Monday, November 13, 2017

There Are Myths, There Are Legends, There Are Tax Cuts

   The persistent mythology that tax cuts stimulate economic growth keeps making its way into South Dakota's Republican pitch for the reform plan making its way through Congress.  Last week our Congresswoman Kristi Noem used a hypothetical pizza business owned by "Beth" as
Yeah, Right.
The National Debt Doubled Under Bush
an example of how her savings of $3 thousand dollars a year under the new proposal could "free up money to install a new oven or give her employees a little raise."  This is actually pretty laughable, considering the average cost of the 5 pizza ovens featured on Google is $12 thousand.  Take out the two counter-top models and the average jumps to $18 thousand.  It would take 4 to 6 years for Beth's tax savings to pay for even an average oven. Some "free up."   As to that "little raise," Noem is right about one thing. In this day and age, $3 thousand spread out over a staff of people needed to operate "Beth's Pizza Parlor" is "little" indeed.  And from "Beth's" perspective, that salary increase would result in higher federal and state employment taxes, to the tune of several hundred dollars a year. 

      Like many of the enterprises owned by my peers in the business community, mine would probably gain a "little" something from Noem's plan, but I doubt that the cumulative effect would amount to much.  We South Dakotans know from personal experience that there isn't any correlation between lower income taxes and economic stimulation.  The fact that we don't even have a state income tax hasn't done much to spur economic growth in our state.  We've certainly had an awful track record since 2011, the first year of Governor Dennis Daugaard's term.  Since then our cumulative per capita GDP growth through 2016 has been .2% (yep, the decimal is in front of the "2").  That compares to a 6% total, nationally.   In other words, U.S. growth during that period has been 30 times greater than South Dakota's.  Tell me again how low or no income taxes stimulate economic growth.  
     If this anemic performance were a regional phenomenon, that would be one thing.  But it's not.  With the exception of energy market-hammered Wyoming, all of South Dakota's surrounding states have done significantly better than we have, and 5 of the 7 have state income taxes.  Our state's "no income tax" appeal has been an illusion.  Meantime, leapfrog Nebraska and check out Kansas.  The results of Kansas' tax-cutting regimen based on the notion that lower taxes stimulate economic growth have been a complete bust.  When Governor Sam Brownback took over in 2011 he vowed to turn Kansas into a fiscal conservative paradise by slashing state income taxes.  The result actually turned out to be "paradise lost," with economic growth coming in at a fraction of the national rate and a budget shortfall this year of nearly $1 billion.  
     The national track record on tax cuts is just as bad.  George W. Bush's cuts were followed by the worst recession since the 1930s and a doubling of the national debt.  Reagan's led to a tripling of the national debt.  I'll take a tax cut anytime, but spare me the baloney about how it will stimulate the economy.  


  1. I forwarded this to friends under the heading the "Horse and Sparrow Podcast."
    What we call 'trickle down', John Kenneth Galbraith called 'horse and sparrow'. I swan it's a far more evocative term.

  2. Your piece is spot on but does anyone think that congress in general, and republican members of congress in particular, care?

  3. One of the repeated selling points is that you "can do your taxes on a postcard". How stupid do you think we are? Corporations and billionaires get a windfall and we get an easy way to pay the government. Great trade-off. Imagine the tax preparing industry isn't pleased. Their employees the same.

    Trump pulled off a historic con and that has infected or emboldened Congress to do the same.