Memo To Certain Governors And State Legislators: Income Tax Rate Cuts Work. Always.
ONE OF THE GENIUS features of our federal system of government is that it allows states to be laboratories for policies, to see what works and what doesn’t. The great welfare reform bill of 1996 came out of the pioneering policies of Wisconsin, which demonstrated that there could be a work requirement for benefits, thereby providing a safety net while not destroying the habits necessary for leading a productive life. Welfare rolls were slashed everywhere.
A variety of tax “experiments” are currently under way that bode well for radical federal tax reform after the 2016 elections.
Governor Sam Brownback of Kansas was pilloried for enacting major tax reductions that supposedly blew gaping holes in the state’s budget because rapid economic growth didn’t instantly materialize. Put aside the fact that some of his other tax proposals weren’t enacted and that he didn’t get all the tightening on overall spending he wanted. Democrats thought they’d knock him out in 2014. Instead, Brownback won, and his tax cuts, which took effect little more than two years ago (he not only whacked income tax rates but also eliminated those levies altogether for small businesses), are starting to yield a bumper crop in prosperity. Private-sector job growth in Kansas is now outpacing that in most other states. The state’s unemployment rate is among the nation’s lowest. Just as impressive is Kansas’ employment-to-population ratio, which is well above the national average.
President Barack Obama speaks with Kansas Governor Sam Brownback (C) alongside Topeka Mayor Larry Wolgast (L). (Photo credit should read SAUL LOEB/AFP/Getty Images)
Ohio’s chief executive and possible presidential candidate, John Kasich, is also hacking away at his state’s personal income tax, with an eye to eliminating it altogether, relying instead on broad-based consumption taxes. (He’s already done away with Ohio’s death tax.)
Even blue states are getting the tax message. Look at Maine, which a GOP presidential candidate hasn’t carried since 1988. Governor Paul LePage is pushing to eliminate the state’s income tax by 2020. Maine has long been in the economic dumps, and LePage, who was a successful businessman before going into politics full-time, knows that this is chiefly due to the state’s hostile tax environment. Liberals and legacy media outlets can’t stand LePage’s unabashed free-market principles and his willingness to let reporters know what he thinks of them and their employers. Their consternation was palpable when he won a stunning reelection victory.
Other Republican governors have been stalwart pro-growth tax reformers, and the results have been impressive. Political leaders in both parties should read An Inquiry into the Nature and Causes of the Wealth of States by Arthur Laffer, Stephen Moore, Rex A. Sinquefield and Travis H. Brown (Wiley, 2014). It gives conclusive, empirical proof that over time states with no income taxes perform better than those with the heaviest burdens: better in economic growth, population growth, job growth, personal income growth and–liberals, please note–government revenue growth.
What the states are demonstrating is that simplification and major income tax rate reductions generate prosperity.
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