The Republicans Sold the United States on Laffer’s Tax Cut Gimmicks
Updated: Feb 21, 2020
The Republicans' 2017 tax cuts will undermine the financial integrity of the United States. They contravene the Republican Party’s commitment to fiscal conservatism, and they will cause the national debt to balloon even further.
Kansas already experimented in supply-side economics and failed.1 Republican Governor Sam Brownback followed the direction of economists Arthur Laffer and Stephen Moore, who contended that cutting taxes would spur economic growth. The facts show they were wrong.2
The Laffer Curve originated in 1974 when tax rates exceeded 70%.
The argument that cutting taxes will grow the economy arises from the Laffer Curve.3 As you may know, in 1974, Laffer drew a graph on the back of a napkin for Dick Cheney and Donald Rumsfeld.4 The graph that showed government income against the income tax rate. Laffer contended that government income ranged from zero dollars at a zero percent tax to zero dollars at a one-hundred percent taxes, and in between, the government income followed a parabola. Laffer argued that cutting taxes would grow government revenue as economic activity increased because the United States was taxing income at a higher rate than the apex in the graph.5
In 1974, Laffer may have been correct that cutting taxes may have grown the economy and government revenue. In 1944-45, the United States was taxing income over $200,000 at 94 %.6 The top tax rate exceeded 70 % into the 1980s.7
Later, researchers reshaped the Laffer Curve. Since 1974, researchers have concluded that government revenue maximizes at 70 % income tax rate.8 In other words, the Laffer Curve’s shape does not reflect a parabola, but likely some other curve.9 Because no tax rate in the United States currently exceeds 70 % (the highest bracket reaches only 39.6%,10 cutting taxes would only decrease government revenue.
Kansas crashed its government revenue by contravening the researchers’ advice.
Indeed, Kansas’s revenue drastically decreased when Kansas cut income taxes. Kansas’s revenue dropped so low that it had to cut its school budget by $44.5 million to pay for the tax cuts.11 Kansas’s government continued in a downward spiral until a Republican-controlled legislature overrode former-senator, now-Governor Brownback’s veto. In the meantime, Kansas under-performed the United States in private employment growth, gross domestic product growth, and small business growth.12 Two bond agencies downgraded its credit ratings.
The Founding Fathers baked federalism into the Constitution, and it prevents a single state’s tragedy from befalling the entire United States. Supreme Court Justice Louis Brandeis explained in a 1932 case: “It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”13 Kansas has so experimented and its failed experiment serves as a lesson without risking the United States’ entire economy.
Kansas suffered to learn those lessons. The Republicans set the United States down the same destructive path. Fiscal conservatism principles prohibit cooking the United States’ books to justify a tax cut while destroying the economy.
The proposed tax cuts that rely on future economic growth will never pay for themselves. Tax cuts do not promote future economic growth unless the income tax rate exceeds 70 %.
Hard evidence contravenes those fantastical future growth rates.
1 Alexia Fernandez Campbell, Kansas Republicans end the state’s failed tax-reform experiment (June 7, 2017), at https://www.vox.com/policy-and-politics/2017/6/7/15753510/kansas-brownback-tax-reform.
2 Center on Budget and Policy Priorities, GOP Tax Plans Would Emulate Failed Kansas Experiment (updated June 7, 2017), at http://www.cbpp.org/research/federal-tax/gop-tax-plans-would-emulate-failed-kansas-experiment.
3 Laffer Curve, https://en.wikipedia.org/wiki/Laffer_curve.
5 Bastianowa, Krzywa Laffera, https://en.wikipedia.org/?title=Talk:Laffer_curve/Archive_1#/media/File:Krzywa_Laffera.svg.
6 Philip Scranton, Tax Rates of the Mid-20th Century, http://teachinghistory.org/history-content/ask-a-historian/24489 (“In 1944-45, ‘the most progressive tax years in U.S. history,’ the 94% rate applied to any income above $200,000 ($2.4 million in 2009 dollars, given inflation)”).
7 Federal Income Tax Brackets and Maximum Tax Rates: 1950-1980, https://web.stanford.edu/class/polisci120a/immigration/Federal%20Tax%20Brackets.pdf; see also http://photobucket.com/gallery/user/tester123456/media/cGF0aDovc3RlYWx0aC5wbmc=/?ref.
8 Laffer Curve, Wikipedia (collecting resources).
9 Laffer Curve, Wikipedia.
10 26 U.S.C. § 1.
11 Kansas Republicans (“The budget crisis has collided with a long-running battle over public school funding. The state’s public schools are shouldering the burden of the state’s budget crisis, with $44.5 million cut from public education in 2015 alone.”).
12 GOP Tax Plans.
13 New State Ice Co. v. Liebmann, 285 U.S. 262, 291 (1932) (dissenting).