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How Low Can Taxes Go? Outside Washington, Republicans Find Limits

Source: The New York Times

By Jeremy W. Peters

WASHINGTON — Something strange has been happening to taxes in Republican-dominated states: They are going up.

Conservative lawmakers in Kansas, South Carolina and Tennessee have agreed to significant tax increases in recent weeks to meet demands for more revenue. They are challenging what has become an almost dogmatic belief for their party, and sharply diverging from President Trump as he pushes for what his administration has billed as the largest tax cut in at least a generation.

And now some Republicans say that what has played out in these states should serve as a cautionary tale in Washington, where their party’s leaders are confronting a set of circumstances that looks strikingly similar.

Republicans, with control of Congress and the White House and a base that is growing impatient for tax reform, are trying to solve a difficult math problem: paying for critical programs like infrastructure, health care and education while honoring their promise to deliver lower taxes without exploding the deficit.

The debate promises to test the enduring relevance of one of the most fundamental principles of modern conservatism — supply side economics, the idea that if you cut taxes far enough, the economy will expand to the point that it generates new tax revenue.

With the federal deficit growing and economic growth sputtering along in the low single digits, the Republican Party is facing questions from within over what many see as a blind faith in the theory that deep tax cuts are the shot of economic adrenaline a languid economy needs.

“Tax cuts — good. And that’s about as much thinking that goes into it,” said Chris Buskirk, a radio host and publisher of American Greatness, a conservative online journal. Now, he said, Republicans in Washington seem to be in an arms race to the lowest rates possible.

“Everybody is trying to overbid each other,” Mr. Buskirk said. “How much more can we cut?”

Outside Washington, Republicans are discovering there are limits.

In South Carolina, Republicans overrode their governor’s veto and a blocked a filibuster to increase the gas tax. They also rejected a series of broader tax cuts on the grounds that they were too expensive and voted instead to create a smaller tax incentive for low-income families.

The Republican governor of Tennessee, Bill Haslam, signed into law the first increase in the state’s gas tax in almost three decades. He defied conservative groups that said a state with a $1.1 billion budget surplus had no business asking people to hand over more of their money.

And in the most striking rebuke of conservative tax policy in recent memory, Republicans in Kansas have undone much of the tax overhaul that Gov. Sam Brownback held up as a model for other states and the federal government to emulate.

“A fantastic way to go,” he said this year, urging Mr. Trump and Congress to follow suit with deep reductions to corporate and individual rates. But Republican lawmakers in Kansas decided that they could cut only so much without doing irreparable harm to vital services and voted to increase taxes by $1.2 billion last month. Mr. Brownback vetoed the plan, but Republicans overrode him.

Much of the devotion to tax cuts as an inviolable Republican principle stems from the success that President Ronald Reagan and Congress had in 1981 when they agreed to an economic recovery package that included a rate cut of about 25 percent for individuals.

But at that time, the highest marginal tax rates approached 70 percent, leaving much more to cut and a much larger chunk of money to be injected back into the economy. At some point, economists said, tax policy that is too aggressive leaves too little money to inject to make a difference.

Bruce Bartlett, who advised Reagan on the 1981 tax cuts, chastised Republicans for what he described as their reflexive desire to drive rates lower.

“The essence of what the supply-siders were trying to accomplish was accomplished by the end of the Reagan administration,” Mr. Bartlett said.

Yet, he added, Republican policy still mimics what was done under Reagan. “They’ve got to keep pressing ahead — no matter what,” he said.

The situation in Kansas was, for at least some conservatives, a jolting realization that tax cuts can be too blunt an economic instrument.

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