Tag Archives: Kansas state government

Articles about Kansas, its government, and public policy in Kansas.

Lessons from Kansas tax reform

What can the rest of the nation learn from our experience in Kansas? Come to think of it, why haven’t we learned much?

Economists from American Legislative Exchange Council have looked at Kansas and derived some lessons from our state’s struggle with tax reform. The document is titled Lessons from Kansas: A Behind the Scenes Look at America’s Most Discussed Tax Reform Effort. A few remarks and quotations:

It may be difficult for us in Kansas to see how the rest of the country views our state. But it’s all about the struggle between those who want more government, and those who want more private sector activity: “… it is clear to most observers of state policy at this point Kansas was, and continues to be, a flashpoint in debates about state tax policy. That flashpoint has served as something of a proxy war between big government advocates and those who would prefer to shrink the size and scope of state government.”

While taxes were cut, the state failed to make the other needed reform: “Spending reductions necessary to implement the plan were eschewed in favor of other tax increases, making any honest judgement of the original plan’s success or failure impossible.”

On the 2012 plan, was it all for business pass-throughs, or for everyone? “Enacted an estimated $4.5 billion in tax relief over five years, about 80 percent of which was for individuals and 20 percent for business pass-through income.”

We have to remember the failure of the legislative process in 2012 and the next year: “It is important to note at this point that the revenue increasing offsets included in the 2013 tax plan were nowhere near as comprehensive as the revenue raising offsets in Governor Brownback’s original 2012 tax reform proposal. It was this discrepancy in revenue raising offsets and the failure to rein in state spending that would ultimately lead to revenue problems for Kansas down the road.”

Credit downgrades are a sign of a mismatch between revenues and expenses. Those who want more spending say the downgrades are caused by a lack of revenue, but we could have cured the mismatch by reforming spending, too: “Contrary to this popularly reported narrative, Moody’s cited much more than just recent tax cuts as the rationale for a downgrade, specifically failure to reduce spending to offset tax cuts, pension liabilities and state debt.

The purpose of tax cuts? Let us keep more resources in the productive private sector: “It is certainly true that in the years following the tax reductions, Kansas did experience lower revenue collections, even lower than what had been projected. But, part of the goal of the Kansas tax reform was to reduce the amount of money taken in by state government and enhance the resources available to the private sector. Importantly, however, was the resistance to any meaningful spending reductions. Even as the 2012 tax reductions were projected to let Kansans keep $4.5 billion more of their own money, the state increased spending in 2012 by $432 million.”

Would more taxes help the Kansas economy? “In a late 2012 literature review on this topic, William McBride, former Chief Economist for the Tax Foundation, found that of 26 peer-reviewed academic studies since 1983, only three fail to find a negative effect on economic growth from taxes.”

The 2015 legislative session: “A block of legislators held out for reductions in the cost of government rather than tax increases but they were unable to get a majority. … The final plan that passed both houses and was signed by Governor Brownback included two main tax increases. The state raised the cigarette tax by 50 cents per pack and increased the sales tax rate from 6.15 percent to 6.5 percent. The two tax increase proposals added up to $384 million in new state revenue and were bolstered by $50 million in spending cuts, although there was still a net increase in spending.”

Our legislature failed the people of Kansas: “The first lesson to glean from the Kansas experience is that politics affects policy. The final reforms that passed in 2012 were not the reforms that anybody wanted. Specific tax reform ideas are easily diluted and changed, and without the political will to fix imperfect reforms, unintended consequences can be difficult to avoid.”

Then, politicians should be so boastful. Don’t overpromise. (Ask Barack Obama about that. He said if we don’t pass the ARRA stimulus bill, the unemployment rate would rise above a certain level. Well, the stimulus passed, the unemployment rate went above that level, and it was several years before it fell below. In other words, unemployment was worse with the stimulus than Obama said it would be without the stimulus.) “The second important lesson that can be learned from the Kansas experience is economic growth resulting from bold tax reductions takes time. Governor Brownback’s previous comments about the Kansas tax reforms being ‘a shot of adrenaline’ to the state’s economy continued to hound him throughout the ups and downs of revenue and economic reports. Setting expectations too high or too early can make pushing forward with future reforms nearly impossible, while setting unrealistic expectations can lead to the unwinding of sound economic reforms.”

Finally: “Even though the tax reductions improved economic growth, the lack of commensurate spending reductions led to trouble for the state’s budget. Budget shortfalls and tough negotiations about possible tax increases mean uncertainty for businesses and families, which can hamper some of the positive economic effects of decreasing taxes.”

Kansas manufacturing and oil not recovering

While total employment in Kansas is growing, two industries are the exception.

Kansas employment, seasonally adjusted, selected series. Click for larger.
Newly revised data from the Bureau of Labor Statistics lets us examine Kansas employment. This data comes from the Current Employment Statistics, which is a monthly survey of employers.1 I’ve gathered this data and have presented it in an interactive visualization. The accompanying charts are derived from that.

The first chart shows the relative change in jobs for each series, using seasonally adjusted values. Total private sector employment is growing. Employment in mining and logging, which is dominated in Kansas by the oil and gas industry, has cratered since its peak in 2014. Manufacturing employment has remained steady since 2010, but at a lower level than in the past.

Kansas manufacturing employment, not seasonally adjusted, selected series. Click for larger.
Looking at manufacturing in more detail, we see that aerospace manufacturing has been on a long downwards trend at the time total manufacturing has remained relatively level. (Aerospace employment is available only as unadjusted data, so it’s shown in a separate chart with unadjusted manufacturing.)

You can access the visualization and create your own examples through the article Kansas employment by industry.


Notes

  1. Bureau of Labor Statistics. Current Employment Statistics data and their contributions as key economic indicators. www.bls.gov/opub/mlr/2016/article/current-employment-statistics-data-and-their-contributions-as-key-economic-indicators.htm.

Kansas employment by industry

An interactive visualization of Kansas employment by industry.

The Bureau of Labor Statistics is an agency of the United States Department of Labor. It describes its mission as: “The Bureau of Labor Statistics of the U.S. Department of Labor is the principal Federal agency responsible for measuring labor market activity, working conditions, and price changes in the economy. Its mission is to collect, analyze, and disseminate essential economic information to support public and private decision-making. As an independent statistical agency, BLS serves its diverse user communities by providing products and services that are objective, timely, accurate, and relevant.”1

BLS provides monthly employment statistics. It has just updated revised numbers for 2016. I’ve gathered these for Kansas and present them in an interactive visualization.

This data comes from the Current Employment Statistics, which is a monthly survey of employers.2

The tabs along the top of the visualization hold different views of the data. Employment figures are in thousands. You may view seasonally adjusted or unadjusted data. Some views display the number of jobs, while others display the change in jobs by industry since the first year or month that is selected. When using the charts that display annual averages, be aware that using a time selection with a partial year will not provide accurate results.

Two “industries” that are closely followed are “Total Nonfarm” and “Total Private.” These, obviously, are not industries in themselves, but are sums of other industries. There are other examples like this.

Click here to access the visualization. The visualization was created by myself using Tableau Public.

Example from the visualization, showing points of control. Click for larger.


Notes

  1. Bureau of Labor statistics. About BLS. https://www.bls.gov/bls/infohome.htm.
  2. Bureau of Labor Statistics. Current Employment Statistics data and their contributions as key economic indicators. www.bls.gov/opub/mlr/2016/article/current-employment-statistics-data-and-their-contributions-as-key-economic-indicators.htm.

Wichita business property taxes still high

An ongoing study reveals that generally, property taxes on commercial and industrial property in Wichita are high. In particular, taxes on commercial property in Wichita are among the highest in the nation.

Property taxes in Wichita. Click for larger.
The study is produced by Lincoln Institute of Land Policy and Minnesota Center for Fiscal Excellence. It’s titled “50 State Property Tax Comparison Study, June 2016” and may be read here. It uses a variety of residential, apartment, commercial, and industrial property scenarios to analyze the nature of property taxation across the country. I’ve gathered data from selected tables for Wichita.

In Kansas, residential property is assessed at 11.5 percent of its appraised value. (Appraised value is the market value as determined by the assessor. Assessed value is multiplied by the mill levy rates of taxing jurisdictions in order to compute tax.) Commercial property is assessed at 25 percent of appraised value, and public utility property at 33 percent.

This means that commercial property faces 2.180 times the property tax rate as residential property. The U.S. average is 1.683. Whether higher assessment ratios on commercial property as compared to residential property is desirable public policy is a subject for debate. But because Wichita’s ratio is high, it leads to high property taxes on commercial property.

For residential property taxes, Wichita ranks below the national average. For a property valued at $150,000, the effective property tax rate in Wichita is 1.29 percent, while the national average is 1.43 percent. The results for a $300,000 property were similar. Of note, however, is the property taxes on a median-valued home. In this case Wichita is a bargain, due to our lower housing prices. A home at the median value in Wichita pays $1,552 in taxes, while the nationwide average is $3,097.

Looking at commercial property, Wichita taxes are high. For example, for a $100,000 valued property, the study found that the national average for property tax is $2,351 or 1.96 percent of the property value. For Wichita the corresponding values are $3,398 or 2.83 percent, ranking sixth from the top. Wichita property taxes for this scenario are 45 percent higher than the national average.

For industrial property taxes, the situation in Wichita is better, with Wichita ranking near the middle. For an industrial property worth $1,000,000, taxes in Wichita are $30,980. The national average is $32,445.

WichitaLiberty.TV: Kansas Director of Budget Shawn Sullivan

In this episode of WichitaLiberty.TV: Kansas Director of Budget Shawn Sullivan joins Karl Peterjohn and Bob Weeks to explain issues related to the Kansas budget. View below, or click here to view at YouTube. Episode 142, broadcast March 12, 2017.

Shownotes

WichitaLiberty.TV: James Franko of Kansas Policy Institute

In this episode of WichitaLiberty.TV: James Franko of Kansas Policy Institute joins Bob Weeks and Karl Peterjohn to discuss education in Kansas and the state budget. View below, or click here to view at YouTube. Episode 141, broadcast March 5, 2017.

Shownotes

State and local government employee and payroll

Considering all state and local government employees in proportion to population, Kansas has many, compared to other states, and especially so in education.

When considering all state and local government employees, Kansas spent $254 per person on payroll (March only).1 This was 15th highest among the states, District of Columbia, and the nation as a whole. There were 14.9 citizens for each FTE (full-time equivalent employee), which ranks fourth highest.

Example from the visualization. Click for larger.
In other words, Kansas has many government employees compared to other states, and these employees are costly, again compared to other states. This is data from the U.S. Census Bureau for 2015, the most recent year for which data is available.

When considering all elementary and secondary education employees, Kansas spent $95 per person on payroll (again, March only). This was 12th highest among the states, District of Columbia, and the nation as a whole. There were 34.3 citizens for each FTE (full-time equivalent employee) working in elementary and secondary education, which ranks third highest.

In other words, Kansas has many elementary and secondary education employees compared to other states, and these employees are costly, again compared to other states.

Similar results are found for higher education employees. Fortunately, Kansas has zero employees working in state-owned liquor stores.

In the visualization you may create your own tables. Click here to access the visualization. Source of data is U.S. Census Bureau2 and author’s calculations to derive per-capita figures. Visualization created using tableau Public.


Notes

Spending in the states, by fund

The National Association of State Budget Officers publishes spending data for the states. In this interactive visualization, I present the data in a graphical and flexible format.

Data for each state is subdivided by fund (see below for definitions). Data through 2015 is actual, while data for fiscal year 2016 is estimated. The figures for the “state” United States were computed by summing the spending in all states, then dividing by the U.S. population. These figures are not adjusted for inflation.

In the example from the visualization that is shown below, we see general fund spending for Kansas and selected states. Note that general fund spending on a per-capita basis in Kansas is higher than in Oklahoma, Colorado, and Missouri, and approximately the same as Texas. When using the visualization you may select states, funds, and time periods to create your own comparisons. Because the visualization is interactive, you can do things like clicking on legends to highlight data series.

Of note is the tab comparing spending in states that have an income tax vs. those that have no income tax. Click here to access the visualization.

Example from the visualization, showing general fund spending for Kansas and selected states. Click for larger version.

From NASBO, definitions of the funds.

General Fund: The predominant fund for financing a state’s operations. Revenues are received from broad-based state taxes. However, there are differences in how specific functions are financed from state to state.

Federal Funds: Funds received directly from the federal government.

Other State Funds: Expenditures from revenue sources that are restricted by law for particular governmental functions or activities. For example, a gasoline tax dedicated to a highway trust fund would appear in the “Other State Funds” column. For higher education, other state funds can include tuition and fees. For Medicaid, other state funds include provider taxes, fees, donations, assessments, and local funds.

Bonds: Expenditures from the sale of bonds, generally for capital projects.

State Funds: General funds plus other state fund spending, excluding state spending from bonds.

For some, the Kansas tax increase wasn’t big enough

Some Kansas Senators were refreshingly honest about a recent tax bill: They’re coming back for more.

On February 17, 2107, the Kansas Senate voted to pass HB 2178, titled “Substitute for HB 2178 – Concerning income taxation; relating to determination of Kansas adjusted gross income, rates, itemized deductions.” The effect of the bill was to increase taxes.

The vote prevailed 22 to 18. Governor Brownback vetoed the bill. The House overrode the veto, but the Senate did not, with 24 senators voting to override the veto. Two-thirds, or 27 votes, were required.

In explanations of the February 17 vote, some Kansas Senators were honest about their beliefs and their future plans. Which are: First, the bill didn’t raise enough money to suit them. Second: Despite the passage of the bill, they’re coming back for more. (These remarks were made before the Governor’s veto.) Here’s Lynn Rogers, joined by two other senators (emphasis added):

Mr Vice President: This bill does not solve Kansas’ budget problem. It is the best start we have seen in 4 years. But it does not address our borrowing from the Bank of KDOT or KPERS, nor does it address our school finance needs. I appreciate adding the 3rd bracket and closing the LLC loophole. However, the weight of the bill is still on the backs of middle class families. Many of us campaigned on a platform of “fixing Topeka.” Kansans overwhelmingly asked us to work together. I was sorely disappointed in yesterday’s behavior. I am willing to support this as the best we have today. But I warn us all, we will have to return to this chamber to readdress our fiscal state. — LYNN ROGERS
Senators Faust-Goudeau and Francisco request the record to show they concur with the “Explanation of Vote” offered by Senator Rogers on Sub HB 2178.

Also, Marci Francisco, again joined by two others (emphasis added):

Mr. Vice President: I initially voted “Pass” but change my vote to “AYE” on Sub HB 2178. I appreciate the work done in the House to craft a tax bill to eliminate the non-wage income “loophole”, repeal the future formulaic income tax reductions, and second tier for married individuals filing jointly and earning over $30,000 at 5.25%, higher than the current rate of 4.6%. It sets the third tier for married individuals earning over $100,000 at 5.45%, only .2% higher and a full percentage point less than it was in 2012, putting more of the burden on low and middle income Kansans. It continues to make our Kansas tax form complicated because it does not reinstate the deductions for mortgage interest and property tax allowed for on the federal tax form. The bill does not raise enough revenue to balance the current budget. None the less, I vote “AYE” to support this as a first step in this legislative session. I also pledge to continue to work on proposals to bring fairness to the Kansas tax structure and an appropriate amount of revenue to the state. — MARCI FRANCISCO
Senators Kelly and Pettey request the record to show they concur with the “Explanation of Vote” offered by Senator Francisco on Sub HB 2178.

Vote-switching in the Kansas House of Representatives

A look at voting behavior in the Kansas House of Representatives regarding an important tax bill.

Recently the Kansas House of Representatives held a series of votes on HB 2178, titled “Substitute for HB 2178 – Concerning income taxation; relating to determination of Kansas adjusted gross income, rates, itemized deductions.” The effect of the bill was to increase taxes.

There were three recorded votes on this bill. On February 15, 2017, the House, acting as Committee of the Whole, passed the bill on a vote of 83 to 39. 63 votes are required for passage. This is one step a bill takes as it becomes law.

On the next day, February 16, the House passed the bill on final action by a vote of 76 to 48. This is the final step the House needs to take to pass a bill into law. (On the next day, the Senate also passed the bill, sending it to the governor.)

The governor vetoed the bill. On February 22, the House considered a motion to pass the bill notwithstanding the governor’s veto. A two-thirds majority — 84 votes — are required to override a veto. This motion passed by a vote of 85 to 40, thereby overriding the governor’s veto. (The Senate also considered an override motion, but it did not pass, so the veto was upheld and this bill did not become law.)

Of interest is the vote-switching in the House as the bill passed through three rounds of votes. In all cases a vote of “Yea” was a vote in favor of making the bill into law. (This is not always the case.) In the nearby table, I’ve shaded the instances where members switched votes.

Kansas general fund

Data and charts regarding the Kansas general fund.

“The State General Fund receives the most attention in the budget because it is the largest source of the uncommitted revenue available to the state. It is also the fund to which most general tax receipts are credited. The Legislature may spend State General Fund dollars for any governmental purpose.”1

There is a requirement that the general fund have an ending balance of at least 7.5 percent. “Legislation was enacted by the 1990 Legislature to establish minimum ending balances to ensure financial solvency and fiscal responsibility. The legislation requires an ending balance of at least 7.5 percent of total expenditures and demand transfers and requires that the Governor’s budget recommendations and the legislative-approved budget for the coming year adhere to this standard. Often the Legislature suspends this requirement and allows for lower ending balances.”2

“The budget is based on an estimate of annual receipts and the Governor’s recommendation for total expenditures over the course of a fiscal year. However, within any fiscal year, the amount of receipts to the State General Fund varies widely from month to month, and an agency may spend any or all of its appropriation at any time during the fiscal year. In particular, the state must make large expenditures early in the fiscal year for school districts, while meeting the demands for periodic Medicaid reimbursements to providers, as well as making payroll. This makes for an imbalance when compared to when much of the state’s tax revenues are received, such as income tax, mostly recorded in the final quarter of the fiscal year.”3

“Estimates for the State General Fund are developed using a consensus process that involves the Division of the Budget, the Legislative Research Department, the Department of Revenue, and consulting economists from state universities.”4

The sources of data for the following charts and tables are Kansas Budget Reports and Comparison Reports for various years. Figures for fiscal years greater than 2016 are estimates from the Kansas Division of the Budget. Click charts for larger versions.

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Notes

  1. Kansas Division of the Budget. The Governor’s Budget Report Volume 1, Fiscal Year 2018. http://budget.ks.gov/.
  2. ibid.
  3. ibid.
  4. ibid.

WichitaLiberty.TV: Kansas conventions, taxing and spending, and Wichita economic development

In this episode of WichitaLiberty.TV: Co-host Karl Peterjohn joins Bob Weeks to discuss the Kansas congressional nominating conventions, taxing and spending in Topeka, and Wichita economic development and promotion. View below, or click here to view at YouTube. Episode 139, broadcast February 19, 2017.

Shownotes

WichitaLiberty.TV: Immunizations, spending and taxing in Kansas, and getting data from Wichita

In this episode of WichitaLiberty.TV: Should Sedgwick County be in competition with the private sector? What are attitudes towards taxation and spending in Kansas? Finally, what is it like to request data from the City of Wichita? View below, or click here to view at YouTube. Episode 138, broadcast February 12, 2017.

Shownotes

Expanding Medicaid in Kansas

Expanding Medicaid in Kansas would be costly, undoubtedly more costly than estimated, has an uncertain future, and doesn’t provide very good results for those it covers.

Providing testimony to the Kansas House Committee on Health and Social Services, Michael Tanner advised legislators, “Medicaid expansion, however, is a risky gamble, that is almost certain to cost more than you are currently budgeting, while providing surprisingly little to the poor in terms of improved access to health care.”

Tanner is Senior Fellow at Cato Institute. The bill in question is HB 2064, titled “Establishing the KanCare bridge to a healthy Kansas program.” It would expand Medicaid eligibility to more people in Kansas. These quoted remarks are from Tanner’s written testimony, which may be read at Should Kansas Expand Its Medicaid Coverage.

As to the cost of Medicaid expansion, Tanner wrote: “Second, while such estimates are concerning enough in themselves, and would almost certainly require a substantial tax hike to finance, there is ample reason to believe that they understate the actual cost. For example, actual enrollments following expansion have exceeded estimates in every state that has expanded Medicaid under the ACA, in most cases by double digits and in some cases by more than 100 percent. In neighboring Colorado, the maximum projected enrollment was 187,000 and as of October of last year enrollment had exceeded 446,000. … In addition, the per enrollee cost has risen faster than predicted.”

Then, there’s the woodwork effect, which costs are covered only at the regular Medicaid reimbursement rate, not the 94 percent citizens might be tempted to believe: “Third, while it may be tempting to focus on the 94 percent FMAP [Federal Medical Assistance Percentage] for newly eligible adults, you should keep in mind that many of those who enroll under expansion will not fall into this category. Rather, they will be previously eligible individuals or families that are lured into the system through the publicity and outreach efforts surrounding expansion. The Robert Wood Johnson Foundation and the Urban Institute have dubbed this the ‘woodwork effect.’ Woodwork enrollees are not eligible for the enhanced FMAP. Instead, Kansas will have to pay 43.79 percent. In states that have expanded Medicaid under ACA, as much as half or more of those who signed up have fallen into this woodwork category.”

Tanner also noted the uncertainty over the future of the Affordable Care Act, or Obamacare, under the Trump Administration, warning legislators, “You may well be locking yourselves into future spending based on hopes for federal dollars that may never materialize.”

He also noted the studies that have found that being on Medicaid does not result in very good health outcomes, most notable in the Oregon study.

Kansans say no to more taxes

A statewide poll finds little support for raising taxes as a way to balance the Kansas budget.

Kansas Policy Institute has commissioned another public opinion poll gauging the preferences of Kansans. The poll released this week asked questions about how to balance the budget in the current year and next year, raising the gasoline tax, schools, paying for Medicaid, and voting on local tax increases.

In a press release announcing poll results, KPI president Dave Trabert noted, “Once again, scientific public opinion surveys show that special interests pushing for enormous, record-setting tax increases are completely out of step with the general public. Kansans expect government and school districts to make efficient use of their tax dollars. They don’t want their income taxes or gasoline taxes increased. The question is whether legislators will listen to citizens or special interests that want higher taxes for more spending.”

The poll with the text of all questions, results, and methodology may be viewed at Results of SurveyUSA Mkt Research Study #23415.

Some may recognize a discrepancy between the results of this poll with last year’s elections for the Kansas House and Senate. Those elections have been widely interpreted as a referendum against an unpopular governor and his policies. This poll, however, finds little support for raising the taxes that the governor and legislature cut.

A possible explanation is that in elections for office, voters are selecting people to serve in office. Voters must choose candidate A or candidate B (or maybe C or D). Voters must take the entire package of positions associated with a candidate. It isn’t possible to select some positions from candidate A, and others from candidate B.

But in a poll with specific and narrow questions, voters can express their preferences with more precision.

There’s a difference between voting for politicians and voting for — or expressing preference for — specific policies and issues. When given a chance, Wichitans have often voted contrary to the wishes of the city council, city hall bureaucrats, and Wichita’s political class. Whether a special tax giveaway to a hotel, a general sales tax increase, reduction of penalties for marijuana possession, or fluoridation of water: Wichitans voted in opposition to the policies that were supported by the people they voted to place in office.

Public education factbook for 2017

The fifth edition of data on public schools in Kansas is available.

Kansas Policy Institute has released a new edition of its Public Education Fact Book. KPI describes this book:

KPI’s fifth annual Public Education Fact Book is a one-stop shop for data on public school information from The Sunflower State. Numerous scientific surveys show that citizens are grossly misinformed on many pertinent facts of public education in Kansas. Aid and spending per-pupil are much higher than many Kansans believe, and student achievement is lower than understood. This fact book series aims to rectify this situation.

This document is available to read online here, or contact KPI for a printed copy.

The Wichita Eagle on Kansas sales tax exemptions

The Wichita Eagle editorial board writes an editorial that gives false hope to advocates of more taxation and more spending.

Advocates of eliminating sales tax exemptions in Kansas point to the great amount of revenue that could be raised if Kansas eliminated these exemptions, given at about $6 billion per year, according to a recent Wichita Eagle editorial.1

Analysis of the nature of the exemptions and the amounts of money involved, however, leads us to realize that the additional tax revenue that could be raised is much less than spending advocates claim, unless Kansas was to adopt a severely uncompetitive, and in some cases, unproductive and harshly regressive tax policy.

The unsigned editorial notes this: “And sales tax exemptions are costing the state a fortune — about $6 billion a year.” For context, general fund spending in Kansas is about the same amount. That’s a lot of money. Further, the tone of the sentence calls for more taxation so that government can spend more. In a previous op-ed on this topic Phillip Brownlee, opinion page editor for the Eagle, wrote ” And with each added exemption, the state is losing out on more revenue — $5.9 billion this fiscal year, according to the Kansas Department of Revenue. That’s money the state could be using to cover its budget shortfalls, increase funding to public schools or further reduce its income-tax rates.” At least he mentioned reducing other tax rates. Usually advocates of closing sales tax exemptions simply want more tax money to spend.

In 2015 I looked at the nature of Kansas sales tax exemptions, using data from 2014. The numbers would be a different if I repeated the analysis today. But not different by much, and the same conclusions apply.

Kansas sales tax exemptions, simplified. Click for larger version.
Kansas sales tax exemptions, simplified. Click for larger version.
We need to look at the nature of these exemptions. I’ve prepared a simplified table based on data from the Kansas Department of Revenue.2 I simplified because there are many deductions that probably should be eliminated, but they represent relatively small amounts of money.

Some sales tax exemptions are for categories of business activity that shouldn’t be taxed, at least if we want to constrain the state to a retail sales tax only. An example is exemption 79-3606 (m), described as “Property which becomes an ingredient or component part of property or services produced or manufactured for ultimate sale at retail.” The tax that could be collected, should the state eliminate this exemption, is given as $3,083.24 million ($3,083,240,000).

But this exemption isn’t really an “exemption,” at least if the sales tax is a retail sales tax designed to be levied as the final tax on consumption. That’s because these goods aren’t being sold at retail. They’re sold to manufacturers who use them as inputs to products that, when finished, will be sold at retail. Most states don’t tax this type of sales. If Kansas decided to tax these transactions, it would place our state’s manufacturers at a severe disadvantage compared to almost all other states.

There are two other exemptions that fall in this category of inputs to production processes, totaling an estimated $632 million in lost revenue. Another similar exemption is “Machinery and equipment used directly and primarily in the manufacture, assemblage, processing, finishing, storing, warehousing or distributing of property for resale by the plant or facility.” Its value is nearly $159 million.

Together, these exemptions account for $3,874 million of the $5,900 million in total exemptions.

It’s curious that the Eagle editorial did not mention these sales tax exemptions and the disadvantage that taxing these transactions would create. The authors — Brownlee, likely — did mention how other sales taxes would affect Kansas: “For example, eliminating the exemption on legal and accounting services could put Kansas at a competitive disadvantage, as other states don’t tax those services.”

Another big-dollar exemption is “items already taxed” such as motor fuel. This is an estimated $318.90 million loss in revenue. Other exemptions are purchases made by government, or purchase made by contractors on behalf of government. These exemptions account for an estimated $624.90 million in lost revenue. If these two exemptions were eliminated, the government would be taxing itself, with no net gain.

Not taxing prescription drugs means lost revenue estimated at $96.49 million. If the state started taxing residential and agricultural use utilities, it could gain an estimated $169.98 million. These taxes, like the sales tax on food and the motor fuel tax, fall hardest on low-income families. As Kansas is one of the few states to tax food, do we want to make life even more difficult for low-income households?

Adding these exemptions comes to about $5,084 million. There are other exemptions for which we could make similar arguments for their retention. What’s left over — the exemptions that really should not exist — isn’t much at all. The entire category of “Exemptions to Charitable Organizations by Name.” amounts to $3.05 million in exempted sales tax. These represent the organizations where a lawmaker has crafted an exemption like “Property and services purchased by Jazz in the Woods and sales made by or on behalf of such organization.”

So when the Eagle editorial board writes “As is, favored groups are saving billions of dollars a year, worsening the tax burden for everybody else,” It must be including broad categories of business like “all Kansas manufacturing companies” as a “favored group.” Or maybe he means prescription drug users are a “favored group.” Or families struggling to pay utility bills.

But there are more problems. The Eagle editorial board writes these sales tax exemptions are “costing the state a fortune.” The only way this makes sense is if one thinks that our property (our money) first belongs to the state, and that in order to spend it, we have to give the state its cut. That’s an opinion that you may agree with, or you may oppose. What’s remarkable — shocking, really — is that in his previous career Brownlee — the opinion page editor — was a Certified Public Accountant. He ought to understand the nature of sales taxes meant to be applied to retail sales, not components of manufactured goods.


Notes

  1. Eagle Editorial Board. Reduce sales-tax exemptions. Wichita Eagle, February 3, 2017. http://www.kansas.com/opinion/editorials/article130438759.html.
  2. Kansas Department of Revenue. Annual Reports. http://www.ksrevenue.org/annualreport.html.

Analysis of proposed tax changes in Kansas

Proposed changes in the Kansas motor fuel tax and sales tax on groceries affects households in different ways.

As part of a revision to the tax regime in Kansas, a bill proposes to raise the motor fuel tax and reduce the sales tax on most types of groceries. (Restaurant meals would not be affected.) The bill is HB 2237.1 It implements most or all of the elements of a plan called “The Path Forward.”2

Excise taxes (the motor fuel tax) and sales taxes are usually regressive, meaning that their impact is felt most severely by lower-income households.3 Data shows that as income rises, so too does spending on motor fuel and food at home. But the rise in spending is not proportional to income. For example, data from BLS (see below for references) tells us that households in the lowest quintile of income spent an average of $939 per year on motor fuel and oil in 2015. For the highest quintile of households, spending was $3,226.

But when we look at this spending as a percent of household income after taxes, for the lowest quintile spending on motor fuel and oil represents 8.2 percent of income. For the highest quintile, it is 2.3 percent. A similar pattern holds for purchases of food for home consumption.

Because of this relationship, taxes on the sale of gasoline and food affect lower-income households proportionally more. What I have done is to estimate the additional cost, as a percent of after-tax income, of the proposed motor fuel tax. As can be seen in the nearby chart, the additional cost ranges from 0.39 percent of income for the lowest-income households to 0.11 percent for upper-income households. This difference, a factor of 3.5, illustrates the regressive nature of sales taxes, and the gasoline tax is just that — a sales tax.

HB 2237 Additional Tax Cost as Percent of Income After Taxes. Click for larger.
The bill proposing the increase in gasoline tax also proposes a reduction in the food sales tax rate from 6.5 percent to five percent. That tax is also regressive. In 2014, as Wichita was considering adding one cent per dollar to the sales tax already paid, my analysis of spending found this: “The lowest income class of families experience an increase nearly four times the magnitude as do the highest income families, as a percentage of after-tax income. This is the regressive nature of sales taxes illustrated in numbers.”4

HB 2237 Sales Tax Savings as Percent of Income After Taxes. Click for larger.
A nearby chart shows that the savings from the proposed lower food sales tax ranges from 0.07 percent for high-income households to 0.33 percent for low-income households. This is consistent with the regressive nature of sales taxes: They affect low-income households greatest — when raised, and also when lowered.

HB 2237 Net Cost as Percent of Income After Taxes. Click for larger.
Another chart shows the summative effect of the higher fuel tax and lower food sales tax. Of interest, the net effect is highest for the middle 20 percent of households. Note that considering these two taxes, the effect of the proposed bill is to raise taxes for everyone.

Show the math

The Bureau of Labor Statistics, a unit of the U.S. Department of Labor,5 has data for household expenditures on gasoline and oil. This data is available for five intervals, or quintiles, of income.6

Then the U.S. Energy Information Administration, the statistical and analytical agency within the U.S. Department of Energy,7 has gasoline prices. It doesn’t have them for Kansas, but it does for the Midwest.8

From these two values, we can calculate the number of gallons of gasoline purchased for each income level. Here, we lose a bit of validity, as the BLS data is for purchases of gasoline and oil. But it’s the data we have, and purchases of gasoline surely dominate purchases of motor oil.

Once we have the number of gallons of gasoline purchased, we multiply by the proposed eleven cents per gallon additional tax. This produces the extra gasoline sales tax cost per household. This is a static calculation and assumes no change in the number of gallons purchased due to the higher cost from the tax, or from any change in gasoline prices for any reason.

Then, the BLS Consumer Expenditure Survey also holds income after taxes for the five income levels. Simple division gives us the percent of household income that the additional tax represents.

The BLS Consumer Expenditure Survey also holds data for spending on food at home for the five income levels. From that, we can multiply by 1.5 percent to estimate the amount saved if sales tax on food falls to five percent from 6.5 percent. As with purchases of gasoline, this is a static calculation and assumes no change in behavior from reduced sales tax on groceries. Simple division gives us the percent of household income that the tax savings represents.

Then, we can subtract the food sales tax savings from the additional gasoline tax costs to produce a net calculation.


Notes

  1. Kansas House of Representatives, Committee on Taxation. HB 2237, Concerning taxation; relating to income tax, rates, determination of income, tax credits; motor fuels tax, rates, trip permits, distribution; sales and compensating use tax, food and food ingredients. http://www.kslegislature.org/li/b2017_18/measures/hb2237/.
  2. Riseupkansas.org. *The Path Forward.” http://riseupkansas.org/the-path-forward/.
  3. “A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases.” Wikipedia. Regressive tax. https://en.wikipedia.org/wiki/Regressive_tax.
  4. Weeks, Bob. Wichita sales tax hike would hit low income families hardest. https://wichitaliberty.org/wichita-government/wichita-sales-tax-hike-hit-low-income-families-hardest/.
  5. Bureau of Labor Statistics. About BLS. https://www.bls.gov/bls/infohome.htm.
  6. Bureau of Labor Statistics. Consumer Expenditure Survey. https://www.bls.gov/cex/.
  7. Energy Information Administration. Mission and Overview. http://www.eia.gov/about/mission_overview.php.
  8. Energy Information Administration. Midwest Regular All Formulations Retail Gasoline Prices (Dollars per Gallon). http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPMR_PTE_R20_DPG&f=A.

Availability of testimony in the Kansas Legislature

It is easy to provide Kansans with written testimony from the Kansas Legislature. At least I think so.

On the Kansas Legislature website, each committee has its own page. On these committee pages there are links for “Committee Agenda,” “Committee Minutes,” and “Testimony.” When I looked at these pages two years ago, I found that in most cases there is no data behind these links.1 I do not know what the statistics would be if I repeated the analysis for this year.

But the written testimony and informational presentations provided to committees are of interest and value to citizens. Most committees — perhaps all — require conferees to supply a pdf or Microsoft Word version of their testimony in advance of the hearing. These electronic documents could be placed online before the committee hearing. Then, anyone with a computer, tablet, or smartphone could have these documents available to them.

As an illustration, a bill from last week, SB31, was of interest to many in Kansas.2 But the page for the committee that heard this bill holds no testimony, for this bill or any other.

I’ve gathered the written testimony on SB31 and present it as a single pdf file for ease of handling. I combined the files and formed an index using PDF Split and Merge Basic, which is free and open source. I shared the file using Google Drive, a free service, or very inexpensive if additional storage is required. I can’t tell you how much time it took to accomplish this task, as I was interrupted several times during the process. If pressed, I’d estimate no more than ten or fifteen minutes.

You may access this document here. I can’t tell you how much time it took to accomplish this task, as I was interrupted several times during the process. If pressed, I’d estimate no more than ten minutes.


Notes

  1. Weeks, Bob. Availability of testimony in the Kansas Legislature. https://wichitaliberty.org/kansas-government/availability-testimony-kansas-legislature/.
  2. Weeks, Bob. In Kansas, the war on blight continues. https://wichitaliberty.org/kansas-government/kansas-war-blight-continues/.

In Kansas, the war on blight continues

Kansas governments are trying — again — to expand their powers to take property to the detriment of one of the fundamental rights of citizens: private property rights.

Empty lots in northeast Wichita. Click for larger version.
Last year cities in Kansas lobbied for a bill that would expand their powers to take property from its lawful owners, all in the name of saving neighborhoods from “blight.” Governor Brownback vetoed that bill, explaining, “The right to private property serves as a central pillar of the American constitutional tradition.”1

The governor further explained: “The broad definition of blighted or abandoned property would grant a nearly unrestrained power to municipalities to craft zoning laws and codes that could unjustly deprive citizens of their property rights. The process of granting private organizations the ability to petition the courts for temporary and then permanent ownership of the property of another is rife with potential problems.”

The bill introduced this year is SB 31, titled “Rehabilitation of abandoned property by cities.”2 It is a slightly modified version of SB 338, the bill from last year.It deserves opposition for the same multitude of reasons. Last year John Todd summarized the reasons for opposition:

  • Senate Bill 338 appears to provide local governmental units with additional tools that they don’t need to “take” properties in a manner that circumvents the eminent domain statutes that private property rights advocates fought so hard to achieve in 2006.
  • The total lack of compensation to the property owner for the deprivation or taking of his or her property is missing in the bill.
  • Allowing a city or their third party take possession of vacant property they do not own and have not obtained legal title to is wrong.
  • Please take a look at a comparison between a free-market private sector solution as contrasted to a government mandated program to achieving affordable housing and the impact highly subsidized government housing solutions are having on adjacent home owners.

This year’s bill is a “committee bill,” meaning that no legislator was willing to be a named sponsor. We might call this the “Longwell-Meitzner bill,” as these two Wichita City Council members were particularly disappointed that the governor of Kansas blocked their power grab.3

Of note, Todd and I, along with others, had a luncheon meeting with a Kansas Senator who voted for last year’s bill. When we told him of our opposition, he asked questions like, “Well, don’t you want to fight blight? What will cities do to fight blight without this bill?” When we listed and explained the many tools cities already have, he said that he hadn’t been told of these. This is evidence that this bill is not needed. It’s also evidence of the ways cities try to increase their powers at the expense of the rights of people.

Following, John Todd’s testimony opposing SB 31. His exhibits are available via a link at the end of the testimony.4

January 26, 2017

Senator Elaine Bowers, Chair
Senate Ethics, Elections and Local Government

Subject: MY OPPOSITION to Senate Bill No. 31 scheduled for a public hearing in the Senate Ethics, Elections, and Local Government Committee on January 26, 2017

Dear Senator Bowers and members of the Senate Ethics, Elections, and Local Government Committee,

I OPPOSE the passage of Senate Bill No. 31 of 2017 since it is basically a slightly modified and expanded version of the Senate Bill No. 338 of 2016 that Governor Sam Brownback correctly vetoed. I see no new provisions in the 2017 bill that gives citizens any additional private property protection; rather, it strengthens local authorities “unmitigated power in determining which properties should be seized, allowing localities to write their own rules. It also cedes to municipalities the power to select which private organizations receive control of the property.”

This quote is from an e-mail the Governor’s office issued in announcing his Veto of the 2016 bill (see copy attached). A “Message from the Governor” dated April 11, 2016 provides his excellent reasoning for the Veto, explaining, “The right to private property serves as a central pillar of the American constitutional tradition (see copy attached).

Shortly after starting my career in the real estate business in 1976 I acquired my first rehab house. It was located in the Old Orchard area of Wichita that everyone considered one of the most economically challenged and difficult neighborhoods to work with in town. I paid the seller nearly $20 thousand her dilapidated house that included three vacant single family building lots. It cost me in the range of $10 thousand to rehabilitate the house that included repairing a caved in concrete block basement wall. I sold the rehabilitated house and the lot it was on for the $30 thousand I had invested in the transaction and wound up with the vacant lots free and clear. I sold the three lots to a builder for $9 thousand cash and he subsequently built three new affordable entry level homes on them.

Now let’s take a look at this private sector transaction:

  1. The seller of the house received cash for her property through a mutually agreed upon transaction without coercion (no eminent domain) involved.
  2. I rehabilitated the house and sold it to a young couple for their first home.
  3. The builder who purchased the 3 vacant lots built three new houses that he sold to owner occupant homeowners.
  4. The builder provided construction jobs and purchased building materials from local vendors.
  5. The Orchard neighborhood saw immediate improvement and felt the benefits of economic uplift.
  6. The City, County, and School District tax base was expanded providing with one rehabilitated and three new houses thus providing additional tax revenue to fund fire, police, public safety, and money to educate our children.
  7. I paid Federal and state taxes on the profit I made in the transaction and I suspect the builder did too.
  8. There was no need for government subsidies of any nature for this private sector transaction to work.

Now in contrast, let’s take a look at how our local government has been handling similar neighborhood opportunities. Please take a look at the attached Building Blocks Infill Project Area map to discover what has been happening in a predominantly African American neighborhood community in Wichita.

  1. The vacant green rectangles are dozens of vacant lots where houses once stood that were bulldozed by the city.
  2. The owners of these houses were paid $0 for the houses that were taken by the city’s bulldozer
  3. In my judgment, many if not a majority of these bulldozed houses had economic value and offered the potential for rehabilitation and the creation of low-cost entry level housing. (See exhibit A)
  4. The city charged the property owner $8 – $10 thousand for bulldozing charges leaving the owner with a vacant lot that was left to produce high weeds and collect trash.
  5. Most of the owners let their vacant lots go back for taxes and many were sold for $100 or less and they received $0 for their properties.
  6. Thus the existing and potential tax base was lost as well as the wonderful opportunity for clean low-cost affordable entry level home ownership that is part of the American dream.
  7. Some of the most vulnerable and economically challenged property owners of our city rightly feel helpless in the face of this devastation.

Now local governmental officials are asking you for additional powers through Senate Bill No. 31 to “deal” with this problem.

  1. They want the power to seize unoccupied houses without compensating the owners anything for their property.
  2. They want to empower non-profit (non-taxpaying) organizations of their choice to seize unoccupied houses without compensating the owners for their property.
  3. The non-profits involved in the redevelopment of this neighborhood community with the exception of Habitat for Humanity rely heavily on tax subsidies for wealthy taxpayers and generous Federal subsidies in the range of $50 thousand for each house built and sold.
  4. I hear talk of Tax Increment Financing (TIF) to finance redevelopment in this community. The TIF program is simply a diversion of tax revenue that needs to go to city, county, and school district treasuries and not flow back to developers.

I see nothing in Senate Bill No. 31 that does anything to promote private sector redevelopment.

Is there a private sector solution? I say YES and I see it happening. Private sector investors, contractors and homeowners are stepping up and seizing opportunity (See Exhibit B). This economic uplift is healthy for the neighborhood community, expands the tax base, and offers an opportunity for investor/contractor profit in some cases or low-cost affordable home homeownership in others.

The rehabilitation of existing houses and redevelopment on vacant “infill” is best achieved by the private sector and not by government planners or their favored non-profit entitles.

The taking of property by local government without compensation is wrong. I believe that was what Governor Brownback was saying in his veto message, “Government should defend and protect the property rights of all citizens, ensuring that the less advantaged are not denied the liberty to which ever other citizen is entitled.”

I urge you to OPPOSE passage of Senate Bill No. 31!

Sincerely,
John R. Todd
A Kansas Citizen

The exhibits referred to are available in pdf form. Click here.


Notes

  1. Weeks, Bob. Governor Brownback steps up for property rights. https://wichitaliberty.org/kansas-government/governor-brownback-steps-property-rights/.
  2. SB 31. Rehabilitation of abandoned property by cities. http://www.kslegislature.org/li/b2017_18/measures/sb31/.
  3. Weeks, Bob. In Wichita, revealing discussion of property rights. https://wichitaliberty.org/kansas-government/wichita-revealing-discussion-property-rights/.
  4. Todd, John. Exhibits on Blight in Wichita. https://drive.google.com/file/d/0B97azj3TSm9MMzFYZDQxRTRJb1U/view?usp=sharing.