The troubled ‘Kansas experiment’ goes to Washington

TOPEKA - Would Gov. Sam Brownback, once House Speaker Paul Ryan’s boss and still fond of him today, relish the chance to remake Washington the way he’s overhauled Kansas with supply-side sensibilities?

He smiles. Pauses.

“It’s what I thought would happen all along,” the governor says. “You change America by changing states. That’s how it’s done. … We’ve pioneered these areas.”

Brownback certainly changed Kansas — with tax cuts that carved a $340 million hole in the state budget through this summer, $900 million through the next year, without yet turbocharging its economy as he promised.

The governor’s reputation as the GOP’s tax-cutting superstar has dimmed. Almost no Republican will point to Kansas as a model, as many did a few years ago. But Brownback remains a true believer.

Now he sees the Great Kansas Experiment in conservatism headed to Washington at the heart of the Ryan agenda.

Last week, congressional Republicans huddled in Philadelphia to sketch out their priorities for the months ahead. Their plans draw inspiration from the same economic and social theories that drove Brownback’s bold rewriting of his state’s tax code, welfare rules and Medicaid a few years ago in Topeka.

Brownback and Ryan both approach government as evangelists of lower taxes, smaller government. Their convictions echo the thinking of the late congressman and Housing Secretary Jack Kemp, the morals-driven social policy outlook of Ronald Reagan Cabinet member Bill Bennett and the trickle-down economics of conservatives Art Laffer and Stephen Moore. Those two economists, who helped craft the Brownback approach in Kansas, also have the ear of one Donald Trump.

Ryan stands ready to apply that free-market philosophy to a federal government that he and Brownback see as a bloated beast standing in the path of a robust economy.

“He’s a kid in a candy store right now,” Brownback says of his former aide. “Finally, we’ve got a chance to do something (in Washington). And he’s a true policy wonk. He knows the policy, and he drives it.”

Deep ties

Brownback and Ryan first teamed up in the mid-1990s, days when Newt Gingrich labored to revive Reagan-era policies and resuscitate a battered Republican Party. Brownback struck a distinct figure in the U.S. Senate, a proudly religious conservative eager to get government out of the way of business.

The governor laughs now about hiring a 25-year-old Ryan and how the younger man from Wisconsin had the nerve to insist he’d only work for the Kansas senator if he could be the chief legislative director.

“I thought he was too young, so I tried to get him down in price,” Brownback said. No luck.

Instead, he got the labor of an ambitious and passionate policy wonk so intent on winning legislative battles that he came to the senator’s Capitol Hill office one weekend in camouflage gear, still reeking of the deer urine he’d doused himself in on a hunting outing.

Like-minded outlooks drew the two together, and shared political battles reinforced the bond.

“We look at the world much the same way, very pro-growth orientation,” Brownback said.

Eventually, Brownback returned to Kansas as governor while Ryan advanced from political staffer to politician.

Today, it’s Brownback who can boast of putting their supply-side principles into practice.

Under Brownback, Kansas erased the 4.6 percent individual income tax for business partnerships and made proceeds of limited liability corporations and other small businesses tax-free.

He also refashioned welfare in the state, imposing lifetime limits for recipients and set new rules intended to launch more people into the workforce.

Supply and demand

For generations, the crossroads of politics and economics split, broadly speaking, into the demand-side camp and the supply-side faction.

The first, springing from the theories of John Maynard Keynes, encourages the government to spend more heavily during recessions and depressions to stimulate the economy and create demand that will rejuvenate struggling industries.

Supply-siders believe instead that government would be smarter to let businesses worry about putting people to work: make it easier to be an employer by lowering taxes. The resulting growth, goes the thinking put into practice during the Reagan years, will help laborer and CEO alike.

The debate played out at the start of the Obama administration, when the country was reeling from a financial crisis and the worst recession in generations. Democrats tend to be Keynesian in their economics. The president pushed for a stimulus program. But because congressional Republicans wouldn’t OK as much spending as he wanted, and because some sort of economic rebound was nearly inevitable, the subsequent slow and uneven recovery proved yet another imperfect test of economic theory.

Now the supply-side camp gets its day. Brownback thinks it’s due.

First, he’s largely dismissive of the economic recovery that marked the Barack Obama years. It wasn’t as robust as the country needed, benefited fat cats more than workers and relied too heavily, in Brownback’s view, on moves by the Federal Reserve to keep interest rates low.

“You shouldn’t be that reliant on monetary policies as this past administration has been,” the governor said during an interview in the Capitol.

Rather, Brownback said the new Washington establishment — with Ryan’s forces on Capitol Hill feeding legislative change to an agreeable White House — needs to make America great with tax policies that promote business growth. The results, he said, will make for long-term economic strength.

“You can deal with your fiscal issues much better if you have a growing economy,” the governor said. “That growth is 75 percent of the equation.”

The battle in Washington will prove trickier than what Brownback faced in Topeka, he said. Kansas is a predominantly Republican state. Although the GOP begins this year controlling the White House and Capitol Hill, the U.S. electorate is split 50/50 .

The stakes also run much higher. You pay more in taxes to Washington than to your state. So any tinkering with the tax code messes more deeply with your bottom line and is more likely to rally opposition from various industries.

“The politics are hugely different,” said Brownback. “This is a very difficult fight in D.C. You have all these entrenched interests that are very hard to bust through.”

The example state

Brownback’s makeover of Kansas government came only through tough political battles. Although he came out on top time and again, even with a Republican Legislature in a deeply Republican state, what he signed into law was never exactly what he proposed.

Those wins gave Brownback credit, or blame, for the state’s economic performance. It’s not gone well.

His popularity has taken a beating. The governor blames that on news media, with the exception of the Fox News Channel, that he thinks dismisses his policies and skims past any successes.

Democrats just gained seats in the state Legislature, and some Brownback-friendly conservative Republicans lost to party moderates, in a year where the Republicans put on muscle in state capitals across the country.

Kansas’ budget shortfall could top $1 billion by summer 2019 if the state doesn’t raise taxes, cut spending, or both, dramatically.

Those revenue problems mark the hangover from Brownback-engineered tax cuts that took hold in 2013. His administration points to broad economic trends for those problems.

Yet, the governor’s already signed one tax-hike package. Now he’s looking to load more surcharges onto booze and cigarettes, reroute highway money and cash in tobacco settlement money for a short-term fix.

Perhaps most damning of all, the state’s economic growth is flat, lagging even the tepid recession rebound of the country as a whole and the states that surround Kansas.

All those things have taken Kansas from a soaring eagle rising on the conservative currents, to a political albatross for those like Ryan who argue that tax cuts can actually raise government revenue by making the economy soar.

The governor, and many of the supply-siders with Ryan’s ear, insist things would have been worse had Brownback not given Kansas a tax policy makeover.

A state so reliant on farming and energy and the airline sector, they argue, took a blow when prices for crops, oil and gas tumbled and aviation manufacturing in the Wichita area stalled.

“The question is,” said David Kensinger, a lobbyist and former Brownback chief of staff, “was Kansas better off than it would have been?”

Yet he concedes that had energy and agriculture prices boomed instead of busted, it would have been hard to calculate the effect of Brownback tax cuts in driving a Kansas boom.

Critics say that exposes the limits of a governor, or perhaps even a president, to remake an economy.

“When you get to the point where you’re sort of making excuses for the industry mix in your state, (it shows) that taxes have a trivial impact on relative rates of economic growth,” said Michael Mazerov, senior fellow at the left-leaning Center on Budget and Policy Priorities. “Supply-side economics as a theory is all well and good, but in the real world, other factors drive economic growth.”

Cutting to grow

Even conservative economists looking at Kansas see the idea that tax cuts can bring in more revenue to government as unrealistic, at least in the short-term.

“Kansas, in a way, is a lesson here that when you cut taxes, expect your revenue to go down,” said Kyle Pomerleau, the director of federal projects at the conservative Tax Foundation in Washington, D.C. “When you cut taxes, yes, you get economic growth. But nothing is free. … Economic growth reduces the cost of the tax cut, but doesn’t eliminate the cost.”

Voices on the right argue the cost can be worthwhile.

They contend Reagan showed in the 1980s how supply-side policies can revive an economy, even if it came with expansion of federal debt. If there’s a problem with the Kansas example, they argue, it’s that the state didn’t move boldly enough.

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Grover Norquist, long a disciple of lower taxes and smaller government, says Team Brownback was also hampered by a Legislature reluctant to make politically dicey budget cuts and court decisions that mandated more school spending by the state. (In fact, the courts have only ruled so far that the state needed to send more education dollars to school districts with undersized property tax bases. A judicial decision on whether the state puts enough into all schools is still pending.)

“Kansas is challenged because you didn’t rein in spending like you needed to,” said Norquist, the president of Americans for Tax Reform.

“The sum total of Kansas policy,” he said, “much of it driven by the courts, is you’re spending too much money.”

Norquist once called Brownback’s 2013 proposal to phase out income tax “genius.” Now he’d rather not point to Kansas as a supply-side prototype. Instead, he suggests North Carolina.

“North Carolina was as aggressive on rate reductions, but they kept spending down,” Norquist said. “You have a bunch of Republicans (in Kansas) that don’t mind spending.”

He said the Kansas Legislature should spend more time reining in spending instead of raising taxes.

“Raising taxes,” he added, “is what legislators do if they’re not competent to govern.”

Worth copying?

Norquist told The Star that Ryan is working with Trump’s team to merge their tax-cut plans. Meanwhile, those fighting against those plans surely will point to Kansas as a cautionary tale.

“The Kansas case certainly helps to push back on the argument that when you have these supply-side tax cuts, they pay for themselves,” said Hunter Blair, a budget analyst at the Economic Policy Institute, a left-leaning think tank in Washington, D.C. “You’re going to blow a hole in your budget. … Kansas is a good example of that.”

Indeed, even the conservative Tax Foundation estimates Trump’s tax-cut plan will cost about $4 trillion, even when accounting for strong economic growth. Ryan’s plan, under that same optimistic scenario, would reduce federal revenue by $200 billion.

If growth comes as predicted, the cuts will cost much less in later decades, said Pomerleau, of the Tax Foundation.

As Brownback has learned, banking on voters’ patience — and fellow politicians’ nerve — while waiting for supply-side policies to play out carries real political risk.

Since Brownback’s tax cuts passed, Kansas saw personal income and gross domestic product grow at a combined rate of 1.6 percent, compared to more than 3 percent for the country and more than 2.7 percent for the region. Private non-farm job growth in Kansas was about half that of the nation and surrounding states.

“We’re about a half-decade into the plan, and we’ve not seen the growth that we’re promised,” said Heidi Holliday, the executive director of the Kansas Center for Economic Growth, a bipartisan group that’s regularly critical of Brownback’s tax policies.

Plummeting state revenue forced spending cuts, which critics said could discourage new firms from coming to the state. And although the number of new businesses in the state increased, analysts said they tended to be small support operations that formed LLCs to take advantage of Brownback tax breaks.

“It benefited some people who didn’t need it,” said Jeremy Hill, the director of the Center for Economic Development and Business Research at Wichita State University.

In what could perhaps be a sign of Ryan’s reluctance to associate his proposals with those of his troubled former boss, his office did not respond to requests for comment or written questions submitted by The Star.

But Brownback has some advice for his protégé: Recognize that truly visionary change doesn’t happen easily.

“These things take time to get done. They take time to get implemented. They take time to be felt in the overall economy,” the governor said.

“But I think the country and the world (are) ready to see a stronger America, and this is a great moment to be sitting where Paul Ryan is sitting.”

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