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The Kansas Experiment


The Trickle Down Theory - The Kansas Experiment

Gerry O'Shea - 10-25-2017

The President has a new tax plan which, predictably, he is promoting as providing "the largest tax cuts in U.S. history." The truth is that, if his proposals are enacted, the only people who will be cheering will be the top 1%.

The non-partisan Tax Policy Center estimates that by 2027 Trump's proposals would result in a tax increase for a quarter of middle class families. The same tax experts say that 80% of the gains will go to the top 1% of Americans.

There would be a cut in the highest individual rates, a reduction in corporate taxes and an end to the estate tax, which Republicans call the death tax, but which only applies to the relatively few affluent estates worth more than five and a half million.

How do Republicans led by President Trump plan to balance the books? How do they avoid ballooning the deficit which they claim repeatedly is anathema to them? Their main argument is that big tax cuts will lead to significant increases in employment numbers and workers' wages, which, in turn, will result in larger tax revenue and thus cover most of the increase in the deficit.

Part of their plan involves repatriation of overseas company profits, variously estimated at from three to five trillion, at a new very low tax rate, and the belief that this money will trickle down to ordinary workers to the tune of an estimated $4000 per family. Anyone who believes that this bit of chicanery will end up in increases in workers' paychecks should look at that bridge that is for sale in Brooklyn.

Every major Republican since Ronald Reagan has given full and seemingly unquestioned allegiance and credibility to the Trickle Down Theory of Economics.  In a nutshell, this states that if  a government gives big tax breaks to the wealthy, the new money accrued by the rich will somehow be passed on to the middle class and the poor.

A hundred years ago this thinking had a more imaginative name: the Horse and Sparrow Theory, based on its claim that if you feed a horse enough oats, some will pass through to the road for the sparrows to peck on. In the last general election in New Zealand, Damien O'Connor, a leader of the Labor Party there,  memorably described the theory as "the rich peeing on the poor!"

Most economists reject the assertion that the way to help the people at the bottom is to enrich the plutocrats at the top. In fact, a few highly-regarded studies show clearly that when low and  middle class workers get extra tax benefits in their paychecks it results in a real increase in their living standard and more broadly in improved economic activity in the wider community.

The state of Kansas provides an excellent and up-to-date example of the effectiveness of the Trickle Down Theory, which is also often spoken of as supply-side economics. Sam Brownback rode the Tea Party wave to the governor's office in Topeka in 2010, and he was re-elected in 2014. He promised to make Kansas "a red-state model" for Trickle Down economics, and indeed he reduced tax rates and the number of  brackets and created special accounting privileges for businesses.

But the "miracle" never happened. Instead state education spending dropped by 15%, severely impacting the poorest districts. Pot-holed highways reminded voters how services had deteriorated, and instead of the promised burst of growth, the Kansas economy grew by just 0.2% last year compared to 1.6% nationally.

The Brownback budgeting experiment resulted in revenues dwindling to the extent that the state legislators of both parties passed a budget that increased revenue by 1.2 billion dollars over two years and  then overrode the Governor's veto of this legislation.

The lesson is that this trickle-down template does not work as promised. Huge tax cuts do not magically result in economic growth and more revenue. Common sense strongly suggests that when government wants to give back some money to taxpayers, the results are much more likely to be positive for the community if the money is distributed among those who will spend it rather than giving it to people who are more likely to hoard it. Kansas experimented with Trickle Down and it was a disaster for that state.

The Trump budget proposals would massively re-distribute wealth upwards while trimming social programs - like food stamps - that provide some help for the poor. Where is the outrage about  these misguided and cruel policies from evangelical Christians and Catholics, who strongly supported the Trump candidacy, and claim to be guided by the moral standards in the  Old and New Testaments?

Giving more money to those who don't need it while reducing the meager entitlements of the poor is surely the very antithesis of Christian social teaching. Considering this budget in conjunction with various Republican proposals that would end healthcare coverage for millions of struggling middle-income families, which they have now under President Obama's Affordable Care Act, should surely elicit outrage among church leaders. These are quintessentially moral issues that should be heard about from our pulpits.

Pope Francis is very clear about the cruel deception of Trickle-Down Economics: "The promise was that when the glass is full, it would overflow, benefiting the poor, but what happens is that when the glass is full, it magically gets bigger. Nothing  EVER comes out for the poor."

 Sam Brownback, a devout Catholic, is still preaching the Trickle Down gospel, despite the evidence of its dismal failure in his own state.

 

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