though we have one of the highest infant and maternal mortality rates in the country, and we have a water crisis, with residents going without water for weeks at a time.”

Yet she admits it’s been hard to convince Mississippians to see the connection between personal income tax cuts that disproportionately benefit the wealthy and painful reductions for such priorities as public education and public health.

“To be honest, it’s been a hard sale to link those everyday things to taxes,” she noted. “People just think, ‘I don’t want to pay taxes.’ There is a lot of explaining in terms of what the impact would be.”

Copyright Capital & Main 2024

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