As the tax cuts debate ramps up in Washington, some have argued that although tax relief legislation would raise take home pay for millions of American workers, government revenue through tax collection would shrink—only adding to the monstrous $20 trillion U.S. debt.
But time and time again, this relationship between tax revenue and tax cuts has been proven false. In fact, tax relief often leads to more revenue because of increased economic expansion and new entrepreneurial endeavors. This connection has even been coined the Laffer Curve—a theory commonly discussed in economics classes across the country.
Critics often point to Kansas, which in 2012 passed broad tax cuts including the elimination of small business taxes, as an example where the Laffer Curve breaks down. In fact, those who support the high-tax status quo are frequently pointing to Kansas’ tax cuts as a reason not to pass federal tax cut legislation at all.
But a look at the objective data shows Kansas’ tax cuts are nothing like critics make them out to be. Not only did the real median household income increase by 15 percent following tax cuts, but total tax revenues increased as well. Kansas exceeded neighboring states, such as Missouri, Nebraska, and Oklahoma, in both measures and outpaced the national household income growth considerably.
That’s not to say federal tax cut legislation can’t learn from Kansas’ tax cut mistakes. Namely, any tax cut legislation must include guardrails to prevent abuse of small business tax cuts. And that’s exactly what the recently proposed House tax cut bill has done.
Kansas’ tax cut experience should be used to inform federal tax cut legislation, not scuttle it.