Lessons for Other States from Kansas' Massive Tax Cuts: Live from The Roasterie CXXX: March 31, 2014
Michael Leachman and Chris Mai: Lessons for Other States from Kansas' Massive Tax Cuts: "Kansas is a cautionary tale, not a model.
As other states recover from the recent recession and turn toward the future, Kansas’ huge tax cuts have left that state’s schools and other public services stuck in the recession, and declining further — a serious threat to the state’s long-term economic vitality. Meanwhile, promises of immediate economic improvement have utterly failed to materialize.... Kansas’ tax cuts this year are costing the state about 8 percent of the revenue it uses to fund schools, health care, and other public services, a hit comparable to a mid-sized recession. State data show that the revenue loss will rise to 16 percent in five years if the tax cuts are not reversed.... Most states are restoring funding for schools after years of significant cuts, but in Kansas the cuts continue. Governor Sam Brownback recently proposed another reduction in per-pupil general school aid for next year, which would leave funding 17 percent below pre-recession levels. Funding for other services — colleges and universities, libraries, and local health departments, among others — also is way down, and declining.
The tax cuts delivered lopsided benefits to the wealthy.... Kansas even raised taxes for low-income families to offset a portion of the revenue loss; otherwise the cuts to schools and other services would have been greater still.... Since the tax cuts took effect at the beginning of 2013, Kansas has added jobs at a pace modestly slower than the country as a whole.... And so far there’s no evidence that Kansas is enjoying exceptional business growth: the number of registered business grew more slowly last year than in 2012, and the state’s share of all U.S. business establishments fell over the first three quarters of last year, the latest data available.... The latest official state revenue forecast, from November 2013, projects Kansas personal income will grow more slowly than total national personal income in 2014 and 2015....
In most states, revenues are beginning to recover from the recent, severe recession. In the fourth quarter of 2013, tax revenue was up in 38 states compared to a year earlier.... Kansas, though, is headed in the other direction. There, tax revenue was down 9.2 percent, primarily because of the tax cuts.... Because most states are seeing their revenues improve, they have been able to invest in schools and other public services after years of steep funding cuts. But Kansas is in a much worse position.... Over the last two school years, both of which were affected by the tax cuts, Kansas has cut general K-12 funding by another 2 percent per student. Governor Brownback’s proposed budget would cut funding by another 1.8 percent, leaving it 17 percent below pre-recession levels, adjusted for inflation....
Governor Brownback’s budget for next year would leave state funding for local libraries 35 percent below the 2012 level and 65 percent below the 2008 level, after adjusting for inflation.... Kansas cut aid to local health departments, which provide immunizations and physical examinations for children and are the first responders to disease outbreaks and other health emergencies, by another 3 percent between fiscal years 2012 and 2013, leaving that funding 14 percent below 2008 levels.... The number of poor children and parents receiving income support from the Temporary Assistance for Needy Families (TANF) program has declined by 41 percent since 2012, much greater than the 12 percent decline in TANF recipients nationally over this period, in part because Kansas enacted a number of policy and process changes that make it harder for families to access and continue receiving the support....
In Kansas... the lowest income fifth of families pay 10.3 percent of their income in state and local taxes, on average, while the highest-income one percent of taxpayers pay just 3.9 percent.... A strong state income tax helps level the playing field.... The 2012 tax cuts were heavily tilted to the richest Kansans. The highest-income 1 percent of Kansans saw an average tax cut of 2 percent of their income (about $21,000), compared to 0.5 percent of income ($212) for the middle fifth of households. The 2012 tax package actually raised taxes for the lowest-income households.... The 2013 tax package further shifted taxes away from the wealthy and on to middle- and low-income Kansans.... From the late 1970s to the mid-2000s, incomes rose by 67 percent (after inflation) for the richest fifth of Kansas households but by just 12 percent for the poorest fifth....
Although the tax cuts were intended to spark job creation, Kansas’ job growth has been far from spectacular, lagging modestly behind the national average since the tax cuts first took effect. That’s very similar to what happened in 2012, the year before the tax cuts took effect....
Governor Brownback and others claim that small business growth has hit record highs since the tax cuts took effect, citing figures from the Kansas Secretary of State on the number of in-state businesses filing incorporation papers. But, while more than 15,000 new businesses were incorporated in Kansas in 2013, more than 16,000 other businesses were either dissolved by their owners or forfeited for failure to file an annual report and pay the annual fee. Even adding in the 4,500 businesses that owners reinstated that year (by filing annual reports after letting their status lapse), the net growth in registered businesses was about 3,600 — smaller than in 2012, the year before the tax cuts took effect, and little over half the pre-recession (2006) level. In addition, Bureau of Labor Statistics data show that Kansas’ share of all U.S. business establishments — individual stores, factories, offices, and the like — fell in 2012, the year the tax cuts were enacted, and then slid slightly further over the first three quarters of 2013.... All four of Kansas’ immediate neighbors outpaced Kansas in the first three quarters of 2013....
States considering deep tax cuts in hopes of sparking a surge of economic growth should look carefully at Kansas. That state’s massive tax cuts have created a large and growing revenue loss and forced further cuts in funding for schools and other public services that the state had already cut because of the recession. The tax plan also has widened inequality and raised taxes on the lowest-income families. Finally, a year after the cuts first took effect, the state’s economy is not performing particularly well, and there’s no evidence to suggest that the tax cuts will cause the economy to take off in the years ahead.
