The Washington Post recently highlighted the economic divergence between California and Kansas. California is tied, with Oregon, for the fastest growth in the nation with 4.1 percent gross domestic product growth in 2015. Kansas was flat, at 0.2 percent, and the second half of the year recorded negative growth, placing the state in recession. Only West Virginia, Alaska and North Dakota performed worse.
These diametrically opposite economic numbers came three years after each state took a different path on taxes:
In 2012, voters in California approved a measure to raise taxes on millionaires, bringing their top state income tax rate to 13.3 percent, the highest in the nation … Also that year, the governor of Kansas signed a series of changes to the state’s tax code, including reducing income and sales tax rates.
The Post noted that the Kansas tax cuts “were meant to spur entrepreneurship,” or to put it more bluntly, “[Gov. Sam] Brownback’s policies modestly increased taxes for the poor and working class, who pay more in sales taxes than income taxes, while reducing taxes drastically for the rich.”
The economy of tax-raising California took off, while Kansas’s quintessentially right-wing tax cuts flopped.
This is not some quirk. This is the latest example of progressive taxation outperforming conservative taxation.
President Bill Clinton raised the top tax rate in 1993 from 28 percent to 39.6 percent, and went on to produce the third highest average quarterly GDP growth since World War II ended.
President George W. Bush reversed course, slashing taxes for the wealthy in his first term. He ended up with the worst jobs record since the Truman administration. He left with the economy in free fall; fourth quarter GDP shrunk at an annual rate of 8.9 percent.
President Barack Obama repealed the heart of the Bush tax cuts at the end of 2012, and crafted the most progressive tax code since Jimmy Carter, with a top tax rate of 40 percent. Obama’s GDP hasn’t been as good as Clinton’s, but Obama was mending a bloodied and bruised economy. And his tax hike didn’t alter the course of recovery. The 2014 and 2015 growth rates of 2.4 percent are slightly better that the 2012 rate of 2.2 percent. Moreover, Obama has overseen the creation of 14.5 million new private sector jobs, while Bush and his tax cuts lost nearly a half-million private sector jobs.
It would be overstating the case that all tax hikes guarantee immediately stronger economic growth. But time and time again, tax cuts for the wealthy have proved ineffectual at sparking robust growth and preventing recessions. On the other hand, responsible budgeting that includes tax increases on the wealthy has repeatedly contributed to economic progress.
The debate over taxes is over, and progressives won.