Economist Arthur Laffer addresses the Senate tax committee.OVERLAND PARK – Gov. Sam Brownback and his celebrity tax policy consultant, Arthur Laffer, said Tuesday that the income tax cuts Kansas lawmakers approved earlier this year will drive growth and make Kansas more competitive with surrounding states.
Laffer told more than 200 people at a small business forum at Johnson County Community College that there is a war among states over tax policy and that nowhere is that revolution more powerful than in Kansas. He said Kansas' tax cuts and political shifts will produce "enormous prosperity" for the state.
"It's not a left wing, right wing thing," Laffer said. "It's economics."
Laffer said his studies show states with lower tax rates out-perform high tax states. He said it may not work every day of every week, but he said growth is consistently driven by low tax, low regulation policies.
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He said it's like smoking cigarettes – some people smoke everyday and die at age 97 without a trace of cancer. "But if you want good health I wouldn't suggest you go out and start smoking," he said.
In a new paper handed out at the forum, Laffer and Stephen Moore, an economist who founded the conservative political group Club for Growth, dispute studies that say tax cuts don't produce the economic activity politicians promise and they argue that lower taxes drive growth.
“Taxing rich people and giving the money to poor people will increase the number of poor people and reduce the number of rich people," Laffer and Moore wrote.
Laffer is one of the nation's most well-known economists, primarily because he created and promoted supply-side economics for former President Ronald Reagan. He has spent decades advocating tax cuts as a way to create private sector prosperity that replaces government revenue lost to the tax cuts with increased revenue generated by private sector growth.
Brownback gave Laffer a $75,000 contract to consult with the state on tax reform efforts earlier this year, and Laffer tried to rally support for a massive tax-cutting plan at legislative hearings during the legislative session. The plan called for reduction of individual income taxes, the phasing out of income taxes on businesses and the elimination of more than a dozen tax credits and deductions, including several popular ones such as the home mortgage deduction and the earned income tax credit that benefits the working poor.
That plan failed to generate support in the House and Senate. But it was advanced to the Senate where it was drastically altered, driving up the cost of the plan. Several Republican senators who initially voted against the bill changed their votes on a second round of voting, approving the bill. Then when the House heard the senate wouldn't consider a separate negotiated plan, it advanced the bill to Brownback, who signed it.
Starting in January, the plan will reduce individual income tax rates and eliminate income taxes for owners of about 191,000 businesses. The new law collapses state income taxes to two brackets and cuts individual rates to 3 percent for married people who file jointly with income of less than $30,000. Income beyond that will be taxed at 4.9 percent.
Conservatives, including Brownback, project it will drive private sector growth and create thousands of new jobs. Other Republicans and Democrats believe it will force the state to drastically cut important core services, including education and aid for the poor and disabled.
Legislative researchers project it will create a cumulative shortfall of more than $2.5 billion over five years.
A study by the Institute on Taxation and Economic Policy that Laffer disputes calls Laffer's studies showing low-tax states out-perform others "misleading."
Their study says residents in "high rate" income tax states have as good or better economic conditions than those in no income tax states.