The Truth About Tax Cuts: Lessons from Other States

Feb 19, 2015

By MBPC Staff

Over the past several weeks a number of bills have come before the legislature aimed at cutting taxes, in total estimated to cut more than $300 million in revenue in the upcoming two years. At the same time an ad hoc committee has been meeting with the express purpose of officially setting the revenue estimate for the 2017 budget, which will be the base for determining how much revenue is coming in to the state and on which the state budget will be based. These two related phenomena, taken together, create a simple case of putting the cart before the horse, and have the potential for catastrophic consequences. Timing aside, the recent experiences in other states should serve as a warning to those in the legislature who continue to promote this kind of reckless behavior. In recent years, governors in Wisconsin and Kansas have signed into law significant tax cuts with the promise of future, even immediate benefits. The benefits never came, but crises did follow. Far from providing a boost to the economy, the approach has led to significant problems in terms of lost revenue, which led to an underfunding of public services like education and health care More specifically, according to a 2013 report, Kansas made some of the deepest cuts in education across the country, placing funding per student at nearly $1,000 less and 16.5% lower than pre-recession funding levels. Just last week, Governor Brownback signed an additional $44.5 million in education funding cuts. These continued cuts come after a state court in December 2014 ruled that the legislature was unconstitutionally underfunding K-12 education and recommended a funding increase of $440 million. In addition, in an effort to counteract the significant loss of revenue, the Kansas legislature imposed increased taxes, disproportionately hitting low- and moderate-income families. We can learn from Kansas, but Kansas is not alone. Since taking office in January 2011, Governor Scott Walker of Wisconsin has enacted close to $2 billion in tax cuts. And today, Wisconsin currently faces a $2.2 billion budget shortfall. Like Montana, the state of Wisconsin is obligated to balance its budget. So in order to close the initial shortfall, Governor Walker proposed an $834 million cut in funding for schools and public employees' earnings, which set off a firestorm of protests. Now, Governor Walker is proposing a $300 million cut to the state's university system, a move that should have been avoidable. Whether or not one is the result of the other or if it is a matter of misplaced priorities, Wisconsin would have a wider array of options available if the state’s revenue didn’t receive such an extreme decrease. All of this is to say that, at the very least, legislators should consider these lessons when making decisions that have the potential to produce similar impacts. The question is – what are the priorities of the legislature? Does it wish to disproportionately award more money to the state’s most well-off or does it recognize the value of investment in projects ranging from roads and infrastructure, to our public schools, to programs critical to senior citizens? Given the lack of evidence for tax cuts’ potential to boost a state’s economy, one should question these priorities and recognize such cuts hinder the state’s ability to invest in critical areas.