The great Kansas experiment continues...

[JustWinBaby]

(10-02-2016, 12:18 PM)GMDino Wrote: But also if taxes trickle down why haven't the tax cuts?  Lower prices, more jobs, better pay, etc?

Because wage increases are tied to market rates much more so than profitability.  For tax cuts to "trickle down", you have to have job growth making a tight labor market and bidding up wages.   And it's job growth that is tied to profitability.

[GMDino]

(10-02-2016, 08:57 PM)JustWinBaby Wrote: Because wage increases are tied to market rates much more so than profitability.  For tax cuts to "trickle down", you have to have job growth making a tight labor market and bidding up wages.   And it's job growth that is tied to profitability.

Then the tax breaks aren't needed.  Thanks.

[treee]

(10-02-2016, 08:51 PM)JustWinBaby Wrote: And I think that's a big part of what's failed here.  Obviously we know 0% tax rates and 100% tax rates are not optimal, but the debate is always what is optimal (and it's probably not a constant number).

 Definitely. 

Quote:The idea of "trickle down" is more jobs and supply & demand leads to wage growth.  But in this case the Kansas job market was already doing fairly well, so there weren't a lot of jobs to gain.  I also think the artificially low interest rates have provided plenty of easy money to businesses for investment, so you don't see the traditional bump in spending from tax cuts because there was already so much cheap financing available.  

I thought it was universally agreed upon by most economists that supply side economics as we've known them up to this point are largely ineffective.

Quote:Higher taxes and bigger government DOES lead to slower growth (and less jobs).  But other than marginal corporate tax rates being high, the average tax rates here are still lower overall vs. the EU.  So optimal might be higher, but probably not all that much higher (and not nearly enough to close the deficit without also lowering spending).

I agree that there are cuts that need to be made in conjunction with slight tax hikes in order to reduce the deficit effectively. I personally believe that we need to do whatever possible to responsibly subsidize higher education because these student loans are going to absolutely kill our economy in the no-too-distant future. 

Quote:Because wage increases are tied to market rates much more so than profitability.  For tax cuts to "trickle down", you have to have job growth making a tight labor market and bidding up wages.   And it's job growth that is tied to profitability.

U.S. wages are never going to trend upward naturally in the free market again as long as we are competing against these countries with such low standards of living. It is just the grim reality of things.

[JustWinBaby]

(10-02-2016, 09:10 PM)treee Wrote: I thought it was universally agreed upon by most economists that supply side economics as we've known them up to this point are largely ineffective.

Not remotely.  That's just what tax & spend liberal economists like Krugman claim.  Supply side economics are pretty much principle foundation....it's just that there are many factors involved and the supply side issues are not always dominant or most relevant.

You know what guys like Krugman said when an unprecedented TRILLION dollar stimulus did nothing? That it wasn't enough.

[JustWinBaby]

(10-02-2016, 09:10 PM)treee Wrote: U.S. wages are never going to trend upward naturally in the free market again as long as we are competing against these countries with such low standards of living. It is just the grim reality of things.

This is very, very true.  It's a global labor market now.  Yes, the rich are getting richer off globalization, but they are just shaving off a slice for themself.  The real wealth transfer is, as you said, those people with much lower standards of living.

And it only gets worse with automation and AI.

[treee]

(10-03-2016, 01:08 AM)JustWinBaby Wrote: This is very, very true.  It's a global labor market now.  Yes, the rich are getting richer off globalization, but they are just shaving off a slice for themself.  The real wealth transfer is, as you said, those people with much lower standards of living.

And it only gets worse with automation and AI.

At some point there has to be a basic universal income that you can compliment by participating in the labor market (if possible).

[Belsnickel]

(10-02-2016, 12:54 PM)Aquapod770 Wrote: And in places where Dems have the most power things are just as shitty. It's almost as if our government was designed to work on a system of checks and balances...

(10-02-2016, 12:58 PM)GMDino Wrote: Checks and balances don't mean crap when one side or the other refuses to compromise on anything at all.

(10-02-2016, 01:01 PM)Aquapod770 Wrote: Fair enough. The biggest problem with our government right now is the lack of compromise from both sides. 

(10-02-2016, 01:09 PM)GMDino Wrote: Agreed.

It's one of the interesting things to me. Politics really is just governance. One textbook definition talks about decisions being made about how people are going to live together. Somewhere along the way, politics is a word that has taken on a whole other connotation. I know I am guilty of saying I don't want politicians, I want statesmen. But when did the concept of politics move from being just about governance to being more about the parties and getting reelected? I mean, what has occurred, at least in our country, is that to the general public that is what they think politics is. It's a sad state of affairs.

[treee]

(10-03-2016, 10:15 PM)Belsnickel Wrote: It's one of the interesting things to me. Politics really is just governance. One textbook definition talks about decisions being made about how people are going to live together. Somewhere along the way, politics is a word that has taken on a whole other connotation. I know I am guilty of saying I don't want politicians, I want statesmen. But when did the concept of politics move from being just about governance to being more about the parties and getting reelected? I mean, what has occurred, at least in our country, is that to the general public that is what they think politics is. It's a sad state of affairs.

Somewhere along the line, the public psyche stopped viewing politics as a way that they could shape their world with their vote, and started looking at it as a force above them that dictated their lives.

[fredtoast]

(10-02-2016, 08:51 PM)JustWinBaby Wrote: you don't see the traditional bump in spending from tax cuts because there was already so much cheap financing available. 

If companies want to spend money on investment then higher taxes are actually an incentive.  Every dollar they re-invest is a tax deduction that reduces their taxable income.

So why would a tax cut increase motivation to re-invest profits?

Tax cuts just lead to larger amounts being taken out of the company as profit.

[Belsnickel]

(10-04-2016, 01:32 PM)fredtoast Wrote: If companies want to spend money on investment then higher taxes are actually an incentive.  Every dollar they re-invest is a tax deduction that reduces their taxable income.

So why would a tax cut increase motivation to re-invest profits?

Tax cuts just lead to larger amounts being taken out of the company as profit.

If an investment of their profits is in their retained earnings then they are still going to be taxed on that. Reinvestment in the company, if it increases the companies assets then there will still be an increase in taxable income. A lot of investments are in assets.

[JustWinBaby]

(10-03-2016, 03:32 PM)treee Wrote: At some point there has to be a basic universal income that you can compliment by participating in the labor market (if possible).

I would tend to agree with this.  But anyone's guess as to when that is, though it may be much closer than we think.  Big part of the issue right now is, as the global labor market transitions to being truly global, there's a lag before those workers start consuming to the point where their imports (our exports) start paying dividends.   Initially (for how long is a tough guess) that money goes to food, shelter and other local needs like infrastructure, and so provides virtually no offset to that job that left here.

[JustWinBaby]

(10-04-2016, 01:32 PM)fredtoast Wrote: If companies want to spend money on investment then higher taxes are actually an incentive.  Every dollar they re-invest is a tax deduction that reduces their taxable income.

No, that's fundamentally wrong.  Every dollar they invest has an after-tax cost of say $0.65, so the tax "incentive" only reduces, not eliminate, the investment cost approximately 1/3.  So spending $1 to save $0.35 isn't what we would call an incentive.

Investments are tax advantaged, but the demand and ROI has to be there, and higher taxes raises that ROI which actually deters investments that would otherwise be made.

If I make 10% ROI in a tax-free environment, but you then raise my tax rate to 50%, now I have to make a 20% ROI to get the same yield on that investment.   This is why tax-free municipal bonds have a lower yield than comparable taxable bonds because it's the after tax return that matters to investors.

Again, there are many factors involved here...but the empirical data is pretty conclusive that higher taxes and higher government spending is correlated with lower growth and higher unemployment.  And that's not an argument for no taxes, or even that very low taxes are optimal.

[fredtoast]

(10-05-2016, 04:59 AM)JustWinBaby Wrote: No, that's fundamentally wrong.  Every dollar they invest has an after-tax cost of say $0.65, so the tax "incentive" only reduces, not eliminate, the investment cost approximately 1/3.  So spending $1 to save $0.35 isn't what we would call an incentive.

Investments are tax advantaged, but the demand and ROI has to be there, and higher taxes raises that ROI which actually deters investments that would otherwise be made.

But you claimed that low interest rates were the reason that we did not see the increase in spending from tax cuts.

If the ROI is not there for a company to make out re-investing their own profits then why would they be borrowing money to re-invest?

[JustWinBaby]

(10-05-2016, 01:41 PM)fredtoast Wrote: But you claimed that low interest rates were the reason that we did not see the increase in spending from tax cuts.

If the ROI is not there for a company to make out re-investing their own profits then why would they be borrowing money to re-invest?

Because most companies HAVE to borrow to invest, they don't have the cash to cover it.  Taxes have a lot to do with how much an investment is actually worth to you, and borrowing costs have a lot to do BOTH with how much the investment is worth AND how big of an investment you can afford (if at all).

I'm not going to going into the technical details, but in corporate finance there is what is known as the "debt tax shield", such that optimal capital structures have some amount of debt.  And a lot has to do with taxes, and why I might borrow to finance an investment even if I have the cash (and might not do if I can't borrow to finance).

And both rates play heavily in the investment decision, so it's not always easy to determine how big of an impact a cut in rates or taxes would have.  Obviously if tax rates were 100% [private] investment would essentially be zero

[fredtoast]

(10-08-2016, 06:53 PM)JustWinBaby Wrote: Because most companies HAVE to borrow to invest, they don't have the cash to cover it.

If this is true then we should still see a bump in investment when taxes are cut.  If corporations wanted to invest in growing their bussiness they would use the tax savings to invest instead of taking them out as profit.  even at low interest rates it is cheaper to re-invest corpoarte profits than to bowwow money.

The fact is that tax cuts won't lead to more investment.  It will lead to more profits for the business owners.

Most big business have used the low interest rates to borrow and buy back thei own stock instead of investing in improving the company.

That is why the claim that lower corporate taxes will grow the economy is false.

[JustWinBaby]

(10-09-2016, 10:40 AM)fredtoas Wrote: The fact is that tax cuts won't lead to more investment.

No, that is fundamentally and empirically wrong.  Not a single economist worth a damn would agree with you.

No one disputes that tax cuts grow the economy. Really, you're just completely wrong on this. The debate has always been about govt revenues (i.e. tax receipts) and that the cuts don't pay for themselves (as far as revenues). No one disputes that tax cuts are pro-growth.

[GMDino]

https://www.theguardian.com/us-news/2017/may/15/kansas-trump-style-tax-cuts-economic-disaster?CMP=share_btn_tw

Quote:Kansas is broke – but you wouldn’t guess it looking at its shining state capitol in Topeka. The imposing limestone monument, crowned by a shiny copper dome and limned with John Steuart Curry’s luminous murals, has just undergone a $325m facelift. What’s happening inside the state house is a lot less pretty, and may well foreshadow the far uglier battle looming over the future of taxation in the United States.

Trump under fire over 'huge tax cut for the rich'

Last month, Donald Trump’s two key economic allies, treasury secretary Stephen Mnuchin and chief economic adviser Gary Cohn, unveiled the outline of Donald Trump’s much-trailed tax plan. The biggest tax cuts “in history” would slash taxes for business, simplify taxes for everyone else, and “pay for themselves” by stimulating economic growth, Trump’s fiscal duo claimed.
The plan’s similarity to the one that has left Kansas in crisis is “unbelievable”, according to Duane Goossen, the former Kansas secretary of administration.

The economic spirit behind Trump’s plan is Arthur Laffer – the go-to guru of “supply-side economics” since the Reagan era, and one of the architects of Kansas governor Sam Brownback’s original tax plan.

The former member of Reagan’s economic policy advisory board is best known for the ‘Laffer curve’, an illustration of the theory (not his own) that economic activity is tied to taxation, and that lower taxes, up to a point, mean more revenues.

That curve was famously scribbled by Laffer on a napkin over cocktails with Dick Cheney and Donald Rumsfeld in 1974, and helped underpin Reagan’s so-called trickle-down economics – as well as launching Laffer’s career as one of the most influential economists in Republican circles.

The curve is his calling card, but he also collects and publishes a vast trove of economic data on state revenues and taxes that seems to – handily – point to one conclusion: taxes bad, tax cuts good.
[/url]


 Economist Arthur Laffer shows off his curves. Photograph: AP
Fairly or not, “Laffernomics” is being blamed for a plan that has left the state in crisis and Brownback’s ratings in the Kansas dust. And Kansas, it seems, is about to act as the model for the biggest US tax cuts since the Gipper was in office.

Thanks to Kansas’s budget woes, Brownback regularly polls as the least popular governor in the union. Nor is there much love for Laffer.
“How does he sleep at night?” one parent asked.

“Politics is politics, and I have been the object of political attack and praise. I have gotten both,” Laffer told the Guardian. “What can I tell you? If you climb up the pole, your ass sticks out pretty far, and I climb up. I’m not afraid of taking a position on things.”

‘It just doesn’t work’

Sitting in the capitol’s vaulted lobby, Goossen, now a senior fellow at the Kansas Center for Economic Growth, has little time for Laffer’s arguments, and says that the Trump administration’s recent presentation gave him the shivers.

When Brownback outlined his plan in 2012, he, too, said the tax cuts would pay for themselves. “He too said the tax cuts would benefit everybody, [that] they would be be ‘a shot of adrenaline to the heart’ of the Kansan economy,” said Goossen.

Instead, Goossen claims, the money has gone to a small group of wealthy Kansans while the state’s budget has been left with a roughly $1bn shortfall. Its school system, once its crown jewel, has suffered year after year of cuts, and its savings are gone. The non-partisan Tax Policy Center calculates Trump’s tax plan would cost $6.2tn over the first decade.

“We are a cautionary tale. It sounds great, everybody gets a tax cut and it’ll balance – but it just doesn’t work,” said Goossen.

Campaigning for re-election in 2014, Brownback pledged his tax plans would add 100,000 new jobs over four years. By March this year, the state had added just 12,400 private-sector jobs. Kansas isn’t even keeping up with its neighbors. Hiring in Kansas increased by 0.3% in the last year; Missouri’s growth rate over that same period was 1.4%, according to the US Bureau of Labor Statistics.

The prop of the Brownback plan, as with Trump’s, was a huge cut to taxes paid by limited liability companies (LLCs) – and so-called “pass-through” businesses – which meant independent business owners would pay no state tax on the bulk, if not all, of their income. Those businesses would then go out and invest and create new jobs, or so the argument went.

At the time, Kansas had around 190,000 LLCs. Now it has around 300,000, but so far they have not spurred a new hiring drive in the state. “There is no evidence whatsoever that suggests this plan worked,” said Goossen.

Upstairs, the state senate is arguing over the budget for the 2018 fiscal year. Estimated revenues are $5.7bn for the year; expenses are $6.4bn – and that’s before you add in $500m-$750m the schools are owed. As Charles Dickens once wrote: “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.”

Goossen said: “The bigger problem is that now all the energy of the state is focused on how we scrape by and make do when we ought to be focused on the future.”

In nearby Lawrence, the business owners Brownback targeted are similarly unimpressed. With his trucker cap and lumberjack beard, Sam Billen is the kind of tech-savvy, knowledge-economy businessman that state governors adore. From a freshly scrubbed warehouse on the edge of downtown, Billen runs Primary Color Music, which makes music and soundtracks for films, videos and commercials. The company has a roster of local and international clients including AMC Theaters, Boulevard Brewery and Hitachi, and recently won a local small business award.



 Sam Billen in Lawrence, Kansas: ‘I think we’d all pay a little extra to make it better.’ Photograph: Jason Dailey for the Guardian
Over freshly prepared burritos at Bon Bon, made with vegetables from the cafe’s garden, Billen outlines all the reasons for working in Lawrence: good schools, great food, central location, fantastic people, relatively cheap. The tax? “I probably get $5,000 to $10,000 a year extra. That’s great, but if I take a step back, where is it coming from? I’d rather it went back into the community. When you see the impact it’s having on education, it’s scary,” he said. “They are making this state worse. For what? I think we’d all pay a little extra to make it better.”

Quote:There was no ‘shot of adrenaline’ – you didn’t have to be an economist to see that
Judith Deedy, a mother in Kansas

Over at award-winning Limestone Pizza, the message is the same. “I didn’t start this business for a tax break,” said Rick Martin, the owner and executive chef. “What I wanted to do is get the maximum amount of local products on a pizza. If we are not profitable because of taxes, we are doing something wrong,” he said. The tax break “might be great if you are concentrating on tax avoidance” but a tax break that works only for business owners, not employees, was “harmful”.

“We do better when we are all pulling together,” said Martin.

Lawrence is a cute little college town where you can pick up a book at The Raven Book Store, with a bookmark declaring “Reading is Resistance”, and go read it over a Moscow mule in The Bourgeoise Pig. It’s a small Democrat holdout in Kansas’s deep red state. You’d probably expect the locals to hate Brownback’s tax plans. But the antipathy is statewide.

‘We are seeing cuts year after year’

A few hours south of Topeka is Wichita, home to Kansas’s most famous business family, the Kochs. The Koch brothers are evangelical about low taxes but not, apparently, at any cost.

“We have consistently said Kansas must first fix our spending problem, then and only then address the tax code. There needs to be more equality in how the tax gets applied. You can’t have half the state exempt and the other half not exempt,” Steve Feilmeier, the chief financial officer and executive vice-president of Koch Industries, told Kansas City Business Journal earlier this year.

Part of the dislike stems from what the cuts have done to Kansas schools. In March, the Kansas supreme court ruled that state was underfunding schools by hundreds of millions of dollars per year.

One of the parents affected is Judith Deedy, who moved from Cleveland to Shawnee County by the Missouri state line in 2004 – in large part because of the great reputation of the local schools. “During the recession I got it that budgets were being cut, but when we came out of recession it just kept on happening. We are seeing cuts year after year that add up to an entire academic career.”

Class sizes are up, teachers are not being replaced, art and music are being slashed. “I’m lucky. This is still a relatively good area, [but] small towns are losing schools. In Wichita, they shortened the school year and increased the length of the school day. No one likes it,” she says. Small towns that lose a school are being devastated by the cuts, and parents are worried schools may not reopen after the summer break unless an agreement can be reached in Topeka.


 Judith Deedy and her children, Kathleen, Anne and Evan. ‘The cuts have been so deep we may never get back to where we were.’ Photograph: Jason Dailey for the Guardian
“I chose to live in Kansas. We don’t have beaches, we don’t have mountains, but we have great public schools. Well, not any more. There was no shot of adrenaline – you didn’t have to be an economist to see that. The cuts have been so deep we may never get back to where we were,” said Deedy.

Laffer blames politics and timidity rather than economic theory for Kansas’s woes. So what went wrong with Kansas?

“It sucks,” said Laffer. “Look at it. This doesn’t have beaches, it doesn’t have palm trees. It doesn’t really have a low tax, what is it now, 4.9%, something like that. Take a look at my state, Tennessee. We have the lowest tax burden of any state in the nation, we have the highest growth in employment as a percentage of population of any state in the nation in the last 12 months, we have budget surplus of $2bn. $2bn in this little crappy state!”

Brownback’s problems stem from a bill that was originally a fairly modest tax cut but which spiraled out of his control because of politics and hostility towards the governor, said Laffer. His advice would have been to go for a bigger cut.
“When you put an atomic bomb on a place it will materially change the place – but a cherry bomb probably won’t change the buildings or anything else,” he said.

The fact remains, Laffer argued, that “you can’t tax a state into prosperity. A poor person can’t spend themselves into wealth.” Nor does spending guarantee success and prosperity.

If people seem to blame him for the collapse of that state? “I don’t mind,” said Laffer. “It comes with the territory. I try to do the best I can with regards to economics.”

Back in Topeka, Brownback has said told the Kansas City Star he’s “[url=http://www.kansascity.com/news/politics-government/article146997419.html]heartened” by Trump’s tax plans and that they would spur business growth. Meanwhile, Democrats and Republicans are seeking to kill off his business tax breaks as the state struggles to balance it books.

In the lobby of the Kansas state capitol there is a poster of Dwight Eisenhower, partially covered by signs. “The opportunist thinks of me and today. The statesman thinks of us and tomorrow,” the adopted Kansan is quoted as saying. No doubt both sides would claim he is speaking for them.

[Dill]

(05-15-2017, 09:10 AM)GMDino Wrote: https://www.theguardian.com/us-news/2017/may/15/kansas-trump-style-tax-cuts-economic-disaster?CMP=share_btn_tw

Very interesting:

Over freshly prepared burritos at Bon Bon, made with vegetables from the cafe’s garden, Billen outlines all the reasons for working in Lawrence: good schools, great food, central location, fantastic people, relatively cheap. The tax? “I probably get $5,000 to $10,000 a year extra. That’s great, but if I take a step back, where is it coming from? I’d rather it went back into the community. When you see the impact it’s having on education, it’s scary,” he said. “They are making this state worse. For what? I think we’d all pay a little extra to make it better.”

[Belsnickel]

Had to post quickly, so sorry for the opinionated piece. Just wanted to get this in so I didn't forget before I left work. The great Kansas experiment may be coming to an end.

https://www.washingtonpost.com/posteverything/wp/2017/06/07/its-a-great-day-kansas-legislature-pulls-the-plug-on-gov-brownbacks-failed-trickle-down-experiment/?tid=sm_tw&utm_term=.2b251a00f590

[GMDino]

(06-07-2017, 05:54 PM)Belsnickel Wrote: Had to post quickly, so sorry for the opinionated piece. Just wanted to get this in so I didn't forget before I left work. The great Kansas experiment may be coming to an end.

https://www.washingtonpost.com/posteverything/wp/2017/06/07/its-a-great-day-kansas-legislature-pulls-the-plug-on-gov-brownbacks-failed-trickle-down-experiment/?tid=sm_tw&utm_term=.2b251a00f590

Just heard a bit on NPR before I had to step out of the office.  Have to follow up later from home.