Kansas Abandons Massive Tax Cuts That Provided Model for Trump's Plan

By Dominic Rushe, Associated Press

07 June 17

State legislature rolls back Republican governor’s ‘terrible experiment’

ansas has rejected the years-long tax-cutting experiment that brought its governor, Sam Brownback, to international attention and provided a model for the Trump administration’s troubled tax plans.

In a warning shot to the Trump administration, even Brownback’s fellow Republicans voted to override his veto of a bill to reverse many of the tax cuts he championed as a way to spur entrepreneurs and the economy, but which have left the state with a $1bn hole in its budget.

Starting in 2012, Brownback’s plan has been to “march to zero” – cutting taxes wherever possible in the belief that the money Kansans saved would flow into the wider economy and drive growth. The governor was advised by Arthur Laffer, the economist who inspired Ronald Reagan’s “trickle-down” economic theory. So radical was his plan that critics called Kansas “Brownbackistan”.

State Democrats and local critics were delighted that Brownback’s plan had finally hit the rocks after earlier attempts to overrule the governor’s veto had failed. Senator Tom Holland, of Baldwin City, cheered the end of “Sam’s march-to-zero madness”.

Judith Deedy, a mother of three from Johnson County who has campaigned against the cuts she blames for an escalating crisis in the state’s school system, said she was “delighted” by the news. “It just didn’t work. This was a terrible experiment that has left our state unable to do what it is supposed to do,” she said.

Brownback’s defeat means the state will end a tax cut for limited liability companies (LLCs) and so-called pass-through businesses – which meant independent business owners and farmers would pay no state tax on the bulk, if not all, of their income. That tax plan is similar to the pillar of Trump’s tax proposal. After it was brought in, the number of LLCs in Kansas leapt from 190,000 to over 300,000 and tax revenues plummeted, but the rate of jobs growth in Kansas has lagged that of its neighbors.

In an interview with the Guardian last month, Laffer defended his theories and said the problem was Brownback had not gone far enough. “When you put an atomic bomb on a place, it will materially change the place – but a cherry bomb probably won’t change the buildings or anything else,” he said.

Under the new tax plan, legislators expect to raise $1.2bn in new revenue over two years to close projected budget shortfalls totaling $889m through June 2019, and also provide additional funds for public schools.

The conservative Republican governor still touts the income tax cuts enacted in 2012 and 2013 as pro-growth policies. But voters soured last year on the governor’s policies, ousting two dozen of his allies from the legislature and giving more power to Democrats and moderate Republicans who then backed this year’s tax increase. The legislature’s action leaves his main political legacy in tatters.

“He still believes in this, and that’s OK. I don’t,” said senate majority leader Jim Denning, a conservative Kansas City-area Republican who supported the first round of tax cuts in 2012 but voted to override the veto. “I’ve made many, many bad decisions in my business career, as many bad as good, but I’ve always backed up and mopped up my mess. That’s what I’m doing now.”

Had the effort to override the veto failed, legislators would have had to start over on a new tax plan, with prospects of working into next week. Legislative leaders were waiting to finish work on the next state budget until tax issues were resolved, and Brownback’s administration had said that lawmakers need to pass a budget by 17 June for most state employees to continue getting paid after the new fiscal year begins in July.

“Let’s get our work done,” said representative Larry Hibbard, a moderate south-east Kansas Republican. “Let’s put this capitol in the rear-view mirror.”

Under the new tax laws, Kansas will return to having a third tax income tax rate for its wealthiest filers, something cuts in 2012 eliminated. The top rate will be 5.7%, as opposed to 4.6% now.

The governor endorsed less aggressive income tax increases and proposed raising cigarette and liquor taxes and annual filing fees for for-profit businesses. But his proposals wouldn’t have raised enough money to cover the spending increases for schools contemplated by lawmakers.

“We can and we must balance our budget without negatively harming Kansas families,” Brownback said in his short veto message Tuesday afternoon.

The tax increase was designed to also cover extra aid to the state’s 286 local public school districts because the state supreme court ruled in March that education funding is inadequate. The state spends about $4bn a year on its schools and lawmakers passed a plan Monday night to phase in a $293m increase in education funding over two years.

Brownback’s remaining legislative allies, like him, suggested that the tax increase will ruin the economy, and they argued that Kansas has done little to control its spending – a point many Democrats and GOP moderates disputed.

“This level of taxation is wholly unnecessary,” said senator Ty Masterson, a Wichita-area conservative Republican. “What we’re doing is fleecing our constituents.”