What if Republicans were to recklessly cut tax rates? Would the economy grow, recouping in a higher base the revenue lost to lower rates, and also off-setting the loss of revenue with reduced spending on safety net programs such as TANF, Food Stamps and Medicaid?
Well, what has happened in Kansas since the Republicans under Governor Sam Brownback cut tax rates? As reported by the U.S. News, the result is strong job growth and the lowest unemployment rate since 2000.
The simple facts are: tax rates cut, jobs grew and unemployment fell.
In economics land, you never want to make too big a deal out of one experiment. For example. possibly the economy nationwide has been growing, and Kansas is growing only at, or even below the nationwide rate. You’d want to look at many instances of where tax rates are high or have been increased, or where tax rates are low or have been decreased. We have a large number of such instances. Kansas is simply another case.
But, in Kansas, we note the following creative approach to explaining away the apparent vindication of supply-side economics in Kansas: use of a quadratic equation.
In Kansas, the assumption is, the normal difference between the Kansas unemployment rate and the U.S. unemployment rate is best described by a quadratic equation. For some unknown reason or reasons, the normal difference was rising during the late 20th century. And, during this century it is falling.
While the actual reasons for the quadratic are not known, some possibilities include: the 30-year El Nino/La Nina cycle, NAFTA, the Y2K effect, Vladimir Putin, and the initial newness and then the aging of Arrowhead Stadium. The only thing opponents really are sure about is that the falling unemployment rate in Kansas is not due to tax cuts.
Whatever is the reason or reasons, because the normal unemployment rate is falling, the actual unemployment isn’t falling by enough. By using quadratics, the opponents of tax cuts able to hide the decline. But, if quadratics didn’t hide the decline, the opponents of tax cuts would have come up with something else.
BTW According to the quadratic theory of unemployment in Kanas, in just a few years the unemployment rate in that state will be negative.
Clifford F. Thies is the Eldon R. Lindsay Professor of Economics and Finance at Shenandoah University. He received his Ph.D. in economics from Boston College.
