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Jamie_B

Cutting Taxes - The Sam Brownback/Kansas Experiment.

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http://www.npr.org/2014/10/28/359632689/kansas-gov-brownbacks-radical-tax-cut-has-mixed-results

 

 

When Gov. Sam Brownback proposed a radical tax cut for small businesses in Kansas, people cheered. Now four years later, his "real live experiment" may cost him his political career.

 

 

ROBERT SIEGEL, HOST:

Kansas is in the middle of an experiment. The Republican governor there, Sam Brownback, cut taxes to the bone. He promised major economic growth would come as a result, and it hasn't. Now Brownback's experiment could cost him the election. Zoe Chace of our Planet Money team reports.

 

ZOE CHACE, BYLINE: Republicans talk a lot about cutting taxes. Sam Brownback, though, went really big. Two years ago, he slashed income taxes in Kansas - 24 percent for the highest tax bracket and cut small business income taxes to 0.

 

LES DONOVAN: So you really get your acceleration. It's like shooting adrenaline into the heart of growing the economy by taking that tax off of small business, where most of your job creation is.

 

CHACE: The theory was this, as Les Donovan explains - he's a state senator who helped get the bill through - businesses would use this tax cut to hire new people, grow the economy. Other small businesses would move to the state, and it would be a job explosion.

 

LES DONOVAN: To cut the tax out on these certain types of income - business income - is an incentive for people to hire more people, and they're going to pay taxes to Kansas. That's the way this is supposed to work.

 

CHACE: It hasn't actually worked out this way, and it's because when you look at how some of these small businesses actually responded there's this key thing they have not done that is part of Brownback's plan. Alex Harb for instance in Wichita, he runs a computer chain in town called Ribbit Computers and a restaurant.

 

ALEX HARB: Beef and chicken, shawarmas, falafel sandwiches, hummus. We have the Mediterranean-style, the fattoush salad, you know. It's fresh, and it's delicious, and it's inexpensive.

 

CHACE: He didn't even know he was going to get this big tax break.

 

HARB: I honestly didn't really believe it, so I called my accountant. He said, yeah, you're not going to pay any taxes next year, so I was like, great.

 

CHACE: Alex's first move was exactly what Governor Brownback wanted to happen. He took the money he saved from his taxes and invested in his computer business.

 

HARB: We added more iPads into our inventory with that money.

 

CHACE: You got a bunch of iPads?

 

HARB: Yes.

 

CHACE: Now he plans to sell iPads at Ribbit Computers. So this is the first step in the Brownback experiment, the reinvestment. The next step is supposed to be hiring.

 

CHACE: Did you hire anybody?

 

HARB: Not really, because you hire people not based on how much money you have - based on your business. So it didn't really have immediate help on the business. I didn't really notice any more business purchasing, you know, around here. So didn't really trigger anything to hire more employees.

 

CHACE: Alex Harb has a lot going on - closing down two computer stores in town, opening up three smaller ones. Still, he says he's not going to hire. The job explosion hasn't happened. Since the tax-cut employment has grown by about 2 percent in Kansas - that's less than the national average - three out of the four neighboring states have grown significantly faster, and they have higher tax rates. And this experiment has done a real number on the Kansas state budget. They have much less income tax coming in because the state cut taxes. And because the jobs didn't come, the state saw this huge drop in revenue. They took in about $600 million less last year than they did the year before. And that freaks out some of the people who are paid out of that budget.

 

GLEN SUPPES: We're watching this train run into a wall, and we're all sitting here watching it.

 

CHACE: Glen Suppes is a school superintendent. He saw the money he got from the state per-pupil slipping, and he decided he had to cut a school from his district - the one school in the tiny town of Marquette, Kansas. He remembers the parents from the school turning out for the board vote.

 

SUPPES: There was silence before the motion. No one wanted to give the motion. They knew what they needed to do. They thought about it many times before that night.

 

CHACE: I went out to Marquette to see the town without a school - grain elevator, main street, restaurant, bar and one grocery store with a smoker outside.

 

CHACE: That looks so good.

 

STEVE PIPER: Then I had ribs around the whole thing earlier. This one was full of ribs, too, earlier.

 

CHACE: Steve Piper's in charge here - round, bald, wearing an apron. This is the kind of guy that was supposed to benefit from the Brownback tax cut. But the school closing, that was a way bigger deal to him.

 

PIPER: For a business owner, you're better off having those teachers and those jobs here in Marquette, that they then shop in town, help you out that way, versus having lower taxes - well, if you're not making any money to start with, taxes mean nothing if your sales are down.

 

CHACE: This school probably would've closed at some point. Lots of schools have closed in rural Kansas, but because of the big experiment people in town are pointing to Brownback, blaming the tax cuts. Governor Brownback in ads and debates says, hey, things were worse four years ago when I came in, now job are growing in the state of Kansas.

 

(SOUNDBITE OF ARCHIVED RECORDING)

GOVERNOR SAM BROWNBACK: We are moving in the right direction and getting things done.

 

CHACE: The verdict on Brownback's experiment is coming next week, election day, and it's a dead heat. Too close to call. Zoe Chace, NPR News.

 

 

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Great article. Every thing I have ever seen related taxes has shown that to an extent higher taxes are better for the economy. I know it sounds ridiculous but the economy in many ways is built off hope

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HARB: Not really, because you hire people not based on how much money you have - based on your business

 

 

 

Jebus wept, is this ever a difficult concept for some folks to grasp.  Whether it relates to taxes, minimum wage, healthcare - whatever.

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flat tax, 10% for all no matter what, no write offs, no deductions, flat 10%..

 

fair, simple, no IRS.. billions saved in the IRS cut alone, tons more revenue from the 10%, honestly i am paying no taxes, with our business and kids and house and everything else we pay like $500 in federal taxes each year.. about the same in state.. 

 

its ridiculous... 10% for all makes more money on taxes, saves money with IRS removal... makes everything much easier calculating taxes, etc..

 

change the game..

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Jebus wept, is this ever a difficult concept for some folks to grasp.  Whether it relates to taxes, minimum wage, healthcare - whatever.

 

Those in charge fully grasp this and understand it completely. BUT if they can convince you it's any number of other things, they make more money.

 

Why do you think Repubs always want to cut education funding? Smart people are infinitely harder to manipulate..

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flat tax, 10% for all no matter what, no write offs, no deductions, flat 10%..
 
fair, simple, no IRS.. billions saved in the IRS cut alone, tons more revenue from the 10%, honestly i am paying no taxes, with our business and kids and house and everything else we pay like $500 in federal taxes each year.. about the same in state.. 
 
its ridiculous... 10% for all makes more money on taxes, saves money with IRS removal... makes everything much easier calculating taxes, etc..
 
change the game..


The flat tax would hurt the us. We don't want millionaires paying just ten percent.

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The flat tax would hurt the us. We don't want millionaires paying just ten percent.

 

Depends.. If you remove all tax code, which would include all loop holes and shelters, and have a true 10% tax, they may actually end up paying more than they do now.

 

The thing is, there will always be a way for rich people to hide wealth, so in the end only the poor and middle class would end up paying it.

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Depends.. If you remove all tax code, which would include all loop holes and shelters, and have a true 10% tax, they may actually end up paying more than they do now.

 

The thing is, there will always be a way for rich people to hide wealth, so in the end only the poor and middle class would end up paying it.

 

Good points. 

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Right now all black market and illegal activity is not taxed because it is obviously not reported to the IRS. Do a 10% flat tax on all purchases and now every penny we spend, reguardless of where the income came from, is now taxed...

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 http://www.nytimes.com/2011/11/06/business/flat-tax-doesnt-solve-inequality-problem.html?_r=0

 

 

The Problem With Flat-Tax Fever

 

CLOSE watchers of presidential politics weren’t surprised to see many of this year’s Republican hopefuls proposing to replace the nation’s progressive income tax with a flat tax. Such plans reliably surface every four years, and, just as reliably, sink without a trace.

 

That’s not because the current tax system is far from the abominable tangle of complexity that candidates say it is. Actually, it’s worse. Flat-tax proponents promise to sweep away that mess by imposing a single levy on every dollar earned. That change, many contend, would allow taxpayers to file their returns on postcards. And surveys suggest positive voter responses to several of the most recent proposals.

 

Yet none will be adopted, for at least two reasons. One is that a flat tax would do nothing to make filing tax returns any simpler. But, more important, it would greatly exacerbate longstanding growth in income inequality.

 

One Republican candidate, Herman Cain, enjoyed widespread attention when he unveiled his “9-9-9” plan last month. The plan, as he described it, calls for three simple taxes, each with a 9 percent rate. The first is a tax on income, and the second, on goods bought, is essentially a sales tax. The third taxes business revenue. But because it deducts paid dividends and other nonlabor expenses, it amounts to a tax on wages.

 

Mr. Cain touted his plan’s simplicity, and many voters were apparently impressed. In some surveys of potential Republican primary voters, he quickly captured the top spot held until then by Mitt Romney. Rick Perry, the Texas governor, responded with a flat-tax proposal of his own. At this point, Mr. Romney is the only top-tier Republican candidate without some variant of a flat-tax proposal. But give him time.

 

The contention that a flat tax would be simpler because it involves only a single rate is flatly wrong. The complexity of the current system has nothing to do with its multiple income brackets.

 

The hard step in figuring your tax bill is to compute your taxable income — roughly, the amount you earn, less the myriad exemptions, deductions and various other offsets described in the 3.4-million-word code of the Internal Revenue Service. You’d also have to calculate your adjusted gross income under a flat tax. But once you’ve completed that step under either system, you consult the tax tables to see how much you owe. In the current system, the entries have multiple brackets and rates already built into them, so this step is no harder than it would be under the tables for a flat tax.

 

The much more serious concern is that a flat tax would reinforce the trends toward greater income inequality that have been seen over the last several decades. As documented by a recent Congressional Budget Office study, the top 1 percent of income recipients in the United States earned 275 percent more in 2007 than they did in 1979, adjusted for inflation, a period when the earnings of middle-income households grew by less than 40 percent. A flat tax would increase inequality by substantially reducing rates on the most prosperous households, while increasing them on low- and middle-income households.

 

According to an analysis by the nonpartisan Tax Policy Center, Mr. Cain’s proposal would increase the annual tax bill of a typical family of four earning $50,000 a year by more than $4,000, but would reduce the taxes owed by a similar family earning between $500,000 and $1 million by almost $60,000. The center also estimated that families in the top one-tenth of 1 percent of households would enjoy an average annual tax reduction of nearly $1.4 million under the Cain plan. Similar distributional effects are common under all flat-tax plans, not just Mr. Cain’s.

 

Rising inequality exacts a toll not just on those with lower incomes, but also on those much higher up the income scale. In their 2009 book, “The Spirit Level: Why Greater Equality Makes Societies Stronger,” the British public health researchers Richard Wilkinson and Kate Pickett document a range of social ills that are reliably associated with increased income inequality, both over time within nations and at any particular moment across a broad range of countries. Countries and times with lower inequality fare better on virtually every published index of health, well-being and quality of life.

 

Those with the highest levels of inequality, like the United States, invariably score poorly on these indexes. And those same countries consistently experience higher rates of violent crime.

 

TO say that flat-tax proposals are problematic isn’t to deny that our current tax system is profoundly dysfunctional. Every year, corporate lobbyists and other supplicants use campaign contributions and other inducements to persuade legislators to enact additional exemptions, deductions and other loopholes. Voters are justifiably angered by having to wade through this complexity, or by having to hire one of the nation’s 1.2 million professional tax preparers to do so.

Although a flat tax won’t be adopted, taxing consumption is actually a good idea. We should replace the progressive income tax with a simplified and much more steeply progressive tax on each household’s annual consumption expenditure — calculated as the difference between its income and its annual savings. But because half of the members of the Congressional “supercommittee” entrusted with cutting the deficit have pledged never to approve any new tax under any circumstances, that won’t happen any time soon.

 

For the time being, then, our best bet is to do all we can to reduce the gratuitous complexity of our progressive income tax.

Robert H. Frank is an economics professor at the Johnson Graduate School of Management at Cornell University.

This article has been revised to reflect the following correction:

 

Correction: November 13, 2011

The Economic View column last Sunday, about Republican proposals for a flat tax, defined incorrectly adjusted gross income under the federal tax code. It is the amount earned, minus some expenses and deductions. It does not include other deductions, or exemptions. (Those items are accounted for in what is called taxable income.)

 

 

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I like the fair tax. Conservative idea, but very sensible and comprehensive.


Seems like it would kill spending and hurt the economy.

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Seems like it would kill spending and hurt the economy.


I did too, at first. Read the book, it might change your mind. At least the first 4 or 5 chapters.

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