That money never trickles down

Michael Abraham

Chances are good there’s a road near you that needs to be repaved. Our governments never seem to have the money to maintain our infrastructure. Hold that thought for a moment.

I recently published my eighth book, “Chasing the Powhatan Arrow.” The subtitle is, “A Travelogue in Economic Geography,” and I wrote about the communities along the former route of that iconic passenger train, focusing on how they’ve fared in the 50 years since the last running.

And I’ve reached some conclusions on why some places are more economically successful than others.

I’ll illustrate by the example of two states, and how their divergent paths have produced divergent results. Let’s go to Kansas and California. But first, let’s back up a couple of generations.

Ronald Reagan was elected president largely on his economic principle that he called “Trickle-down economics,” and economists call “Supply side economics.” The theory was that by cutting taxes on wealthy individuals and corporations, they’ll have more money and it will trickle down to the rest of us.

His candidate rival, later his Vice President, George H. W. Bush called it “Voodoo economics,” and he was correct; it has never proven to work. In my estimation, it is the cruelest myth perpetrated on the American people in my lifetime. Yet due to Reagan’s popularity, it is still accepted by millions of politicians and citizens.

No state has embraced the idea to a greater degree than Kansas. Their conservative Republican dominated legislature and Governor, Sam Brownback, have spent the last several years slashing taxes.

When Brownback outlined his plan five years ago, he said the tax cuts would benefit everybody and would be a “shot of adrenaline to the heart,” of Kansas’ economy.

That never happened. Rather than providing the economic stimulus those legislators sought, the cuts have devastated the state budget, having predictable, tragic results on all the institutions that rely on state government spending, especially public schools.

In March, the state Supreme Court decreed that the state was underfunding schools by hundreds of millions annually. Class sizes are up, teacher pay is down, and retiring or quitting teachers are not replaced.
Art and music classes are eliminated. Sports programs are curtailed. Schools are scraping by, rather than envisioning and planning for the future.

But there’s more: Kansas’ job growth is among the worst in the nation. In 2014, Brownback pledged his tax plan would produce 100,000 new jobs, yet fewer than 13,000 have occurred.

Meanwhile, everything conservatives have fought to do, California has done the opposite. California is one-eighth of the nation’s population and one-seventh of its overall economy. California alone is the sixth largest economy in the world, encroaching on number five, the United Kingdom.

It provided a high-tax, high-regulation, high-minimum-wage model, promoting clean energy, government accountability and protection for immigrants and minorities. No state has more actively discouraged fossil fuels and carbon emissions.

And its economy is booming, creating jobs faster than any state in the nation! Democratic governor Jerry Brown considers immigrants to be a major reason for the state’s success.

California’s economy is being driven by a “who’s who” of America’s most innovative and dynamic companies: Apple, Tesla, HP, Cicso, Google, Facebook. Oracle. Intel.

These companies benefit from the education provided at California’s outstanding secondary and collegiate school system. And their high gas taxes and vehicle registration fees are providing money to improve infrastructure. California is successful because of its high taxes and strict regulations, not in spite of them.

When companies look to expand, would they choose a state where their kids receive substandard education, the drinking water is polluted, and the roads are crumbling? No. High taxes are ultimately good for business and the economy overall because the money spent to teach the kids and repave the roads is more readily circulated throughout the economy.

I’ve heard people argue, “I’ve never been hired for a job by a poor person.” This is a spurious argument, lacking in reality. Sure, initially when rich people fund a start-up business, they hire people. But they will soon fail if they don’t have customers, consumers with money to spend. Public spending puts money in motion.

Let’s face it: everybody hates taxes. But the fact is that local, state and federal government taxation and investment in roads, water systems, police, fire protection and schools pay off by building supportive ecosystems and circulating money throughout the economy.

Let’s stop electing people who don’t understand this.

And maybe we can get our roads repaved.

Michael Abraham is a businessman and author. He was raised in Christiansburg and lives in Blacksburg.

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