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The Kansas Experiment Is Bad News For Trump’s Tax Cuts

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With seemingly all of the political media focused on James Comey’s testimony on Capitol Hill, the most interesting policy news of the week may have come from 1,000 miles away, in Topeka, Kansas.

The Kansas state legislature on Tuesday voted to override Gov. Sam Brownback’s veto and roll back $1.2 billion of tax cuts over two years. The vote marked a bipartisan repudiation of what Brownback had described as an “experiment” in a particular brand of anti-tax fiscal conservatism.

The failure of that experiment has implications beyond Kansas because Brownback’s approach was meant to be a model for conservatives elsewhere, including in Washington. (It was drafted with the help of prominent conservative thinkers, including former Ronald Reagan adviser Arthur Laffer and Heritage Foundation economist Stephen Moore.) Brownback’s version was particularly radical: He aimed to push personal income taxes to zero and exempted certain kinds of businesses, known as “pass-through” entities, from taxes entirely. President Trump’s tax plan doesn’t go as far, but it follows the same basic roadmap of sharply lower taxes on both individuals and businesses.

Brownback and his supporters predicted that cutting taxes would create jobs and spur entrepreneurship while boosting government revenue. That isn’t what happened. Kansas’s economy has performed reasonably well since the first cuts were passed in 2012, but its neighbors’ economies have done as well if not better; a recent study concluded that the business tax cuts at the heart of Brownback’s plan had little if any impact on the state’s economy. Meanwhile, the state’s fiscal condition fell off a cliff: Tax revenue plunged, creating huge budget shortfalls and leading ratings agencies to downgrade the state’s credit rating.

Some conservatives have argued that Brownback’s experiment isn’t a fair test of their economic theories because Kansas didn’t pair its big tax cuts with equivalent reductions in government spending. But there’s a reason for that: Members of the public might not like paying taxes, but they do like the services those taxes pay for. When it looked like Kansas’s budget gap would lead to big cuts to education and highway spending, voters responded by throwing conservative legislators out of office and replacing them with the Democrats and moderate Republicans who this week overrode Brownback’s veto. Whether Republicans in the U.S. Congress learn the economic lessons of the Kansas experiment remains to be seen. But you can be sure that they’ll be studying the political lessons closely.

Climate change: Costs and benefits

When he announced last week that the U.S. would be withdrawing from the Paris Agreement, Trump said he had based his decision on data that showed how much the accords, which are designed to slow the pace of climate change, would hurt the U.S. economy. “The cost to the economy [by 2040] would be close to $3 trillion in lost [gross domestic product] and 6.5 million industrial jobs, while households would have $7,000 less income and, in many cases, much worse than that,” Trump said in a Rose Garden ceremony announcing his decision.

Those numbers come from a single report prepared in March by National Economic Research Associates, an independent consulting firm. But the report comes with a key caveat, right there in a footnote on page 6: It’s not a cost-benefit analysis. In other words, the estimates Trump cited don’t take into account any financial gains, jobs created or costs avoided as a result of implementing energy regulations related to the Paris Agreement. It’s a gross, not a net. And this isn’t the only reason to take Trump’s numbers with a grain of salt — economists consulted by Politifact pointed out that the economic model NERA uses makes a series of assumptions that tend to produce higher costs, including assuming that industries won’t adapt to a changed regulatory environment.

This is nothing unique to NERA. All economic models make assumptions that affect their outcomes, which is why context matters in any attempt to project future outcomes. Ideally, estimations should be based on the results of multiple models working with a known set of limitations and assumptions. The result they give isn’t a highly specific prediction but rather a range of possible outcomes. Ironically enough, that’s almost exactly what the Intergovernmental Panel on Climate Change does when it prepares reports like the ones that led to the Paris Agreement in the first place. And this kind of report does exist for the Clean Power Plan, the set of Obama-administration regulations that was meant to help the U.S. meet the goals of the Paris accords. Prepared in 2015 by the independent Center For Climate And Energy Solutions, that report compared six models, including NERA’s. While most of those models didn’t try to estimate the overall economic cost of the plan, as NERA did, their findings show how different approaches can yield very different results: The models showed that the plan could cost the power sector as much as $33.5 billion per year (as NERA found),1 or save as much as $4.5 billion (according to a model from the Natural Resources Defense Council). The odds are that the real answer lies somewhere in the middle.

Health care: Who owns health care?

In a speech in Ohio earlier this week, Trump once again promised to repeal and replace the Affordable Care Act, speaking with “victims” of the law and describing a grim scene where “premiums are skyrocketing, insurers are fleeing, and the American people are paying much more for much worse coverage.” While there is little doubt that premiums will go up again this year in many states, or that insurers are leaving the markets, there is also growing evidence that the Trump administration is largely to blame this time around.

In Ohio, for example, Anthem announced it would stop selling plans on the ACA marketplace, potentially leaving people in more than a dozen counties without a way to buy subsidized insurance. The insurance giant cited market volatility and uncertainty, not a failure to turn a profit, as its reason for leaving. After several counties in the Knoxville, Tennessee, area were nearly left without an insurer, Blue Cross Blue Shield of Tennessee agreed to step in and offer plans, saying that, after three years of losses, it was doing better financially in 2017. It cautioned, however, that given all the uncertainty (there’s that word again) in the market, the state should expect steep rate increases so the company could protect itself. In North Carolina, Blue Cross Blue Shield said it will raise premiums by 22.9 percent next year instead of 8.8 percent because the Trump administration has not committed to paying insurers back for subsidies that they must give to low-income enrollees to help pay for out-of-pocket expenses. Meanwhile, in Pennsylvania insurers estimate premiums will increase by an average of 36.3 percent, instead of 8.8 percent, if the administration decides not to make those payments and repeals the individual mandate.

No doubt some state marketplaces would have had problems this year even without the Trump administration sowing uncertainty. But in many states, where the dust of implementing the Affordable Care Act had finally settled, many markets were poised to do relatively well this year, with a growing number of insurers reporting positive revenues for 2017. That may be why polls have shown that the majority of Americans, including Republicans, believe that the Republican party is responsible for what happens with health care going forward. While senators work to write a bill that would repeal and replace parts of the ACA, Trump has continued to attack the law. “Obamacare is dead. I’ve been saying it for a long time,” he said in Ohio. While it’s true that he’s long been a critic of former President Obama’s signature health care reform, the problem is, now that Trump is president, it’s up to him decide whether his predictions of an ACA implosion will come true.

Education: Career counselor

Secretary of Education Betsy DeVos was on Capitol Hill this week to defend Trump’s proposed $59 billion budget for her department, which boosts spending on “school choice” programs such as charter schools and vouchers while slashing the department’s overall spending by $9.2 billion, or 13.5 percent. The department faces widespread reductions to meet that spending goal, and at Tuesday’s hearing, one area where DeVos faced bipartisan opposition was the budget’s proposed cuts to career and technical training programs. Missouri Sen. Roy Blunt said those cuts, among others, would be “all but impossible to get through this committee.”

Slashing funding for technical education is a bit of an odd choice for Trump, who campaigned on a promise to create jobs for blue-collar workers — exactly the people these programs are meant to help. Trump’s education budget proposes a $166 million, or around 15 percent, cut to state grants for vocational education programs in high schools, technical schools and community colleges. It also includes a $95 million cut to state grants for adult education programs that teach literacy and provide training in other basic skills people need to find jobs. Related programs from other departments also face cuts; the Labor Department budget, for example, would cut job training programs by 36 percent.

Trump’s budget isn’t all cuts, however — it would boost funding for some programs meant to help train blue-collar workers, such as apprenticeship programs. (Trump recently praised Germany’s approach to vocational education, which relies heavily on apprenticeships.) And the administration has argued that the Education Department budget cuts give more control to states (and to parents) while defunding programs that aren’t supported by evidence. But based on this week’s hearings, it seems unlikely that those arguments will carry the day in Congress.

Footnotes

  1. By far the highest estimate among the five comparable models; the second-highest estimate in that group was $9.3 billion.

Ben Casselman is a senior editor and the chief economics writer for FiveThirtyEight.

Maggie Koerth-Baker is a senior science writer for FiveThirtyEight.

Anna Maria Barry-Jester reports on public health, food and culture for FiveThirtyEight.

Michelle Cheng is FiveThirtyEight’s data reporting intern.

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