What really happens in a “free market”

Five years ago, the state of Kansas (USA) was taken by its Republican Governor, Sam Brownback, into the most aggressive free market economy imaginable – the sort that has been favoured by our own Conservative government. It involved tax cuts (or even no tax at all) for the rich and big companies. Last week the policy was cancelled as a hopeless failure.

Last week, the Republican-controlled Kansas legislature took the remarkable step of overriding the governor’s veto, finally repealing his signature tax cuts. Those tax cuts, which reduced personal income tax rates and imposed no tax at all on many kinds of business income, went into effect in 2013, and were touted by Brownback and other leading supply-side figures as the best way to boost growth, bring back jobs, and make Kansas richer.”

… On the day that the tax cuts were enacted, the Kansas City Star ran a story in which the governor’s revenue secretary, Nick Jordan, promised that the tax cuts would yield big benefits for Kansas. It’s worth quoting a paragraph from that report in full since it sets out Brownback’s own terms for his tax “experiment.”

Nick Jordan, the state’s revenue secretary, said the administration ultimately imagines the creation of 22,000 more jobs over ‘normal growth’ and 35,000 more people moving into the state over the next five years. And he expects the tax changes to expand disposable income by $2 billion over the same period.”

In fact, over the period Kansas lost 49,000 jobs, ended up with a population 85,000 less than anticipated and disposable income was $20 billion short – and it had a lower growth rate than surrounding states. It got so bad that parents, angered by cuts to school funding, took the state legislature to court and got previous levels of funding reinstated.

“The idea that cutting taxes especially for the rich will boost growth and make everyone better off remains a central, if misguided, element of many economic proposals. President Trump’s tax plan, for instance, includes trillions of dollars in tax cuts that would flow overwhelmingly to millionaires and wealthy corporations.

It even includes a very similar proposal to Brownback’s policy of giving a special low tax rate for so-called “pass-through” income.

With the remarkable failure of the Brownback tax cuts in Kansas, we can hope that at least some leaders and economic policymakers will begin to adjust their theories to meet the facts, just as the Republican-controlled Kansas state legislature has done.”


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