In response to the endless recession, two states took drastic measures to boost their economies: The GOP governor in one state pushed through massive tax cuts for the rich, while citizens in the other state voted for large tax increases on everyone — including the rich. Now, RSN reports, Kansas’ economy is a smoking ruin, while California’s is booming.
How tax cuts in Kansas wrecked their economy.
In 2010, Kansas’s GOP Governor Sam Brownback cut taxes for the rich by $800 million, and slashed sales taxes from 6.45 percent to 4.9 percent. Brownback also wants to eliminate state income tax entirely. Forbes reports Brownback and his Republican legislature cut individual tax rates by 25 percent; ditched taxes on sole proprietorships (home businesses), and passed measures to further lower income tax and sales tax rates.
Fast forward four years later: How are all these tax cuts working out for folks in Kansas?
Declining tax revenue: In the past year alone (June, 2013 to June, 2014), Kansas’ tax revenues have plummeted by a whopping 11 percent from $3.3 billion to $2.6 billion, according to Forbes. RSN adds that Kansas’ budget is currently $8 billion, and the tax cuts may slash $5 billion from those funds by 2019, according to the state’s Legislative Research Department.
Lagging job growth: According to LJ World, job growth in Kansas lags behind in job growth at a mere 1.3 percent over the past year, compared with a more robust 3 percent nationally. Even the so-called “flyover states” surrounding Kansas are doing better.
Increasing poverty: But tax cuts reduce poverty, right? Wasn’t that one of Brownback’s campaign promises? No dice. Think Progress took a look and found that poverty has increased from 13.6 percent in 2010 — while the national economy was mired in deep recession — to 14 percent in 2014. Worse, child poverty hit 19 percent — a record high — in 2011.
Impending education meltdown: Brownback’s tax cuts have also set his state up for an impending school system meltdown. That first round of tax cuts for the wealthy alone comprised 8 percent of Kansas’ public school funding, according to RSN, and The Wichita Eagle reminds us that in 2013 a federal judge ruled that Kansas schools are unlawfully underfunded to the tune of millions of dollars. Meanwhile, the children growing up in this school system may find themselves woefully unprepared for entering the work force when they grow up.
How tax hikes in California fueled a booming economy.
California faces many of the same recession-related challenges as Kansas does. The state also suffers from decades of regressive GOP-led tax policies that have left schools and other public services strapped for cash (as explained in greater detail by the folks at Calitics). Yet Californians took the opposite approach.
In 2012, voters passed Proposition 25, which repealed the two-thirds super majority required for raising taxes in the state legislature. Voters then approved Proposition 30, a massive sales and income tax hike that hits everyone, but especially the wealthiest people in the state.
According to RSN:
Through the initiative, California voters passed tax increases for everyone, including the rich, marginally increasing the sales tax while creating new income tax brackets of 10.3 percent for those who earned between $250,000 and $300,000; 11.3 percent for taxpayers who made anywhere between $300,000 and $500,000; 12.3 percent for incomes of $500,000 to $1,000,000; and 13.3 percent for all incomes above $1,000,000. The richest Californians would barely notice it, given the immense wealth in California’s major economic hubs like Silicon Valley, Hollywood, and the wine country.
Just two years later, the Sunshine State’s future already looks much brighter than the smoking ruins of Kansas.
Increased tax revenue: The New Jersey Policy Institute projects a $6.8 billion yearly gain in California’s state revenues, all of which will be pumped into the state’s once-crumbling education system. The state’s non-partisan Legislative Analysis Office anticipates a $9 billion yearly operating budget surplus by 2018.
Booming job growth: It’s official. As of June, 2014, the Silicon Valley region of California’s 4 percent job growth rate is the fastest in the nation, according to the Los Angeles Times. Meanwhile, the state’s overall job growth for 2013 was humming along nicely at 2.9 percent — putting California third in the nation, behind North Dakota (due to its oil boom) and Utah.
Decreasing poverty: Unfortunately, years of GOP-led regressive tax policies and stagnant wages cannot be undone in a scant two years. Just the Facts reports California has the highest rate of poverty in the nation — 16 percent according to the most recent available data from 2011. By other measures that account for skyrocketing housing costs, the rate is an even higher 23.5 percent. But the data still hasn’t come in for the effects of the booming job market, minimum wage hikes (the state raised its minimum wage to $9.00 per hour in June, and cities like San Francisco, San Jose, and San Diego have raised theirs even higher), and all those job-creating tax dollars.
A brighter future for education: School funding faces a long, uphill slog due to the deeply entrenched and disgustingly unfair Proposition 13 — which (to oversimplify) bases property taxes on the original purchase price instead of current assessed values. Yet the above-mentioned $6.8 billion will go a long way towards addressing these shortfalls and proves Californians are committed to educating future generations. Individual towns, cities, and counties have also passed school bonds to increase funding for schools.