Kansas Gov. Sam Brownback brought on Arthur Laffer as an advisor to steer his radical experiment of cutting taxes to the bone under the assumption that the cuts would simply pay for themselves through economic expansion. The results, however, have been absolutely horrific: job growth on the Missouri side of the Kansas City metropolitan area is occurring at four times the rate on the Kansas side. Education is being vastly underfunded. And perhaps most tellingly, the state collected far less money in taxes than it expected in December, even after downgrading expectations. In other words, Laffer was wrong in every single way possible.
In Wisconsin, meanwhile, Republican Gov. Scott Walker has followed a path nearly has extreme as that of Brownback, but is being forced to scale his ambitions back because the theory just isn't working:
Earlier this year, just before enacting the half-billion-dollar tax cut, Walker said it was just the beginning — that he wanted to eliminate income taxes. Now, a representative of Walker, asked about the elimination plan said the governor “has only said that he would explore other areas of tax reform.”
The state has a projected $2.2 billion deficit for the next biennium, 2015 to 2017. There’s also a transportation funding problem.
Now, not even his top allies in the House think new cuts aren’t possible.
The situation is so bad in Wisconsin that to try to balance the budget in anticipation of a possible 2016 presidential campaign, Walker is rumored
to be considering selling off public assets as a stopgap measure just to make the numbers look good. The contrast with states like California, which raised taxes
to help balance its budget and cover a shortfall in education, couldn't be clearer: California's revenue is surging, while tax-cutting states are figuring out how to mitigate the damage.
The senior GOP leadership aide in Wisconsin may not want to admit it, but the Laffer theory as currently understood—that tax cuts always pay for themselves—is dead. Govs. Brownback and Walker killed it simply by implementing the theory and proving its lack of success. The funny part? The whole other side of the Laffer Curve is never discussed. Supply-side theorists who believe in the Laffer theory always assume that our tax rates are on the prohibitive side of the graph, where cutting taxes will increase the total amount of revenue collected. But the other side of the graph is the one where tax rates are lower than the one that would maximize revenue.
For believers in the Laffer Curve, then, the results from Kansas and Wisconsin don't necessarily disprove the theory. Instead, perhaps Brownback and Walker were simply wrong about what side of the curve their state's tax rates were on. If they were true believers, the sound Laffer theory solution would be to raise taxes as soon as possible.