Reaganomics is coming to a state near you

Quill FeatherConservative state lawmakers across the country have been pushing fiscal agendas that slash income tax rates, sometimes paying for them by scaling back popular tax breaks.

The controversial logic: that high tax rates discourage entrepreneurs from investing and growing the economy, ultimately depressing tax revenues while also convincing people to move from higher-taxing states to lower-taxing ones.

In some places, Reagan-era economic adviser Arthur Laffer has played a prominent role. Through his work for the American Legislative Exchange Council and a host of other groups, Laffer’s prescriptions have gained purchase in tax debates in Kansas, Oklahoma, Missouri, Ohio and elsewhere.

Carl Davis, a senior analyst with the Institute on Taxation and Economic Policy (ITEP), a frequent critic of Laffer, said that Laffer has been strategic in where he takes his talents.

“He’s putting specific numbers behind the ideological talking points that conservative lawmakers would be using,” Davis said.

In 2011, Kansas offered Laffer a $75,000 contract to secure his economic wizardry. It stipulated that his firm, Laffer Associates, would consult with Kansas officials on tax reform proposals and that he could be asked to make media appearances on behalf of the department of revenue. Laffer’s duties included “confirming the economic validity of current reform proposals where appropriate” and recommending potential changes.

With Laffer’s help, the Kansas legislature crafted a measure that lowered rates across the board, reduced the number of individual tax brackets from three to two, and phased out a number of tax credits and deductions.

Julia Lynn, the newly elected assistant majority leader of the Kansas senate, says that the bill was a response to potential cuts to federal aid.

“Knowing that we were going to be faced with cutbacks from the feds, this is basically a response to protect ourselves,” Lynn said.

Many of the eliminated expenditures, however, benefit working families and the poor, including a rebate for the food sales tax, and credits and deductions for child and dependent care and child day care. The repeal of the food tax rebate makes Kansas just one of three states to tax groceries at the normal sales tax rates, without offering any offsetting tax relief to low- and moderate-income families, according to the Center on Budget and Policy Priorities’ Robb Gray.

Without the rebate, a family of four making $17,000 will lose $294, while a single parent who makes $12,000 and has two children will lose $246 a year — a little more than two percent of their income, according to ITEP.

Critics like ITEP say that Laffer tends to attribute any economic or population growth in the states that adopt his policy recommendations largely to those policies. He often downplays key factors, like the robust energy sectors of Alaska and Wyoming, or the thriving tourism-based economy of Florida.

In Kansas, Sen. Tom Holland tried to raise such issues.

“There’s no study at all that shows that a state, by manipulating its marginal income tax rate, can affect their economic growth,” he said.

In Oklahoma last year, Laffer partnered with the conservative Oklahoma Council of Public Affairs to author a detailed plan that served as the basis for several tax-cutting bills.

The bill would have reset the top rate from 5.25 to 3 percent, and zeroed out all individual income tax exemptions, deductions, and credits, including those that benefit the working poor. It would then lower the top rate an additional quarter percent each year, eventually eliminating the income tax entirely.

Four Oklahoma senators co-authored legislation to implement Laffer’s plan, while Gov. Mary Fallin floated a plan resembling Laffer’s. But the plans proved unpopular and failed to win passage.

Carl Davis expects Laffer to play a key role in North Carolina, where Republicans now control the governor’s mansion and the general assembly. The Civitas Institute, a prominent conservative think tank in the state, is circulating a study Laffer co-authored that pushes his core ideas.

 

Siddartha Mahanta  writes for The American Independent. It is a nonprofit newsroom that funds and publishes independent investigative journalism, and can be reached at editor@americanindependent.com
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