News Journal: We know now what’s the matter with Kansas

Justice Louis Brandeis summed up one of the great strengths of our system of government when he wrote, “A 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.” Throughout our history, other states and the federal government itself have learned what works and what doesn’t when a state tries something different. Adapting the good ideas of states and avoiding the bad ones is one of the hallmarks of creative federalism.

In 2010, two newly elected governors decided to solve their states’ budget problems in very different ways. Sam Brownback actually described his massive Kansas state tax cuts as “an experiment” that would prove supply-side economics works, accelerating business development and therefore increasing the state’s revenue. The tax cuts – eliminating the income tax for 191,000 business and lowering the top personal rate from 6.45 percent to 4.9 percent with a goal of 3.8 percent by 2018 – would, he said, pay for themselves.

California, which was at the center of the catastrophic collapse of the housing market in 2008-09, was in far worse shape than Kansas when Jerry Brown was elected governor in 2010. He faced a $25 billion deficit. During the 2012 election campaign, Mitt Romney compared California to Greece.

Like Gov. Brownback, Gov. Brown immediately made a lot of spending cuts in the state budget. But he had different ideas about revenue. He fought for and won tax increases that included a higher sales tax and a 29 percent increase on incomes over $1 million a year.

A Hollywood girl once told her dog, “we aren’t in Kansas anymore.” I am not suggesting what has happened in two quite different states is entirely because of tax policy, but the results are certainly striking.

Two weeks ago, the Kansas legislature ended the longest session in its history. Most of those 113 days were spent trying to figure out what to do about an $800 million hole in the budget caused by a steep decline in revenue. It wasn’t pretty. Even legislators who had signed pledges that they would never raise taxes acknowledged there could be no more cuts in already-decimated areas such as education. So they finally, grudgingly increased the state sales tax from 6.15 percent to 6.5 percent and raised the cigarette tax by $1.29 a pack, hoping to at least partially reduce the deficit.

Moody’s has downgraded the state’s credit rating, according to the Kansas City Star, “because of mounting financial pressure on the Kansas state budget, partly from massive income tax cuts … signed into law in 2012 and 2013.”

They were fighting this year in the California legislature, too. But, according to the Financial Times, “Six years ago, California was paying bills with IOUs and facing a yawning budget shortfall. Today, the Governor’s record plan for spending was made possible by a $6.7 billion revenue surge…California’s economy has roared back as the deficit vanishes.” So the debate in the California legislature wasn’t about deficits. It was about what to do with a $4.2 billion surplus, the governor favoring a reduction in the state’s debt and putting more money into state employee pension funds. S&P has upgraded California’s credit rating four times in the past two years.

What has happened in California simply bears out the experience of the federal government in the 1990s. President George H.W. Bush had the courage to break his “read my lips, no new taxes” pledge. He raised taxes while negotiating with Congress to implement major spending cuts. Then, President Clinton pushed for and passed what became known as “the biggest tax increase in history.” By the end of the decade, the federal government was running a budget surplus.

At both the state and federal levels, we have always had healthy debates about balancing tax revenue and government spending. But only recently has the debate changed so that, for many on one side, only spending cuts and never revenue increases are on the table. If the recent California and Kansas experiments tell us anything, this is not a likely formula for success.

Ted Kaufman is a former U.S. Senator from Delaware.

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