27 September 2014

Kansas' Brownback About To Lose His Job As Governor Because He's Bad at Algebra

Governor Sam Brownback of Kansas enacted a sweeping tax cut for the state. He slashed taxes for everyone, reducing middle class tax rates from 6.25% to 4.9%. To his shock and dismay, the $700 million surplus he inherited is now projected to fall to a $238 million deficit. This has caused some backlash and apparently he's now trailing in polls.

Governor Sam Brownback
Arthur Laffer
Kansas paid Arthur Laffer, of Laffer curve fame, $75,000 to come into the state and sell the tax cut. Laffer believes that people who have to pay tax on money have less incentive to make money. In his mind, the good people of Kansas would all go make considerably more money if only they didn't have to give so much of it back in taxes. Why bother to make an extra $1,000 if you just have to pay the state $62.50 of it?

Laffer's curve is laughable for a number of reasons but the most obvious is the simple algebra it depends on.

Assume Kansas has GDP of $100 billion. (And that's not far off. The state's GDP is about $117 billion according to Google.) With a tax rate of 6.25%, that gives the state income tax revenue of $6.25 billion.

Now, cut the tax rate to 4.9%. In order to maintain tax revenues at $6.25 billion, total GDP would have to raise to $127.5 billion. In other words, it would have to grow by 27% to offset this tax cut. To put that in perspective, the US economy will probably grow about 2.5 to 4% this year. China's economy will grow about 7 to 8%,  Europe's closer to 0%. 27% would be an absolutely stunning, unprecedented rate of growth. Even during a full, four-year term. And all triggered by the magic of dropping marginal tax rates from 6.25% to 4.9%, a tax cut that (Laffer would argue) would finally give people the incentive to get rich.

If Brownback knew algebra, he could have quickly calculated the growth rate he'd need to balance the budget with his new tax rate. Sadly for the state, that level of math competency was apparently not needed to qualify for the governor's job.

I suspect that Brownback will win re-election but a couple of interesting articles suggesting he might not can be found here.
Mother Jones, Patrick Caldwell, "What's the Matter With Sam Brownback?"
The New Republic, John B. Judis, "This is What's the Matter With Kansas"

No comments: