Thursday, April 9, 2015

An Experiment in Kansas

In mid-2012, Kansas cut personal income taxes, from 6.45% to 4.9% for those making more than $60,000 when married or $30,000 when single, and from 6.25% to 4.9% for those making between $30,000 and $60,000.  Finally, it reduce tax rates on those making between $15,000 and $30,000 from 3.5% to 3%.  These tax rates have continued to reduce incrementally in 2013 and 2014.

Did this cause an employment increase? Or a break in trend?  It looks like the answer is no.  Below, Corrections depicts total employment in Kansas and the four contiguous states.  While Colorado took off, other states look fairly similar to Kansas (click to enlarge).
Alternatively, we could see if there was a break in trend by linearly regression pre-July 2012 data on time, and then taking the difference between the linear fit and the data.  This is depicted below (click to enlarge). 
This was a "supply-side" experiment that appears to have failed to stimulate employment.  This is an important finding, but should be seen in light of both the successes and other failures of tax cuts in increasing production and employment.  

Reactions to the experiment will be a far more definitive test about the intellectual honesty of proponents than this experiment was.


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