Kansas loses chance to improve tax climate

Legislation that would have improved the tax climate in Kansas over time appears dead this year. It’s something that we need in Kansas, but Kansas Senate leadership is not in favor of the bill.

The bill, named the March to Economic Growth, would have used increases in Kansas revenue to reduce state personal and corporate income tax rates. This is something that is needed, as new rankings published by the Tax Foundation indicate that the business tax climate in Kansas is poor. Kansas ranks 35th among the 50 states, just 15 spots from the bottom. In last year’s ranking, Kansas placed 32nd, so our state is slipping relative to other states.

The economic development strategy of Kansas and Wichita has been to offer tax abatements as an inventive to lure or retain industry. The study authors note the problem with this: “State lawmakers are always mindful of their states’ business tax climates but they are often tempted to lure business with lucrative tax incentives and subsidies instead of broad-based tax reform. … Lawmakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a woeful business tax climate. A far more effective approach is to systematically improve the business tax climate for the long term so as to improve the state’s competitiveness.”

New Kansas Governor Sam Brownback has an economic development plan that includes parts of Dr. Art Hall’s “embracing dynamism” strategy. This strategy recognizes the futility of bureaucrats attempting to dish out economic development incentives, and recommends a strategy of creating an environment favorable to all businesses of all sizes. In particular, research has shown that it is new, young firms that are the dynamic driver of growth and innovation, but economic development policies are slanted towards old, established firms.

While it is refreshing to see the governor’s plan recognize the need for an environment that promotes dynamism, the plan still contains mechanisms for targeted economic development, including incentives to retain companies that threaten to leave Kansas. As for Wichita, city council members and bureaucrats yearn for “more tools in the toolbox.” The governor’s message hasn’t quite reached them.

Are taxes and tax policy important? After a review of the literature, the Tax Foundation report concludes: “… the general consensus of the literature has progressed to the view that taxes are a substantial factor in the decision-making process for businesses.” But there are some authors who disagree.

The state business climate index considers these factors: corporate taxes, individual income taxes, sales tax, unemployment tax, and property taxes. Kansas performs best on unemployment taxes, ranking 7th among the states. Our worst raking is 41st in property taxes. In sales tax, Kansas ranks 32nd, and this does take into account the statewide sales tax increase of one cent per dollar that started July 1.

The report recognizes that taxes are only one of many factors that companies use when deciding where to locate facilities. Kansas’ low ranking means we can make large improvements in this area. If we don’t, we are likely to have to keep up our ad hoc approach to economic development, were we craft special deals under the conceited belief that we know which deals to make.

The full report is available at the Tax Foundation by clicking on 2011 State Business Tax Climate Index. An introductory article is at Background paper: 2011 State Business Tax Climate Index (Eighth Edition).


4 thoughts on “Kansas loses chance to improve tax climate”

  1. OK republicans your were elected to get the budget under control and to stimulate business. Quit wasting time on social issues and get the important stuff done.

  2. b man, that is what you get in Kansas when you elect Republicans: semi-economic liberty with social fascism and the exact opposite when you elect Democrats: semi-social liberty with economic socialism. We should of elected Libertarians and got both economic and social liberty in our state. I will give credit where it is due, Governor Brownback has some great ideas to shrink the State government. The only problem is that the wimps in the Kansas Senate do not have the guts to follow him. Each and every one of them that have opposed his downsizing of Topeka should be thrown to the curb!

  3. Wish there was a “Like” button to the previous comments.

    Republicans have gone in & shown everyone what is most important to them: not the economy & not jobs. It’s abortion.

  4. Good point Mom. I’m not pro-abortion, and I don’t feel that my tax money should support it. My primary goal as a voter is to get the Democrat / progressive / socialists out of my wallet. Other initiatives are secondary.

    Mike??

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>