William K. Black
I have written previously to describe Kansas Republicans’ unholy war against moderate conservatives of their own Party. Governor Brownback and Secretary of State Kobach led the successful purge in the primary elections of any Republican official who did not back dramatic changes in taxation and measures against “undocumented workers” or “illegal immigrants.” The Kansas fiscal plan will end most income taxes, adopt highly regressive taxes that will not provide equivalent revenue, and sharply cut social programs such as education.
Kansas’ primary development assets are its public universities and often excellent elementary and secondary education, particularly in the suburbs of Kansas City, Missouri. (Yes, it is confusing. Kansas City is the largest city in Missouri.) The Kansas Tea Party’s fiscal plan will degrade Kansas’ greatest competitive advantage.
Missouri will be harmed by Kansas’ fiscal suicide. The two states are major trading partners and anything that harms Kansas will harm Missouri. Kansas is also engaged in a “race to the bottom” on taxes designed to induce businesses to move from states like Missouri to Kansas. Tax competition is net negative for states and localities, but it is conceivable that a single state could become a tax haven and attract so many firms to relocate that it could increase employment. What is not conceivable, due to the “fallacy of composition,” is that many States could follow the same strategy and “succeed.” Any state successes would come at the expense of other states.
Missouri is still a purple state. Governor Nixon and some other senior state officials are Democrats. Senator McCaskill was re-elected by a wide margin because the Tea Party dominated the Republican nomination process and chose Todd (“legitimate rape”) Akin as its candidate. The Missouri legislature, however, is dominated by Tea Party Republicans. The obvious Missouri strategy to respond to Kansas’ fiscal plan would be to embrace education and provide employers with a skilled labor force. The Missouri Republican Party, however, has not responded to Todd Akin’s heavy loss by moving towards moderation. Instead, its largest donor is funding a campaign to have Missouri adopt Kansas’ fiscal suicide plan.
The Missouri Republican effort to push Missouri into fiscal suicide is funded by a single wealthy Republican donor. To date, it consists largely of a television advertisement in which a young girl reads and acts out a script. The theme is that Missouri is destroying her future by not adopting the Kansas fiscal plan.
The script that she was given is a wonder of internal contradictions that proves again our family rule that it is impossible to compete with unintentional self-parody. The girl announces that Kansas is getting rid of its income tax on anyone who owns a business and then asks what will happen if Missouri businesses move to Kansas. “What’s going to happen to our tax base? Who’s going to pay my teachers?”
The purported Republican concern is protecting Missouri’s tax base. Their plan, however, is to eliminate a significant portion of Missouri’s tax base. Their proposed strategy (encouraging an intense interstate competition to minimize taxes), moreover, must cause a “race to the bottom” of taxation that has the net effect of dramatically reducing the states’ tax bases.
The self-parody about the Republican’s supposed concern about ensuring that there is ample tax base to “pay my teachers” is even more ironic. First, the Republicans have spent the last several years demonizing teachers. Second, the Republicans allied with conservative (“blue dog”) Democrats to kill the revenue sharing portion of the stimulus bill that would have permitted the states that suffered enormous losses of revenue due to the Great Recession to avoid laying off teachers and other employees whose work was vital to helping citizens suffering from that recession. By killing the revenue sharing portion of the stimulus bill, conservatives significantly slowed the recovery from the Great Recession and increased the misery that it inflicted. Third, the Kansas Republican fiscal plan reduces Kansas’ tax base and attempts to spark a self- destructive competition among the states that would sharply reduce state and local tax bases and make them far more regressive.
The text version of the message on the web site reads:
Kansas ended its 2012 legislative session with several major changes to the state’s tax code.
In January, the state income tax will be reduced for all individuals. Owners of LLCs and subchapter S corporations in Kansas will see their state income taxes eliminated completely.
Small businesses in Kansas will pay no state income tax.
MISSOURI HAS NO PLAN
In Missouri, the state income tax rate remains 6%. In Kansas City, where a 1% earnings tax is also levied, families and businesses are on the hook for 7% more than they would pay in Kansas.
The Missouri Legislature Must Act Now!
To: Members of the Missouri General Assembly:
I, __________________________ am highly concerned with the tax reform measures adopted by the state of Kansas earlier this year. I call upon you to start to work TODAY to craft a plan that will enable Missouri to address and reform our tax policy so that we may remain competitive and attract new businesses and job innovators. We need to have a plan enacted no later than Mid-May of 2013. The Save Missouri Jobs effort is the only organization advocating for a plan. You must follow their lead NOW and put a plan in place.”
The explicit rationale of the Missouri Republican Party is that we must “win” the race to the bottom in tax competition and adopt highly regressive taxes combined with major cuts in public services. Their strategy leads to the evisceration of the public sector and increasing inequality.
The Kansas fiscal plan delights the Tea Party but it appalls most Americans. If the Tea Party succeeds in inducing red states to adopt this fiscal plan it will lock them into low skill, low-wage states in which their best students will leave the red states to gain a superior education in the blue states. Many of them will never return to live in red states. Kansas is already losing population in most of its rural counties and the families and young adults who leave will often be the most entrepreneurial.
Kansas’ assault on education will likely be compounded by the renewed campaign to teach “scientific creationism.” The Kansas “brand” will be harmed nationwide when its top students apply for admission at elite universities. Unless the courts block these statutes other infra-red states will follow the Kansas strategy and their top students will suffer the consequences.
The infra-red states will suffer a further competitive disadvantage when it comes to employment if the most conservative elements remain ascendant. These states will continue to deny equal rights to gay Americans. Younger Americans strongly disapprove of discrimination on the basis of sexual orientation, particularly younger Americans in blue states. The 2012 elections made it clear that the blue states will eventually adopt marriage equality even if the courts do not strike down laws banning marriage equality as unconstitutional. As they do so momentum will build in other blue states in favor of adopting marriage equality and cause equality to spread rapidly among the blue states.
Even before the blue states overwhelmingly adopt marriage equality, firms that hire nationally will experience severe problems. The red states will make life miserable for gays, particularly those with children, who are married in other states and then move to red states. A series of legal disputes will arise and produce nightmare stories for gays that will receive wide publicity. Firms with operations in both red and blue states will find it increasingly difficult to hire gays
and those who strongly disapprove of discrimination against gays. High skill areas in red states like the “research triangle” will find it much more difficult to recruit top students, faculty, and scientists.
Conventions of national groups will increasingly refuse to meet in the infra-red states as discrimination against gays comes to be viewed by younger American professionals as beyond the pale. The longer the red states cling to discriminating against gays and Latinos/Hispanics and display hostility to women the deeper their economic disadvantages will become.
The Republican Tea Party effort to convince Missouri to join Kansas in a fiscal suicide pact reveals how little the Party has learned from the 2012 elections. The Tea Party’s leverage over the Republican Party continues to wound the Party, the infra-red states, and the nation. The Missouri legislature is predisposed to enter into the suicide pact with Kansas. We will soon see whether it can be convinced by the folks who chose Akin to choose to make Missouri a low-skill, low-pay, and low-service Tea Party paradise. The Missouri Republican Party’s wealthiest donor believes that the best way to convince Republican legislators to sign on to the Kansas fiscal suicide pact is an ad campaign that calls for protecting our tax base and teachers by adopting the Kansas plan that would gut our tax base and require us to fire thousands of teachers. He thinks our legislators are so dumb that his literally childish ad composed of self-contradictions will sweep them up like lemmings. (Lemmings don’t really commit mass suicide. Only legislators are that stupid.) God help us if Missouri’s legislators take their guidance from Kansas.
William K. Black, J.D., Ph.D. is Associate Professor of Law and Economics at the University of Missouri-Kansas City. Bill Black has testified before the Senate Agricultural Committee on the regulation of financial derivatives and House Governance Committee on the regulation of executive compensation. He was interviewed by Bill Moyers on PBS, which went viral. He gave an invited lecture at UCLA’s Hammer Institute which, when the video was posted on the web, drew so many “hits” that it crashed the UCLA server. He appeared extensively in Michael Moore’s most recent documentary: “Capitalism: A Love Story.” He was featured in the Obama campaign release discussing Senator McCain’s role in the “Keating Five.” (Bill took the notes of that meeting that led to the Senate Ethics investigation of the Keating Five. His testimony was highly critical of all five Senators’ actions.) He is a frequent guest on local, national, and international television and radio and is quoted as an expert by the national and international print media nearly every week. He was the subject of featured interviews in Newsweek, Barron’s, and Village Voice.