Kansas has received the most news coverage for the catastrophic shortfall of revenues its massive tax cuts (promulgated by the state’s conservative governor when he took office three years ago) have created. At first, the crisis seemed to be limited to that one state, which would have been bad enough, as Kansas public schools were facing major budget hits (not to mention the neglected and worsening infrastructure problems throughout the state).
But now the same problem is developing in other states where the same supply side approach has been instituted by Republican governors and their conservative-dominated legislatures. Illinois, with newly elected Republican governor Bruce Rauner, faces a $3 billion shortfall. Alabama, under Republican Governor Robert Bentley, faces a long-term $700 million shortfall. Wisconsin, where Governor Scott Walker has been on an anti-tax crusade, is also in the red. And Louisiana, led by Republican governor Bobby Jindal, is struggling with a $1.6 billion shortfall. In these and other states controlled by supply side thinking, elected officials are facing the kind of decisions no politician likes to face: cut services or raise taxes.
Except that some politicians do like the second of those two options. It’s called the “starve the beast” strategy, wherein taxes are deliberately cut to produce revenue crises that are then resolved by cutting services. And the services that are cut in this model are those that fall on the welfare side of the equation.
This is the old ideological debate that first confronted Franklin Roosevelt when he sought to create work projects to lift the country out of the Great Depression. His legislative initiatives, although ultimately passed, were met with derision from conservative lawmakers who considered programs like the WPA (Work Progress Act) and the NIRA (National Industrial Recovery Act) to be socialistic.
The opposition to FDR’s New Deal was that a massive government dole would destroy the moral fabric of the country. Of course, that result never occurred. Instead, the economy stabilized enough to bring unemployment down, albeit the depression wasn’t really over until the nation entered World War II, at which point, everyone was working in one way or another to win the war.
But the ideological opposition to the New Deal (to include Social Security and Unemployment Insurance) has continued in a variety of forms ever since the end of that war. And with the presidency of Ronald Reagan it took the form of supply side economics (a.k.a the Laffer curve, named for Arthur Laffer, who reportedly explained it to Donald Rumsfeld and Dick Cheney on a cocktail napkin), wherein the theory was advanced that by reducing taxes drastically, revenues would actually increase because businesses (and workers, presumably) would be incentivized to increase productivity since they would keep more of their earnings.
Yes, it does sound counter-intuitive, and we now know that it is flawed for that very reason. But remember that some of the supply side advocacy is based on the “starve the beast” strategy. In other words, some adherents of it fully expect that the theory won’t work. They just want an excuse to cut government services that look anything like a government welfare program.
I don’t claim to know whether Kansas governor Sam Brownback or Louisiana governor Jindal or Wisconsin governor Walker have that hidden agenda in their tax reduction policies, but in each instance those policies have brought their states to the point of crisis with respect to some basic government services, services that they may well want to privatize (like education and public utilities and highway construction and maintenance).
It’s all cut of the same cloth. You hate government involvement in anything that private enterprise could do instead. If you are a true-blue capitalist, how can you want anything else? This is what conservatives refer to as “freedom.” It’s synonymous for them with free markets, a la Ayn Rand’s dogma, wherein everyone is solely responsible for himself or herself and the role of government is limited to making sure that nothing interferes with that “freedom.”
Thus, those who aren’t working are undeserving of help and any effort by governments to help them is counter-productive at best, socialistic (and treasonous) at worst. And, of course, if governments have less revenue to enact such programs, they are less susceptible to the temptation to enact such programs. So tax cuts work to stall those efforts and to “starve the beast” (the beast being those programs already in place).
Of course, economics are all theory until the results come in. And with respect to the supply side approach, the results are not pretty. In Wisconsin, for example, Mr. Walker signed into law a tax cut of over a half of a billion dollars last year with expectations that the cuts would produce a budget surplus. Instead, with slow job growth, the state now faces a budget deficit of over a quarter of a billion dollars. And Mr. Walker’s solution? He proposes to cut funding to public schools, to the state’s university system, to state parks, and to public workers’ health benefits. (And this guy wants to run for President?)
Here’s what the would-be president said when he pushed for his tax cut plan:
“We can charge you higher (tax) rates, and a few of you might be able to afford to pay it. Or we can lower the rates, broaden the base. More people are part of the economy, we see revenues go up even while rates go down, and the economy gets better for everyone.”
In Kansas, where Governor Brownback’s tax cuts have come home to roost, the legislature is locked in debate over how to deal with the budget crisis, with lawmakers elected on vows to cut taxes now arguing over various types of tax increases. Some favor higher sales taxes (which hit lower income families hardest), while others are looking at higher income taxes on both businesses and individuals. The governor’s proposal is to increase sales and cigarette taxes and to restore some taxes on small businesses. (Note that the wealthy are spared most of the increases.)
Last weekend the Kansas legislature averted a first-ever government shutdown with a last minute stopgap bill. Wisconsin and Louisiana are still debating. Other states are watching and worrying. Stay tuned for developing details.