California growing, Kansas not so much

Paul Krugman has done recent New York Times columns on economic growth in California since the election of Governor Jerry Brown and in Kansas since the election of Governor Sam Brownback. The California column entitled “Left Coast Rising” is about the state’s impressive growth since the state raised taxes. In Kansas its the opposite story, detailed by Krugman in a piece entitled “Charlatans, Cranks and Kansas”, an underperforming economy and budget collapse since deep tax cuts. Both worth reading.

(For more details on California growth since the tax increase see this Tim Egan New York Times column. On Kansas since the tax cuts see this Center for Budget Priorities analysis.)

Krugman writes about California:

In 2012, however, Democratic dominance finally became strong enough to overcome the paralysis, and Gov. Jerry Brown was able to push through a modestly liberal agenda of higher taxes, spending increases and a rise in the minimum wage. California also moved enthusiastically to implement Obamacare. … Needless to say, conservatives predicted doom.

What has actually happened? There is, I’m sorry to say, no sign of the promised catastrophe. If tax increases are causing a major flight of jobs from California, you can’t see it in the job numbers. Employment is up 3.6 percent in the past 18 months, compared with a national average of 2.8 percent; at this point, California’s share of national employment, which was hit hard by the bursting of the state’s enormous housing bubble, is back to pre-recession levels.

And on Kansas he writes:

The 2012 cuts were among the largest ever enacted by a state, reducing the top tax bracket by 25 percent and eliminating all taxes on business profits that are reported on individual income returns. (No other state has ever eliminated all taxes on these pass-through businesses.) The cuts were arrogantly promoted by Mr. Brownback with the same disproven theory that Republicans have employed for decades: There will be no loss of revenue because of all the economic growth!

…  But the growth didn’t show up. Kansas, in fact, was one of only five states to lose employment over the last six months, while the rest of the country was improving. It has been below the national average in job gains for the three and half years Mr. Brownback has been in office. Average earnings in the state are down since 2012, and so is net growth in the number of registered businesses.

With less money to spend, Kansas is forced to chop away at its only hope for real economic expansion: investment in public schools and colleges. While most states began restoring education funding after the recession, Kansas has cut K-12 spending by 2 percent over the last two school years, and higher education by 3 percent since 2012.

Michigan has been on the Kansas path (although certainly not as extreme) for more than two decades. Lower taxes as the magic elixir to economic growth. And for those two decades Michigan has way underperformed the national economy. (For details see our The New Path to Prosperity report.) Seems like its time for us to rethink our tax and spending policies. Part of that rethinking should be to look at a state like California for lessons to learn.

 

 

 

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Lou Glazer

Lou Glazer is President and co-founder of Michigan Future, Inc., a non-partisan, non-profit organization. Michigan Future’s mission is to be a source of new ideas on how Michigan can succeed as a world class community in a knowledge-driven economy. Its work is funded by Michigan foundations.

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