Okay, folks, today I’ve got an allegory to share with you. I’ll tell the story, then explain the allegory. You may think it’s kinda out there, but work with me – this isn’t supposed to be Shakespeare.
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You’ve decided to take a road trip. It’s a destination you’ve wanted to get to for a long time, and at last you have the means to make the trip.
Others have asked you to consider some of the risks, and the possibility that it could be dangerous. But you are determined – so determined, in fact, that you remove Reverse from your transmission. You are going to go there, come hell or high water, and there is no coming back.
So, you set out. You remember some of the concerns that were shared with you, so you’re careful. You don’t speed, you stop every so often to check directions, you take your time even as you move forward with purpose.
Suddenly another car races past you, flying down the road. You look ahead and notice that the car seems to disappear completely as it reaches the horizon.
And then you see why. Just as you reach your destination, the place you have wanted to get to for so many years, you see that the road ends at a cliff. A very high, very dangerous cliff. Apparently that other car didn’t realize the cliff existed, and it just flew off into space and to destruction.
But, even while you feel sorry for that other car, you are pleased with your own careful traveling. You have arrived at your destination, and you have stopped short of the cliff. All is well.
Then you notice something that freezes the marrow in your bones.
The cliff is moving toward you.
Slowly, ever so slowly, chunks of the ground at the edge of the cliff fall off into the abyss. The space between you and the cliff has begun shrinking: thirty feet, twenty feet, ten feet. Soon you and your car will join the other car at the bottom of the cliff.
You jump into the car and prepare to back out of danger. But wait! You took out Reverse, remember? You left yourself no way to back up, no way to turn around, no escape from the destruction headed your way.
So you watch in horror as the cliff slowly but inexorably moves toward you.
And ... scene.
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The explanation of the allegory, and why it matters for us in Kentucky today
I sort of gave away the game with the headline I used, and some of you have probably already figured out the symbolism in the allegory. But for those of you still wondering why any person would be idiotic enough to remove Reverse from their car, here’s the explanation.
The car in the story is the state budget – specifically, the revenue side, made up primarily of the income tax and the sales tax.
The driver of the car is the Republican members of our General Assembly. And what is the destination they are so determined to get to? The complete elimination of the income tax as a source of revenue for our state budget.
For years, Republicans all across the land have pushed to get rid of all income taxes and to depend on sales taxes to fund government. They say this is because doing this will stimulate the economy, or make the state more competitive, or “put more money in people’s pockets.” Never mind that sales taxes are horribly regressive; they don’t care about that. Also never mind that doing this is a huge tax break for the wealthy; they care deeply about that, but don’t want to talk about it.
So, the destination they are so determined to get to is for Kentucky to have no income tax at all. And they have started us down that road.
A few years ago they removed our progressive tax system and replace it with a flat tax of 5% – which was a tax cut for the very wealthy in the state. Last year, they passed HB 8, which cut that flat tax rate to 4.5%. But more importantly, the bill provided for continuing cuts to the income tax based on having surpluses in a given fiscal year.
(A side note: For me and other progressives, the surpluses would be an opportunity to invest, in both physical infrastructure and human infrastructure. Our schools are still underfunded, college tuition is out of control, we have hundreds of bridges that need repair, and the opioid crisis and Appalachian poverty are still with us. But Republicans would rather cut taxes than invest.)
The crumbling cliff in the allegory is an economic recession or depression, and thus the end of surpluses. Numerous economists are predicting that the current economy, especially some of the bubbles such as housing, cannot continue indefinitely, and that we will face a recession in the next few years. When that happens, sales tax revenue will drop substantially, thus crashing any state budgets that rely on it.
Having an income tax – along with property, corporate, sales, and other taxes – makes state tax systems more balanced, which helps keep revenue flowing through a variety of economic situations. But heavy reliance on a single source, such as a regressive sales tax, makes states very vulnerable when people begin spending less money. And that’s exactly what happens when the economy falls into recession—as people lose their jobs, or fear a job loss, they pull their spending back.
The speeding car in the allegory is Kansas. They didn’t drop their income tax gradually; they just decided to go all in at once in an infamous episode known as the “Kansas experiment.” The Kansas legislature cut taxes by $231 million the first year, and by $934 million after six years. The Republicans predicted the cuts would result in an addition 23,000 jobs in the state and an economic boom.
Instead, the state’s revenues dropped by millions of dollars – so far and so fast that dramatic cuts had to be made to spending on schools and roads. It was so bad that the same legislators who had cheered the bill’s passage in 2012 had to repeal it in 2017.
Our Kentucky Repubs saw what happened in Kansas, and decided not to be like Kansas. Instead, they put checkpoints into their plan; if the surpluses aren’t there, then the income tax rate stays where it is. On that point, good for them.
But here’s the clincher.
The removal of Reverse in the allegory relates to this: There is nothing in the Republican bill for reversing course if the surpluses dry up. In other words, there is no provision to raise or reinstate the income tax if sales taxes fall through the floor.
Instead when — not if — that happens, our state will have no choice but to again start cutting the budget. Once again, we will deal with less revenue by cutting even the inadequate amount we spend on schools and services. Once again, we will tell teachers there isn’t money for textbooks. Once again, we will close health clinics, and tell our citizens we just don’t have the money for them to be healthy.
And here’s the final catch: Republican will call the cuts being “fiscally responsible.” But they will never admit they were being fiscally irresponsible by writing a bill that ignores the possibility of a recession, just to get to their wet dream of no income tax.
Can they fix that? Of course. HB 8 can be amended in the upcoming session to include increasing the income tax if needed, with the same sorts of checkpoints, and with the same sort of incremental changes.
This isn’t hard, folks. If you cut the income tax when you have surpluses, then you should put it back when you have deficits.
In the end, that’s what Kansas had to do – but only after they had wrecked their state’s budget and damaged their state’s economy.
Let’s not be like Kansas. Let’s be fiscally responsible NOW and plan realistically for the possibility of recession and deficits.
And dear GOP – while we’re doing that, could we also look at investing some of those surpluses into our human infrastructure? THAT sort of investment is actually proven to pay off over time – unlike tax cuts.
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