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Reform Government First, Cut Taxes Later

Enthusiasm for state-level tax cuts is on the wane nationwide as legislators and governors behold the budgetary carnage that doctrinaire Tea Party policies have wrought in Kansas and Louisiana, two states once touted as exemplars of starve-the-beast governance. Governing magazine reports:

Two of the states that have been most ardent about cutting taxes in recent years now find themselves with serious and apparently chronic budget problems. That may be one reason other states have been more reluctant to cut taxes today than they have been in previous years. […]

In Kansas, Republican Gov. Sam Brownback promised back in 2012 to conduct a “real live experiment” on whether cutting taxes to the bone would fuel economic growth. He’s been haunted by those words ever since. Even after extensive spending cuts and some tax increases were enacted last year, the state has since fallen short of its revenue projections every month but one. The jobs boom Brownback promised has simply failed to materialize.

But some GOP stalwarts see the the Kansas and Louisiana fiascos as bumps in the road, rather than as signs of the perils associated with massive front-loaded tax cuts:

Slicing and even eliminating income taxes remains very much a goal among many Republican lawmakers. If this leads to shortfalls and spending cuts, that may not be entirely a bad thing, suggests Chris Edwards, an economist at the libertarian-leaning Cato Institute. “Some small-government-minded governors may want to cut revenues substantially, to force legislators to cut spending substantially,” he says.

The strategy Edwards describes, as we’ve said before, is rooted in a long-running (and understandable) sense of right-wing desperation. Republicans have for years looked at the steady expansion of government programs and figured that they would never be able to win the argument for reining them in. The best approach, the thinking goes, is to slash budgets and hope that spending will eventually have to fall into line.

But while this strategy might make sense for Republican insurgents navigating divided government, it makes less sense in deep-red states like Kansas, where small-government conservatives control both houses of the state legislature and the statehouse. In that context, Republicans would be better-served by working to reform government—streamlining bureaucracies, beating back public sector unions, reducing the burden of needless occupational licensing rules and land use regulations—and then turning their attention to tax-cutting.

The goal must be to create an environment for a leaner bureaucracy and more dynamic economy, and return the dividends from these innovations back to the taxpayers. Too many GOP state leaders have been giving out budget-busting tax cuts while punting on the far more difficult and involved work of genuine government reform. As a result, their citizens are merely paying for tax cuts with debt and diminished schools and infrastructure. And there is nothing fiscally responsible about that.

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