WICHITA — Budget Director Steven J. Anderson outlined how he and his boss, Gov. Sam Brownback, would like to improve the fiscal affairs and economic recovery in Kansas. But Anderson admitted the effort isn’t likely to win him many friends.
His presentation to the Wichita Pachyderm Club Friday included much for fiscal conservatives to like, including efforts to reduced state spending, lower income tax rates and make state government more efficient. But some planned initiatives probably won’t sit too well with a portion of the Republican base.
Anderson said he thinks the Fair Tax, a proposal that relies on a sales or consumption tax and eliminates virtually all other taxes and exemptions, would not work politically. “From a strictly numbers perspective it’s very viable,” he said.
“When you talk about the Fair Tax you gore about everybody. Twenty percent of the GDP in this country is non-profits. Do we really want to take the charitable deduction away from your churches?” One audience member said yes as Anderson continued. “I think the hue and cry becomes really high and pitchfork and torch sales go up all over town when you talk fair or flat tax.”
Anderson also said he prefers to keep the 19 percent sales tax increase, from 5.3 to 6.3 cents on the dollar) enacted by the 2010 Legislature. “That isn’t wildly popular among some members of my party,” Anderson said. Repealing the tax increase was high on the priority list for many freshmen legislators.
Anderson would use the extra sales tax revenue to offset reductions in income tax rates. “I believe income tax is an economic inhibitor and sales tax is a measure of economic activity.”
Senate Bill 1, which would cap state spending and use sales tax revenue to reduce income tax rates, passed the House and is likely to get another shot in the Senate next year. Opponents of SB1 argue that sales taxes place a greater burden on the poor who spend a higher percentage of their income on necessities.
Recent experience shows that improving the state’s fiscal health and competitiveness will not be as simple as cutting one tax and increasing another.
In August 2009 QuikTrip demolished a store in Kansas then built a new one on the same property just a few feet to the east so the store, cash registers, and gasoline tanks are on the other side of the state line in Kansas City, Mo. The company said it pays lower taxes, has a better regulatory environment and has more customers who save money on gasoline taxes, sales taxes and cigarette taxes. Kansas loses an estimated $1.4 million in tax revenue each year because of the move.
Anderson said by keeping the state’s income tax rates where they are and cutting the state sales tax back to 5.3 percent the state would get more gas stations, but if the state has no income tax it would be more likely to lure businesses just as Texas and other states with no income tax have done. “I’d rather have the corporate headquarters.”
Anderson said he advised Brownback to focus on the state’s customers in addressing fiscal reform. “We all know that a business doesn’t survive if it can’t keep its customers. What has happened in Kansas in the last decade? If you’ve seen the latest census you know. Our customers, our citizens, have voted with their feet and left the state. I am probably an example of that. I had greater opportunity moving to Oklahoma.”
Anderson, a Kansas native and graduate of Fort Hays State University, has an accounting practice in Edmond and worked for Oklahoma Gov. Frank Keating from 1999 to 2002 in the Office of State Finance. He moved back to Kansas to work with Brownback.
“When the state thinks they can raise taxes and outwit business they make a bad mistake,” Anderson said. “Business knows how to deal with that. They either leave the state or they adjust their operations.”
Brownback wrote the foreword to “Rich States, Poor States,” an annual evaluation of economic competitiveness among the states published by the American Legislative Exchange Council (ALEC). “When you read it you will understand where we are going to go. He is very plain that we intend to cut income taxes and we intend to cut them a lot.”
One of Brownback’s early initiatives was creation of Rural Opportunity Zones (ROZ). The program offers individuals income tax exemptions for up to five years and up to $15,000 in student loan forgiveness for moving into one of 50 rural counties.
“Part of the reason why we did that was to show those that were on the fence that if you will move to what they consider the hinterlands — of course, being from Western Kansas, I don’t consider it that — for zero income tax, they certainly will jump across the Missouri border into Kansas. It’s been a real success so far and we aren’t a month into it yet.”
Anderson’s presentation addressed complaints that Brownback’s team is doing too much or too little.
Newly elected fiscal conservatives and their supporters have said Brownback didn’t move fast enough on reforms during the 2011 Legislative session. Anderson said Brownback’s team is continuing to explore data that was not available during the transition and is finding additional opportunities for reforms he expects to be unveiled soon.
Anderson also said reforms must not be stalled by projections of economic improvement based on improving income tax revenue. He said about $100 million in recent income tax revenue is from capital gains tax paid by filers who chose to sell investments now rather than after a feared federal capital gains tax increase.
As of publication time, the Kansas Department of Revenue has not replied to a KansasWatchdog request that they verify or deny Anderson’s claim.
“We actually are running behind on every revenue source,” Anderson said. “I think that should trouble us when we look down to Oklahoma who just cut taxes again. They just put $219 million in their rainy day fund. I think the proof is in the pudding. Cutting taxes works.”