Kansas business climate: not good

On this week’s episode of the KAKE Television public affairs program “This Week in Kansas,” Kansas Policy Institute Dave Trabert told host Tim Brown that Kansas tax policy is creating a poor environment for business. “Kansas is becoming increasingly a difficult place to do business,” Trabert said.

Kansas needs to look at its economic development strategy, he added, to create a system where everyone — small and large business — has an equal opportunity to succeed.

Brown noted that during this year’s session of the Kansas legislature, the consensus was that taxes — the sales tax in particular — had to be increased. Trabert said the tax increase didn’t have to happen: “Kansas is the only state in our region that took that route. Every other state around us found ways to balance their budget without raising taxes.”

Trabert also noted that the legislature had two studies that showed a tax increase would cost jobs. Asked by Brown about about the claim that services would have to have been cut if taxes weren’t increased, Trabert said that wasn’t the case. The budget that was passed increased spending by over $200 million. This increase in spending adds to the tax burden in Kansas.

Regarding the possibility of Hawker Beechcraft moving to Louisiana, Trabert said that state has a top corporate and personal marginal income tax rate that’s about half of that in Kansas. Low tax burden states perform much better than high-tax burden states in private-sector job growth, he said. Low-tax burden states have weathered the recession better, too.

Trabert also mentioned the out-migration from Kansas, an “early warning signal” that he said has been largely ignored. High-tax burden states are losing population to low-tax burden states. Kansas has lost population due to domestic migration for 11 straight years, he said.

David Allen Seaton, President of the Winfield Courier newspaper, was part of the panel. He mentioned the split between the Kansas Chamber of Commerce and local chambers of commerce. Local chambers were in favor of more taxes and spending, while the Kansas Chamber strongly opposed it. Seaton’s argument was that the services that government provides — education, Medicare, prisons — is as important to the economic climate as the tax burden. Trabert answered that the choice is presented as either/or: “Either we have to raise revenue, or we have to cut the services we want.” Trabert said we should look to provide services at lower cost.

An example Trabert provided is the audits of a handful of Kansas school districts, which uncovered ways the districts could save money. He also said that the budget being worked on for next year spends $1 billion more than five or six years ago.

Testimony presented to Kansas Legislative Committee

In September Trabert presented testimony to a special committee of the Kansas Legislature. His testimony, which may be read here, provides more detail about the differences in the economies of high-tax burden states as compared to low-tax burden states. On why the low-tax burden states perform better, Trabert wrote: “Both performance comparisons (private sector job growth and domestic migration) make perfect sense. Given the means and opportunity, we all tend to gravitate toward what we perceive to be the best ‘deal.’ Human and financial capital is no different; it will go where it is treated the best. People want to retain more of their earnings and states with the lowest state and local tax burdens let them keep more of their hard?earned money to spend as they wish.”

According to Trabert’s testimony, the Tax Foundation ranks Kansas as having the 21st highest state and local tax burden in the country. But this is likely to change, as Kansas increased taxes this year, and our neighboring states did not.

Trabert notes a discrepancy in the definition of the term “income” that may lead some to conclude that the tax burden in Kansas is not rising: “The Kansas Legislative Research Division (KLRD) says [the tax burden is not rising], but they are using the federal government definition of personal income to calculate the tax burden. The problem is that that definition includes money in ‘income’ that is not available to pay taxes, such as employer contributions toward pension funds, health insurance, social security and Medicare. … Over the ten year period ending June 30, 2009, income available to pay taxes went up 38% but state and local taxes shot up 59%, resulting in a significant jump in the tax burden.”

Trabert recommends that Kansas gradually eliminate both the personal and corporate income tax. Missouri is moving in this direction, and that provides a competitive threat to Kansas.

For property taxes, limiting the rate of growth would provide relief from rapidly-rising tax burdens.


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