Kansas, Venezuela and Economic Claims of Faraway Lands

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In politics, it’s easy to make un-fact-checked claims about the economics of foreign countries (like Venezuela), faraway states, and everything in between. The logic is sound: if socialism, or neo-liberalism, or capitalism are working (or failing) elsewhere, it will do the same thing here; and it would be foolish to not push a narrative. However, many of these claims are fabricated lies.

So, I will put three major narratives to the test:

1. Kansas is struggling due to tax cuts
2. Scandinavia’s economy is thriving and is the result of socialism
3. Venezuela is a failed socialist state.

Kansas

What happened?

Ask any leftist for an example of a failed tax cut and Kansas (not long after the Reagan cuts) comes to mind. In case you’re interested, I’ve debunked the Reagan cuts in a different article.

Kansas is the capitalist boogeyman of the left.
While they ignore the successes of tax cuts and neo-liberalism, Kansas is the go to state to blame as a failed economy due to the 2012 tax cuts under Republican Governor Brownback.

California liberal Bill Maher did an entire segment called the “Laboratories of Democracy” ranting about the Kansas tax cut failure, liberal economist Paul Krugman wrote on the Kansas tax cut failure, and Senator Elizabeth Warren (D-MA) criticized the Kansas tax cuts as being responsible for ruining the Kansas economy. Time to see if these claims match the truth.

Were they capitalist in principle?

My short answer is more so than not.

The three income tax brackets of 6.45%, 6.25%, and 3.5% were reduced to two brackets at 4.9% and 3%. The sales tax was cut by 0.6% as well.
However, many middle-class deductions like the food sales tax rebate or a tax credit for taxpayers working for dependents were eliminated.

Obviously, these deductions mean far more to people lower on the income ladder (as much as I liked the sales tax cut).
The cuts also focused on lowering non-wage taxes on small businesses, especially “pass-throughs,” to zero. This definitely helped the wealthy more than those in poverty, as the lowest 20% of income earners saw a 1.3% increase in their tax bill, while those in the top 1% saw a 2.2% reduction in tax burden and the middle 20% saw a 0.5% decrease as well.

I’m against tax hikes, especially for people who suffer the most from taxes, but I still like the tax cuts much more than I dislike them, but I wouldn’t call these cuts a beacon of capitalist legislation.

Was it successful?

Change (June ’09 – July ’12) Average Change (July ’12 – November ’17) Average
Unemployment Rate -1% -0.027%/month (37 months) -3% -0.047%/month (64 months)
Labor Force Participation -3% -1%/year (3 years) -1.2% -0.3%/year (4 years)
Inflation (Kansas City) +2.4% +0.8%/year (3 years) -1.5% -0.375%/year (4 years)
Real Weekly wages +$3 +$1/year (3 years) +$33 +$8.25/year (4 years)
Tax Revenue (Income and Business only) +$180M +$60M/year (3 Years) -$220M -$55M/year (4 years)

Despite all the fear mongering you’ve heard and false information, Kansas didn’t become a hellhole at all.

All I did was compare the time from June 2009, when the recession was declared over and the economy began to improve, to the tax cut being enacted with what has happened since, and the results are astonishing.

Take wages, for instance. Compared to the US, Kansas’ wage growth was 0.2% (from 2009-2011) before the tax cut was in place, compared to the US average of 0.9%.

From 2012-2015, Kansas averaged 4.9% to the rest of America’s 4.5% (This is sourced from the Kansas Department of Labor, the same source I gathered the information from in the chart). Further, once you factor in after tax income, the results point to even more success. The average income of a Kansas worker in 2015 was $44,200, and, if the average person in the middle 20% received a 0.50% tax cut, their post-tax income would be $1989 (higher when you include the tax cut) versus a wage growth of $156 from 2009-2012 prior to the tax cut. In other words, after-tax income growth was nearly thirteen times higher in the three years after the tax cut than the three years before.

There’s no doubt that Kansas experienced job growth as a result, but there is of course one concern, the growing deficit.
I think Kansas would be best off if they made spending cuts to match the revenue decreases, but the revenue loss is nothing close to unbearable.

Scandinavia

Why do I bring it up?

Long before Bernie Sanders (I-VT) became a well-known politician and right after he announced his presidential campaign and was still irrelevant, I recall researching his platform to see a consistent fetish for Scandinavia, specifically a love for their social welfare program, Universal healthcare, high tax rate and other socialist policies.

Are they actually socialist?

One of the easiest ways to tell is to take a peak at government spending as a percentage of GDP.

You’ll find Finland at 57%, Denmark at 54.8%, Sweden at 49.6% and Norway at 48.8%.

To put this in perspective, the US figure is 37.6%, but 40% is roughly average among Western countries analyzed by OECD.

Sweden has a top income tax rate of 60.15%, a deductible of only less than $2700 USD and a “low” marginal tax rate north of 20%, so I can easily put Sweden in the Socialist category (Income taxes doesn’t include municipal tax rates).

Finland has a sales tax of a staggering 24%, a 7.71% social security tax, and a top income tax rate of about 32%, which doesn’t sound horrible until you realize municipal rates are between 16.5%-22.5%, so we can mark this up as Socialist too.

Denmark is perhaps the most noticeably socialist, with a low/high income tax rate of approximately 30% and 56% respectably and a flat 25% sales tax rate.

Norway is more or less a coinflip, as it spends the least on this list and also has the lowest taxes: the lowest income tax rate is 0% and the highest is just below 39% (when you don’t include pension contribution), the sales tax varies, and the average tariff rate is 0.71%  – one of the lowest in the world – lower than all the countries on this list.

So it’s only fair to say it isn’t on any end of the spectrum and shouldn’t be considered a country with far-left economic policies, and won’t be brought up anymore in this article.

Are these countries actually a Utopia from an economic standpoint?

Compared to the United States, in almost every category, the answer is no.

Let’s just start with expendable income.

Let’s assume that every citizen overnight made the same annual salary in these countries, equal to the GDP per capita. Because of this, every state or municipal tax is eliminated, because politicians are always competent and loyal, so they realized the tax wasn’t necessary since all social welfare spending was no longer necessary seeing the unemployment rate and poverty rate both hit 0% (If you haven’t noticed, the purpose of the rambling is to provide a scenario where we can easily compare these countries wage/spending wise).
Finally, people aren’t good investors and wish to spend everything they earn. So let’s find the expendable income by subtracting average income tax from the salary of all of these people, and then dividing the remaining amount by 1+sales tax percentage. Here’s what we find:

Country GDP/capita Average income tax rate (includes “Payroll”) National Sales tax rate Expendable Income
USA $59,609 31.7% 0% $40,712.95
Denmark $52,871 36.5% 25% $26,859.99
Sweden $49,824 42.8% 25% $22,799.46
Finland $42,621 43.8% 24% $19,316.94

Sources: [1] [2] [3]

You would think that all of this government spending would lead to a fully employed economy, but you would be wrong; as the United States unemployment rate of 4.1% is lower than any country on the list.
Who knew that high taxes made it difficult for businesses to create jobs?

The question is: why would people like Bernie Sanders and Elizabeth Warren on the far-left claim Scandinavia as a utopia and actively campaign on the idea of being more like Finland and Sweden?

I do not know, but basic reasoning says either the far-left is too ignorant to realize people in these countries struggle financially compared to Americans or they have very different goals from me and they want to drain wealth away from Americans through a massive tax and spend socialist bureaucracy. Either way, the Scandinavian utopia isn’t just a myth, it’s a straight up fallacy.

Venezuela

What is happening here?

Socialism, apparently. conservatives and libertarians from PragerU to Reason have bashed Venezuela as an example of a failed socialist state.

For the most part, they’re right about it becoming increasingly socialist in recent years under Chavez and Maduro (both members of the United Socialist Party). Government spending to GDP was a mere 26.11% in 1999 prior to Chavez taking office, and jumped to a staggering 47.15% a year after Maduro became President.
The top income tax bracket is 34% and the VAT is 12%, up from 9% before Maduro, the Social Security tax rate is 25%, up from 23%.

Venezuela, a country that struggles to feed it’s people, has an average tariff of 15% on agricultural goods, and the country has Universal Healthcare. So yes, the claim that it is a socialist country is more than fair, and it’s apparent that Maduro and Chavez took actions to make it that way rather than spew rhetoric.

Has the economy failed?

Unless you consider 4,115% annual inflation a good thing and wouldn’t mind suddenly paying over $337 a month for your Netflix account rather than the regular $8 rate, then yes, the Venezuelan economy has failed.

Not only has price control lead to shortages and starvation as a counteraction to rising inflation, GDP per capita fell by over $1700 over the first two years Maduro took office. Starving people in several parts of Venezuela have stolen zoo animals – to eat them  – because surprisingly, not everyone in Venezuela wants to lose 19 pounds in a year from undereating and food lines.

Conclusion

You’ll notice that two out of three of these consistent claims originate from the far left, a group also known for false socialist myths such as: “Glass-Steagall would’ve prevented the great recession,” “neo-liberalism is at fault for income inequality,” “tax cuts like the Reagan reforms lead to economic failure” and so on.

I’ve spent a lot of time debunking these ridiculous Paul Krugman-level claims, and if liberal comedian Bill Maher wants to talk about “laboratories of democracy” and the scoreboard between capitalism and socialism, I encourage him to dig a little deeper than Salon, the Huffington Post, and Buzzfeed.

That said, the Republicans disappoint me as well, for different reasons.
Not only have they done little heavy lifting when it comes to tackling leftist narratives, they also haven’t passed the best economic reforms.
The Reagan tax “cuts” raised the tax burden on poor people and the Trump cuts were also messy (have a look at my other articles for explanations on both of those).

I cannot wait for the day that conservative Republicans fight side by side with me to promote real capitalist reforms and push back against these claims. But, until then, they’ll be busy yelling at kneeling football players and tranny bathrooms while their donors stuff their pockets.

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Jake Dorsch

Jake Dorsch is a libertarian activist, bank teller, investor and aspiring future economist from Green Bay, Wisconsin that is pursuing a bachelor’s degree in both political science and quantitative economics at Drake University. He is currently on track to graduate a year early and will likely continue to obtain a master’s degree in econometrics.