Critics say Brownback's tax experiment reflects why similar cuts proposed by the Trump administration may not stimulate the economy.

2017 the Kansas State Legislature reversed the experiment, reinstating taxes for pass-throughs. The reason: The tax cuts caused the state to have a budget shortfall in the billions.

Nearly five years ago the state of Kansas underwent what was dubbed a real live "experiment" in tax reform when Republican Gov. Sam Brownback enacted a tax package that brought down personal income-tax rates and also eliminated income tax for pass-through entities. These included LLCs, S-corps, partnerships, farms and sole proprietorships. The idea was to stimulate the local economy with spending, hiring and small-business growth. The majority of small businesses in America are structured as pass-throughs, passing through their business income to owners who are then taxed at the individual level. Entrepreneurs like Kelly McCracken, owner of Amazing Smiles of Kansas City, saw savings of thousands of dollars a year under Brownback's cuts, allowing her to invest in her business. For her company the experiment worked as planned. "We hired other small businesses to help with our website and SEO, we hired another employee and most recently made a durable equipment purchase," she said.

For Kelly McCracken, owner of Amazing Smiles of Kansas City, Gov. Brownback's tax-reform plan provided big savings; others say his cuts drained the state's economy. Harriet Taylor | CNBC

But in June of 2017, the Kansas State Legislature reversed the experiment, reinstating taxes for pass-throughs. The reason: The tax cuts caused the state to have a budget shortfall in the billions in less than five years, according to the Tax Foundation, a Washington, D.C.- based advocacy group. The Tax Foundation also claimed that the cumulative budget deficits in fiscal 2018 and 2019 alone were $850 million. The experiment also drained funding for the school system, state pensions and road maintenance. Under the reversal, individual rates range from 2.9 percent to 5.2 percent and will increase again in 2018. Businesses like McCracken's also have to pay retroactive taxes for 2017. For protection, she's taken out a line of credit while she plans what's next for her company.

Kansas Gov. Sam Brownback addresses the media about the legislative session during a press conference on June 16, 2015, at the Kansas Statehouse in Topeka. Chris Neal | The Topeka Capital-Journal | AP

"Just a few thousand dollars alters your usable income for the year. It greatly impacts these decisions we made just months ago, without the plan or knowledge this was going to be coming in the future," she said.

What went wrong

Critics of Brownback's plan say it reflects why similar cuts proposed by the Trump administration — bringing the business tax rate to 15 percent from a top rate of 39.6 percent and including pass-through businesses in that bracket — may not stimulate the economy. In May, prior to the tax cuts being reversed, Brownback told CNBC the state had seen "record small-business creation in the last five years" and claimed that the conversion rate of C-corps to LLCs in order to benefit from the tax breaks was no higher than usual. "So I think, as a strategy it's the right strategy, and that's how you grow the country, and that's how you grow the state," Brownback said. Trump's target of 15 percent "might really be the right point to be able to stimulate growth." The governor's office did not respond to repeated requests for comment. The Tax Foundation reported that new business filings grew 11 percent between 2012 and 2014 and another 10 percent through 2016, adding that new pass-through businesses were being set up at a fast rate under the new policy.

The investment in the future of Kansas has been put off and kicked down the road so that a few extremely wealthy individuals have been able to save money on their Kansas taxes. John Gibson Kansas Democratic Party Chair

State Democratic Party Chair John Gibson, who was against the experiment, said that while the cuts were supposed to "turbocharge" the state's economy, the opposite has happened and it's instead lagging behind neighboring states, like Nebraska and Missouri. "We have not seen those benefits, and what we have seen, unfortunately, are our schools getting shortchanged, our highway fund being raided," he said. "Really, the investment in the future of Kansas has been put off and kicked down the road so that a few extremely wealthy individuals have been able to save money on their Kansas taxes."

President Donald Trump is proposing similar cuts — bringing the business tax rate to 15 percent from a top rate of 39.6 percent and including pass-through businesses in that bracket . Shannon Stapleton | Reuters