Stories >> Political

Amity Shlaes: Compassion über Alles

The GOP is running away from tax cuts this year — which is a mistake. "Compassion" is the watchword among Republicans on the national level in their great effort to appear kind fellows. Old Republican proposals such as tax cuts aren't rated the presidential-election winners that compassion is. Indeed, these days, to put tax cuts first is to risk being called clinical, cold, and downright retrograde. "We have to stop being one-trick ponies," said Representative John Campbell (R., Calif.), who serves on the House Budget Committee. "I want to see taxes come down, but it's not a panacea." The quiet bet among Republicans of this stripe is that once Rick Santorum, Mitt Romney, Bobby Jindal, or Paul Ryan gets into the White House on the compassion ticket, he will then have the license to implement the tax cuts the Republican base still wants. Tax cuts, the thinking is, can come later.

But tax cuts later may = tax cuts never.

To see why, look at the struggle Governor Sam Brownback is suddenly having to win reelection in Kansas. Brownback did make tax cuts his "trick." The governor led the state legislature in implementing a series of tax cuts that included a staged reduction in income-tax rates and the repeal of taxes on sole proprietorships. The state also took little steps to lure or keep business and families. Example: phasing out mortgage-registration fees. In other words, Brownback put out the welcome mat.

What were the results? Pretty good. Bureau of Labor Statistics Data show that non-farm proprietor income, a.k.a. revenue from businesses, including corporations, LLCs, and sole proprietorships, rose 26 percent from the first quarter of 2011 to the first quarter of 2014. This rate is higher than those of neighbors Colorado, Missouri, Oklahoma, and Nebraska, and also higher than the nation's average. Unemployment, every politician's hot topic, is at 4.9 percent in Kansas, lower than in nearby Missouri, Ohio, and Illinois. According to state economists, the share of total jobs that are private-sector non-farm jobs has risen by 17 percent relative to early 2011. That's a signal that Kansas is turning to commerce.

As it happens, there's actually a natural experiment that showcases the results of Brownback's work: The Kansas City metro area straddles the border between Kansas and a higher-tax state, Missouri. In the period since Brownback began his reforms, Kansas City, Kansas, known as "KCK," saw a higher rate of new private jobs relative to population than did Kansas City, Mo., "KCMO."

Other evidence of success: Kansas's gross domestic product in the last quarter available, the fourth quarter of 2013, grew at an annualized 3.1 percent rate over the preceding quarter, faster than the rate for Oklahoma, Missouri, or Nebraska. Kansas moved up to number 15 from number 32 in the ALEC–Laffer ratings for state competitiveness. Last month, evidence of Kansas's stand-out performance popped up in a Bureau of Labor Statistics chart noting that 24 states saw unemployment increases, whereas 15 had decreases, with 11 states showing no change. A sub-chart, titled "States with unemployment rates significantly different from that of the U.S., August 2014," listed Kansas among the rare states that saw a sharply lower unemployment rate. Among the others: Washington, D.C., where government is a big employer. Such details warrant further scrutiny in coming years.

But as to Governor Brownback's current challenge: The revenues that followed the rate cuts did not run as high as predicted. Job creation overall, a datum that includes government jobs, did not reach rates of some neighboring states.

Of course those other states were focusing, less desirably, on a number that includes government jobs. And Brownback offers a more general, and highly plausible, rebuttal to critics. His revenue shortfalls may be a result of a move by President Obama and Congress: the non-renewal of the Bush-era tax rates. Aware that the federal capital-gains rate would move up in 2013, many Kansans realized their capital gains in 2012 or earlier. Therefore, subsequent revenues for the state were disappointing. In addition, of course, Kansans knew that Brownback's rate cuts phased in. So they may have simultaneously postponed some income in the hope of paying lower rates later on.

National news institutions normally tend to look past Kansas. They pay attention to the state only when a Kansan, like Bob Dole or Alf Landon, is running for president. Yet this year papers are studying the Sunflower State as if it were Ohio. But they are doing so selectively: Rather than writing about Kansas's good news, or even Brownback's nuanced position, the reporters are singling Kansas out as a failed experiment. The blinkered concentration of the national press in a Kansas gubernatorial race betrays progressives' great concern: that the Grand Old Party's success at the state level will help Republicans win on the national level. Brownback is so good he requires marginalization or outright suppression.

In their turn, Kansas voters, impressed by the national media attention, wonder if Brownback really has done less than the evidence suggests. "Failed Experiment" is the headline Brownback now has to run against.

What's missing here? National backup from Republican non-governors, the kind of Republicans who write party platform and TV commercials. Those Republicans are too busy wrangling over the Islamic State and sanctimoniously exhibiting their general kindliness. If Brownback loses, of course, the trend of silence on taxes will only strengthen. The loss of a tax-cutting governor would mean consultants would be likely to advise presidential candidates to talk less about taxes. Since voters still care about taxes, that in turn means Republicans are less likely to win in 2014 or 2016.

The best evidence for this last contention actually comes from Kansas. Neither Dole in 1996 nor Landon in 1936 particularly pushed tax cuts. Instead, Dole and, especially, Landon, pitched Big Government Lite. This failure in differentiation by the candidates proved fatal to both Republican campaigns, even though, in 1996, Dole had Jack Kemp forcefully shouting for tax cuts from the vice-presidential platform. To see such an error in emphasis cause a third presidential defeat for smaller government would be political farce. It would also be economic farce. For bigger government does tend to slow reemployment in a fashion that betrays a lack of, yes, compassion.

— Amity Shlaes chairs the board of the Calvin Coolidge Presidential Foundation.

Click to Link

Posted: October 2, 2014 Thursday 04:00 AM