Posted on Tue, Oct. 20, 2009

e-mail	print	RSS	reprint
AIM	Digg it	del.icio.us	Facebook

Tax cuts boost economy

Secretary of Revenue Joan Wagnon recently blamed tax cuts for the state's budget woes (Oct. 10 Local & State). She argued that there wouldn't be a budget shortfall if the tax cuts and exemptions passed since 1995 had not been approved.

The secretary's contention that, all things being equal, reduced taxes would have made up the current deficit is, well, not equal.

First, taxes, in their basic form, are a cost to the private sector. When costs are lowered, there is an economic response in which an increase in after-tax income leads to further economic activity and subsequent revenue generation for the government. Without those cuts, who knows how much larger that deficit would be today? In reality, we cannot play ex post facto with real dollars across time and differing economic environments and assume the outcome is static.

Second, given a static review, Wagnon ignored that people respond to future perceptions of the economy and their income. People will defer spending or investment to a lower-taxed future, which reduces revenue in a higher-taxed present. The scary part of this reality is that we are in a high-taxed present with the prospect of a higher-taxed future. This is not the way out.

Lastly, Wagnon ignored the economic principle known as the Laffer curve, created by Reagan economic policy adviser Arthur Laffer, which demonstrates the relationship between taxes and the revenues they generate. The curve suggests that there is an optimal point (tax rate) at which raising or lowering the rate would decrease tax receipts. Wagnon supposes that Kansas already was operating at the optimal point and that by reducing taxes, tax revenue went down.

Aside from the fact that she cannot prove it, history is not on her side. The largest cuts in marginal tax rates in American history have triggered the largest increases in economic growth and government revenue (i.e., Presidents Kennedy, Reagan, George W. Bush).

This rings true as well on the state level — as documented by Laffer and associates in their 2003 work titled Laffer State Competitive Environment, a state-by-state analysis that detailed the impact of tax rates on competitiveness and revenue generation. Not surprisingly, states with lower or falling taxes had higher economic growth, income growth and more opportunity for competition and innovation. For those who are curious: Kansas ranked 26th when compared with all states.

In a time when we need to be looking to pro-growth policies in order to get the economic engine running again, some policymakers continue to believe that the tax pressures on families and businesses simply are not high enough. I disagree; this is not the vision or spirit of America.

JIM ANDERSON

Wichita

     Showing: Oldest first Newest first Most-recommended first Least-recommended first

@Nyx.AuthorDisplayName@ wrote on @Nyx.PostedAtTime@:

@Nyx.CommentBody@

@Nyx.Recommender@ @Nyx.AbuseReporter@