Remarks delivered to the Wichita City Council, April 15, 2008. Audio is available here.

Mr. Mayor, members of the city council, I ask that you not vote to approve this request for a tax abatement, and that you cease this practice altogether. Alternatively, I ask that you adopt a practice that will help realize the costs of these actions.

It is no doubt difficult to compete with other states when they offer huge gifts to companies in order to lure them to their state. That's a problem that needs to be addressed at a different level of government.

The matter before you now, however, is not the same. This company is not threatening, to my knowledge, to leave our area if the tax abatement is not granted. It appears they would build this facility even if the tax abatement is not granted.

The harmful effect of this tax abatement is this: When someone escapes paying taxes, someone else has to make up the difference. While the tax abatement being considered at this moment is relatively small, many are large, and when companies appear before this body week after week asking for tax favors, it adds up.

This same effect applies to the other governments that are affected: Sedgwick County, the Wichita public school district, and the State of Kansas. When one person does not pay, someone else has to pay more.

These special tax favors expose an inconsistency: business and government leaders tell us all the time that we must "build up the tax base." Granting these tax favors destroys that base.

Now I don't blame this company for asking for this tax favor. When councils, commissions, and legislatures indicate their willingness to grant these, businesses respond. So this company, of which I am a shareholder, by the way, is simply responding rationally to its environment.

But some of these companies that are asking for tax favors have problems with consistency. The president of this company has testified in favor of higher taxes to pay for building a facility that his company will benefit from. Now his company asks for relief from paying the taxes he wants others to pay.

As long as this body is willing to grant tax abatements and other special tax favors, I propose this simple pledge: that when the City of Wichita allows a company to escape paying taxes, that it reduce city spending by the same amount. By following this simple rule, the City can be reminded of the cost of granting special tax favors, and the rest of us won't have to pay for them.

As the annual tax deadline is here, we should take a moment to examine our level of awareness of the taxes we pay.

Many families don't pay any federal income tax. According to a study by the Tax Foundation (link: http://www.taxfoundation.org/ff/zerotaxfilers.html) 58 million households, representing some 122 million people, or 44 percent of the U.S. population, pay no federal income tax. I made a few calculations, and Kiplinger's TaxCut software for 2004 shows that a family with two children and $40,000 income (that's approximately the median household income in Wichita), taking the standard deductions, pays $0 federal income tax.

These families probably do pay quite a bit in the form of Social Security tax, but as we're told, that's not really a tax. Instead, it's the government saving for our future retirement. At least it tells us so.

For those who do pay taxes, they often aren't aware, on a continual basis, of just how much tax they pay. That's because for wage earners, federal and state taxes are conveniently withheld for us on our paychecks. Many people, I suspect, look at the bottom line -- the amount they receive as a check or automatic bank deposit -- and don't really take notice of the taxes that were withheld. This makes paying taxes almost painless.

For local property taxes, anyone who has a mortgage probably has these taxes incorporated into their monthly mortgage payment. Renters pay them as part of their rent. Everyone who trades with a business pays them, as taxes are part of what goes into formulating prices.

An alternative would be to eliminate the withholding of taxes from paychecks and from monthly mortgage payments. Instead, each month or year the various taxing governments would send a bill to each taxpayer, and they would pay it just like the rest of their periodic bills. In this way, we would all be acutely aware of just how much tax we pay.

A curiosity is that many people are happy during tax season because they get a refund. And they're delighted to get that refund, so much so that many will pay high interest rates on a refund anticipation loan just to get the money a little earlier. The irony is that by adjusting their withholding, they could take possession of much of that money during the year as they earn it.

The other people happy during tax season are tax preparers. As a country we spend an enormous effort on tax recordkeeping and compliance. Another study by the Tax Foundation estimates that in 2002 we spent, as a nation, 5.8 billion hours and $194 billion complying with the federal tax code. (5.8 billion hours is equivalent to about 2,800,000 people working 40 hours per week, 52 weeks per year.) By simplifying our tax code, we could eliminate much of this effort, and return that effort to productive use.

Since tax withholding from paychecks and mortgage payments reduces our awareness of just how much tax we pay, it's unlikely that governments will stop the withholding of taxes and submit a bill to taxpayers. Instead, it's left to ourselves to remain aware of how much we are paying.

In a candidate questionnaire from the Wichita Metro Chamber of Commerce before the recent USD 259 (Wichita public school district) board member election, Kevass Harding answered "No" when asked if he would support a tax increase for Wichita schools. The other successful candidates -- Betty Arnold, Jeff Davis, and Barb Fuller -- were more artful in their responses, promising "financial responsibility" and the usual empty pledges to spend wisely and efficiently. Ms. Fuller did say "I would not want to raise these taxes," referring to local property taxes.

The election took place in April 2007. In August 2007, just four months later, all Wichita school board members, including those mentioned above, voted to increase taxes. It didn't take long for Kevass Harding to reverse his position. It didn't take long for Barb Fuller to overcome her dislike for raising taxes. Power has a way of doing these things.

In February 2008, all members except Jeff Davis approved the idea of a $350 million bond issue, asking voters to decide the issue. There is no doubt, however, what position the board members take on the necessity of the bond issue and its tax increase. And before you get the impression that Mr. Davis was overtaken by a sudden wave of wisdom regarding tax increases, he voted no only because he felt his district wasn't slated to get enough. He later changed his vote.

Listen to this article in audio form by clicking here.

The proposed USD 259 (Wichita public school district) school bond issue in 2008 is estimated to cost the owner of a $100,000 home about $40 per year in additional taxes. Proponents divide that into a monthly cost of about $3.33 per month, or sometimes a daily cost of $.11, to dramatize how little this bond issue actually costs.

Eleven cents per day per household! Who could oppose such a paltry amount? Especially when bond issue supporters make it seem as though that's all we spend on schools. But we do, in fact, spend a great deal more on our public schools.

How much more? There's another number that bond issue proponents don't publicize. In fact, I'm sure that many of them don't have an idea of the magnitude of this number. But this number gives us insight into the size and impact of the Wichita school district, and helps us view the district's spending in context.

What is that number? It's $1,749. That's what you get when you take the annual spending of USD 259 ($544,384,275) and divide it by the number of people living within the district's boundaries (311,228).

That's how much the Wichita public school district spends each year, per person living in the district. It's not the same as saying each person is taxed that amount each year by USD 259, as only 31% of district spending is paid for from local sources. The rest came from the State of Kansas (58%) and the federal government (11%). USD 259 residents, of course, pay a good share of those state and federal taxes.

That number -- $1,749 in spending by USD 259 per year for each person living in the district -- gives us an idea of the huge volume of resources that the district has at its command. It is a tremendous amount of money. Think of all the people you see each day. For each of those people, $1,749 has to be raised each year to pay for Wichita public school spending.

For a household of two adults and two children, $6,996 per year, or $19.17 per day, must be raised through a variety of taxes to support USD 259 spending. Keep this in mind as bond issue supporters ask for another increase in taxes.

Sources of data: Spending figures are for the 2006-2007 school year, from The Kansas Department of Education at http://www.ksde.org/Default.aspx?tabid=1810. The population of USD 259 is from the National Center for Education Statistics at http://nces.ed.gov/surveys/sdds/acs05/index.aspx, from the 2005 American Community Survey data.

A letter in the February 27, 2008 Wichita Eagle makes the case that using property tax increases to fund improvements to Wichita public schools gives renters a "free ride." This is because renters, as they don't own the homes they live in, escape paying property taxes. This is distinguished from homeowners, who "pay for everything," according to the letter writer.

In Kansas, residential rental property pays property tax at the same rate as homes. It is true that the property tax bill goes to the landlord, not the renter. This property tax, however, is a cost that goes into determining what landlords want to charge for rent. This tax affects all rental properties at the same rate; I don't think there is much opportunity for one landlord to be more "efficient" regarding property taxes than others, so these property taxes are pretty much passed on to the renter. Therefore, renters pay, too. We can expect rents to rise when property taxes increase.

A greater problem is in the property taxes that businesses and utilities pay. Residential property is assessed at 11.5% of appraised value. Business and utility property, however, is assessed at 25% and 33%, respectively. Again, both businesses and utilities seek to pass on their costs to the customers to the extent possible. This means that anyone who buys something from a business located within the boundaries of USD 259, or who consumes electricity, natural gas, telephone service, or other utility services within the same area, may face increased prices, should the bond issue pass.

For example, Simon Property Group LP, an owner of shopping malls in Wichita, is the seventh largest taxpayer to USD 259, accounting for .43% of the assessed valuation in the district. Together, Western Resources (the electric company), Southwestern Bell Telephone (the phone company that some people still use), and Kansas Gas Service (the natural gas company) represent 3.69% of the assessed value within USD 259, presumably paying the same proportion of the tax revenue collected. Customers of these companies will likely face price increases should the bond issue pass.

These increased prices affect renters and property owners equally. It's pretty hard to avoid paying these taxes.

Other articles on this topic:

Wichita School District Arithmetic
http://wichitaliberty.org/node/628

Wichita School District Tax Revenues Rise Rapidly
http://wichitaliberty.org/node/625

Wichita Public School Spending and Enrollment
http://wichitaliberty.org/node/624

Wichita School Bond Issue Impact Is an Illusion
http://wichitaliberty.org/node/622

Wichita School Bond Issue Not the Only Proposed Tax Increase
http://wichitaliberty.org/node/621

Wichita School Bond Issue: Don’t Indulge Superstition
http://wichitaliberty.org/node/611

Wichita School Bond Issue Economic Fallacy
http://wichitaliberty.org/node/608

In the February 21, 2008 debate between Sen. Clinton and Sen. Obama, Clinton mentioned the "wasteful tax cuts of the Bush administration."

That's a phrase that only a leftist politician such as Sen. Clinton could utter with a straight face, and it tells us a lot about the beliefs of Sen. Clinton and her supporters. (I don't think Sen. Obama's beliefs are very different on this matter.)

It tells us that they feel they have first claim on the money we earn, and if we are allowed to keep more of it, it is wasted. Wasted, according to Sen. Clinton, that is, because she didn't get a chance to spend it.

That is perhaps the most important thing to remember about Sen. Clinton, and Sen. Obama, too. They believe that they know better than you how a large portion of your money should be spent, and if you don't let them spend it that way, it is wasted.

Not that Sen. McCain is that much better. He didn't support the Bush tax cuts, although he says he does now.

There are many problems with the Bush Administration's spending, and it's correct to claim that a large portion of that spending is wasted. There is certainly a problem with the deficits year after year, but that is a problem caused by too much spending, not too little taxation, as Clinton and Obama claim. Taxing less -- meaning that people keep more of their own money and spend it the way they see fit -- is wasteful only for those politicians and their supporters who believe they know best how to spend the money we earn.

The combination of a rising mill levy (the rate at which property is taxed) and rising appraised values mean that property taxes paid to USD 259, the Wichita public school district, rise rapidly.

Appraised values in Wichita have risen faster than general inflation. The Consumer Price Index, a measure of the general inflation rate, rose by 24% from 1999 to 2007. Over the same time period, the Sedgwick County house price index rose by 34%. This means that district revenues -- if the mill levy didn't change -- will rise faster than the inflation rate. When the mill levy is increased, property tax revenues rise very rapidly. The following table illustrates.

In today's Wichita Eagle (February 17, 2008), USD 259 (Wichita) school board member Lynn W. Rogers makes the case that a bond issue for the Wichita public schools will have a positive economic impact on the local community.

Many people are skeptical about the tax rebates recently passed by Congress and their ability to stimulate the economy. Why? That's because the money being sent to households is not "new" money. It had to come from somewhere. Many people realize that taking money from the pocket of one person and sending it to another doesn't add to total economic activity. And as our nation is drowning in debt at the federal level, many people are wary of borrowing money just to get a little boost now, when there is so much debt to be repaid.

It is the same at the local level. The money that will pay for the new facilities has to come from somewhere. When people pay taxes to USD 259, those tax payments represent money they can't spend somewhere else. Economic activity that might have taken place will not, because people had to spend their money on taxes.

This means that if the bond issue passes, and you drive by a construction site being funded with bond money, the workers you see will have displaced other workers in our local community.

If you see a new school building or new tennis courts, you see construction that has displaced other construction in our community.

School district officials will highlight the construction projects, just as they have in the past, as evidence of economic impact and progress. They can do that because it's easy to identify and show the new facilities. School officials will lead tours of the shiny new schools. They'll be promoted endlessly on the district's cable television channel. What is far more difficult, however, is to find the economic activity and jobs that were displaced to pay for these projects. No television or news reporters will look for them. There is no one to speak for them.

In a television news story, a teacher at an overcrowded school suggested that Wichitans forgo a couple nights out at supper to pay for the bond issue. What would be the impact on restaurants in Wichita if all families did that? How would that affect the people who work in those restaurants? I am tempted to ask what this teacher has against these people.

Mr. Rogers is correct on one thing: spending money the next few years while paying it back over 20 years does lead to more economic activity right now. He didn't mention, however, the economic activity that is not taking place this year because we're paying off the 2000 bond issue, and he doesn't mention the activity we'll lose in the future in order to pay for this bond issue.

As the residents of Wichita consider whether to vote for the $350 million school bond issue proposed by the board of USD 259 (Wichita Public Schools), be aware that the bond issue and its associated increase in property taxes is not the only tax increase the public schools in Kansas would like to have. The following article from Karl Peterjohn explains.

Tax Funds Being Spent To Push For Kansas Tax Hike
By Karl Peterjohn, Kansas Taxpayers Network. Released September 20, 2007.

Your tax dollars are being used to push for an increase in Kansas income taxes. Do you want your tax money spent on raising your taxes?

This tax hike plan was initially reported by in the Hawver’s Capitol Report (www.hawvernews.com) state capitol newsletter August 27. The Kansas Association of School Boards (KASB) is seeking another statewide income tax hike. This tax hike would be used to provide more state tax dollars to the 296 Kansas public school districts.

News Release: Kansas Taxpayers Network Opposes New Tax On Elderly

A proposal to raise a new "assessment" or tax on nursing home bound Kansas elderly will have its first hearing in front of the Kansas senate's Ways and Means Committee February 14. The new charge on nursing home residents will total $1,733.75 a year or $4.75 a day if the proposed bill, S.B. 585, becomes state law. Nursing home operators would be required to collect this charge from nursing home residents who are not covered by Medicaid or are in a veterans home. This legislation is structured to turn the nursing homes into unpaid tax collectors for the state and make them the fall guys by having this new charge hidden in their current bills.

In the past few weeks a handful of companies in Wichita have asked to be exempted from paying property taxes on investments they have made. This week Wichita may decide to grant special tax treatment to a large development in downtown Wichita.

Is it wise for the City of Wichita to grant these special tax favors?

Because capital for investment is in short supply, it is important that our economy allocate it where it does the most good, where it is valued most. Markets do a very good job of this when they operate free of government meddling. When government intervenes, however, decisions about how to allocate investment capital will be made for all sorts of non-economic reasons.

Here in Wichita, for example, there are some who believe that downtown Wichita suffers from underinvestment when compared to some of the city's outlying areas. These people -- many of them holding political office or a quasi-governmental position -- seek to use government and its ability to tax (or not to tax) to achieve their goals. They have passed measures like the sales tax to fund the downtown Wichita arena. Downtown developers and businesses are given tax breaks, tax abatements, and they may obtain low-interest loans backed by the credit of the City of Wichita. A special tax district overlays downtown, with the proceeds being used to promote downtown's interest in receiving more governmental largesse. Downtown is also filled with special tax increment financing or TIF districts, where property tax revenues that would normally be used to fund the general operations of government are instead diverted to enhance the profitability of the developer's project.

All this favorable treatment means that projects that would not be feasible on their own merits are undertaken because they satisfy a political agenda. This results in misallocation of scare capital. It's also not fair to those who risk their own capital without receiving special government favor, meaning that we may have less investment overall in Wichita because of reluctance to compete with tax-favored investors.

This interventionism is also harmful in that it creates a special class of firms: those firms who have asked for and received government favor. They gain a competitive advantage over their direct competitors. As Karl Peterjohn of the Kansas Taxpayers Network has taught me, these firms also have a competitive advantage over other firms of all types in Wichita. That's because firms of all types that don't receive special tax favors have higher overhead, and therefore may not be able to compete with the tax-favored firms in paying attractive wages to obtain employees.

This interventionism is harmful again because it creates a class of political entrepreneurs rather than market entrepreneurs. Instead of seeking to create products and services that please customers, they seek to please politicians and bureaucrats. This behavior, called rent-seeking, produces nothing of value to the economy as a whole.

Furthermore, if what those who seek special tax treatment say is true, that is, that the projects they propose would not be feasible if they had to pay their taxes, we have a serious problem: we have taxes that are so high that they inhibit private investment.

Finally, when government reduces someone's tax and doesn't reduce its own spending, the rest of the taxpayers have to make up the difference.

I propose a partial solution to this problem that will help our leaders become aware of the cost of this problem, and will also alleviate some of the inequity. When the City of Wichita (or any other taxing authority) grants special tax treatment, it must reduce its spending by the same amount. By following this simple rule, the City can be reminded of the cost of granting special tax favors, and the rest of us won't have to pay for them.

On November 6, 2007, the Wichita City Council considered and approved a request by Learjet for industrial revenue bonds. One of the benefits of IRBs such as these is that the property purchased with the proceeds is usually exempt from property tax. In this case, the period of tax abatement is ten years.

In the minutes of the meeting, under the heading "Economic Vitality and Affordable Living" we can read: "Granting an ad valorem property tax exemption and sales tax exemption will encourage the business to create new job opportunities and stimulate economic growth for the City of Wichita and Sedgwick County."

Wow! Someone in city hall realizes that a reduction in taxes is good for business, and is reducing taxes in response to that revelation.

Now if all businesses and individuals could have lower taxes -- instead of only those who lobby government for special favor -- think how nice that would be. The economic benefit that this tax reduction will bring to Learjet could be felt across our entire city.

Taxes in Kansas at an All-Time High
By Dr. Barry Poulson

At no other time in the state’s history have state and local governments imposed such a heavy tax burden on Kansas residents. This year, state and local taxes will capture 11.2 percent of the state’s income.

The graduated income tax contributes to this all time high by creating a boom of revenue and spending during prosperous economic times. In periods of rapid growth, income tax revenue increases faster than income. Excited by these new funds, legislators increase state spending with new or expanded programs to match.

With this boom often comes a bust. In a recession, income tax revenue falls more rapidly than income. Politicians offset the shortfall with “temporary” taxes, fees, and debt. That additional revenue is then built into permanent spending programs, and the “temporary” taxes, fees, and debt rarely disappear. With the exception of Nebraska, the state has raised individual and corporate income taxes more than any other state in the region.

This boom and bust of revenue and spending was especially evident during recent economic cycles. Throughout the 1990’s, the economy grew and revenue increased more than 7 percent per year, outpacing the growth in income of only 5.2 percent. When recession hit in 2001, the state found itself with a shortfall. Most of it was due to declines in personal and corporate income tax revenue. As they had in prior recessions, politicians responded by increasing taxes and fees, and by issuing more debt.

Paralleling the increased tax burden has been an unprecedented increase in the debt burden imposed by the state on its citizens. In 1992, Kansas’ government debt was around $424 million, a lower than average level for a state of similar size. By 2005, debt had swelled to $3.95 billion, an increase of nearly 832 %.

The current budget is projected to incur a deficit of half a billion dollars. During the recent recession, state spending continued to grow despite the fall in revenue. Initially, spending from state general funds decreased as the recession hit, but they have since recovered. Even with a recovery from the recession, revenue growth will not be enough to fund current policies.

In fact, the unconstrained growth of state spending has far outpaced the growth in personal income for the last three decades. Limiting our scope to the last three budget cycles, we find that General Fund spending increased 8.6%, 9.6%, and 8.6%. In the current budget, state General Fund spending is projected to increase an incredible 18%, far outstripping the growth in the state economy.

In recent years, Kansas has been in a race to the bottom to become the most heavily taxed state in the region. While Kansas has been raising taxes and adding debt, surrounding states have pursued more prudent tax policies.

The sharp increases in spending, taxes and debt have resulted in a decline in the state’s business climate. Throughout the last decade, Kansas has consistently ranked among the bottom group of states in business tax climate. Among the surrounding states, only Nebraska has a lower business tax climate ranking.

Kansas has been an underachiever in economic growth during the past decade. The difference is exacerbated when compared to the more rapidly growing neighboring states like Colorado. At one time, Kansas had a larger population and higher Gross State Product than Colorado. As Colorado’s individual and corporate income taxes were reduced, their population and Gross State Product outgrew Kansas.

A heavy tax burden is a major factor contributing to slower growth in some states, and Kansas in recent years has fallen into this category of one of the nation’s heavily taxed states.

Dr. Barry Poulson is a professor of economics at the University of Colorado and a distinguished scholar with Americans for Prosperity.

More Taxes For Wichitans
By Karl Peterjohn, Kansas Taxpayers Network

Expanding gambling in Sedgwick County will lower taxes and provide “…tax relief…,” according to casino advocates’ campaign flyer. This claim is preposterous in light of the soaring property tax hikes and spending expansion plans being generated by local government in our community.

Historically it is also ridiculous when taxes in general and property taxes in particular rose following the passage of the state lottery in the 1980s. Gambling proponents campaign does raise some key questions for this community’s tax status and overall fiscal climate.

In 2006 Sedgwick County commissioners unanimously raised their mill levy 2.55 mills despite a public outcry and uproar opposing this hike. Two commissioners were then removed from office in the 2006 elections because of the county’s property tax hike. This mill levy increase was on top of soaring property tax appraisals that provide additional taxes for the county’s proposed $386.5 million budget a 5.8 percent hike.

The City of Wichita’s 2008 proposed budget is $495.62 million and this is an increase of over $100 million from the 2006’s $390.1 million. City spending is soaring with a two-year increase of 27 percent and an increase over last year’s revised budget of slightly less than 15 percent. There are a large number of new spending proposals pending at city hall too including $24.5 million for the county’s arena project and $290 million to remodel Century II in a few years.

The Wichita public schools are now proposing a two mill property tax hike (many other Wichita area public school districts are also seeking more property taxes too). This is on top of the $24.6 million increase in state tax funds for USD 259. USD 259 plans to hire 163 new employees for a school district with a gradually declining enrollment.

Despite having an opportunity to place this issue before voters August 7, none of the districts decided to let voters have a say in deciding the fate of school tax hikes. Once again, Wichita area voters were disenfranchised. I don't recall hearing any of the school board or Wichita municipal candidates running in last April’s election campaigning on a platform of raising property taxes in particular or backing tax hikes in general at our public forums.

Wichita public schools had massive spending growth over the last few years. The district’s first budget over $300 million was in 2000-01. The first $400 million budget was in 2005-06. The first official $1/2 billion school budget is this year (but if all tax funds were included this actually took place two years ago).

If additional tax funds from Washington and pension tax funds from Topeka are added these figures are much larger. The official USD 259 proposed budget is just under $516 million but if the “off budget” tax dollars are included this figure grows to $577 million.

If all tax funds are included and enrollment remains the same as last year, spending will be close to $13,000 per FTE pupil annually. If only the “official” spending figures are used the spending will be over $11,600 per FTE pupil annually in Wichita.

In our community government growth is on tax steroids while the private sector struggles with the same growing energy, health insurance, and utility costs that are the justifications being used to raise taxes. Big government in Wichita puts us at a competitive disadvantage compared to similar sized communities in our neighboring states where voters decide the fate of tax increases. This increases the risk and uncertainty for Wichita firms, while it limits economic growth in our community.

An article in the April 22, 2007 Wichita Eagle by Dion Lefler states: "All together, those [tax] cuts will cost the state $570 million in lost revenue in the next five years, according to the consensus report estimates."

A statement like this reveals a faulty line of thinking: that the government has a legitimate claim on a large part of our incomes and wealth. Then if, somehow, the government is persuaded to “give” any of that claim back to us, this gift has to be paid for.

It's the people who “give” tax money to the government, not the government who “gives” it back to the people in the form of tax cuts. If the government cuts taxes, the government gives us nothing. It simply takes less of what is ours in the first place.

Liberal publications with a national audience like The New York Times use thinking like this all the time. It's very disappointing to see it at home in Wichita and Kansas.

This backwards thinking about taxes was also revealed in reporting by David Klepper in the May 12, 2006 Wichita Eagle: “They [Kansas lawmakers who supported the cuts] consider the cuts a wise, $128 million investment to spur new investment by business, new jobs, more economic activity and, consequently, higher tax receipts.”

In the same article: “Gov. Kathleen Sebelius, a Democrat, who first proposed the business machinery tax cut, agreed. 'We're not giving away money for the sake of giving it away,' she said. 'I'm hoping that the economic growth will actually help fund the school plan that we just passed.'" (emphasis added)

It is depressing to realize that the Governor of Kansas equates letting people keep a little more of the money they earned with the state “giving it away.”

Furthermore, the true motives of politicians are revealed: they say they are “investing” in tax cuts in the hope that the state will collect even more tax money in the future.

We should be asking this question of our elected representatives: If tax cuts stimulate investment, jobs, and economic growth, why didn't you cut these burdensome taxes last year?

Dan Mitchell of the Center for Freedom and Prosperity writes:

A column in the Wall Street Journal explains how certain tax cuts generate additional growth and thus lead to some degree of revenue feedback to the Treasury. The authors point out that higher taxes, by contrast, would impose harsh costs on the economy for every dollar collected by the IRS:

...a recent study by Gregory Mankiw, an economist at Harvard...concluded that a $1 tax cut on dividends would reduce government revenue collections by about 50 cents, after taking into account taxes on $2 of additional economic growth induced by the tax cut. A $1 tax cut from an across-the-board rate reduction would cost the IRS about 77 cents, after taking into account taxes on the 95 cents of additional economic growth induced by the tax cut. ...If Congress is willing to forego 50 cents of revenue, the economy would grow and people would have $2 more income. If given the choice, most people would take the $2. Now apply the conclusions of the Mankiw study in reverse -- to tax increases. The results illuminate the high costs of providing the government with an additional $1 to spend. A purported $1 tax increase on dividends only nets the Treasury 50 cents -- but costs Americans $2 in lost income, plus 50 cents in tax. When a higher rate is levied on all forms of income, an attempted $1 tax increase yields only 77 cents -- but costs Americans 95 cents in lost income plus 77 cents in tax. If the government were to kick up the tax increases enough to collect a full additional $1, the cost to the public would be between $2.25 and $5, counting both tax paid and income lost. A May 2006 study by Harvard's Martin Feldstein, "The Effect of Taxes on Efficiency and Growth," confirms the disproportionately large economic losses associated with tax increases. blockquote>

online.wsj.com/article/SB117668162125270737.html (subscription required).

Pay As You Go?
By Karl Peterjohn, Kansas Taxpayers Network

On the rare occasions the mainstream national news media bothers to cover federal spending and taxes you are sure to hear the phrase, “pay as you go,” as the primary talking point of the new congressional Democratic majority. This phrase is supposed to reassure us now that the profligate “Bridge to Nowhere,” free spending Republicans have been relegated into the minority.

New York City Congressman Charlie Rangel, who now heads the powerful tax writing house ways and means committee, wants to dismantle the most successful legacy of George W. Bush’s administration, the 2001 and 2003 federal tax cuts. These tax cuts are scheduled to expire because of arcane congressional budgeting rules. However budgets must be enacted now and not put off until after the 2008 election.

Liberal North Dakota Senator Byron Dorgan, who heads up the budget committee in the senate, is joining Representative Rangel in this push. While the national “news” media is focused upon Al Sharpton’s take on the Don Imus firing or the latest DNA results from the Bahamas, there is a large federal tax hike in your future as well as increased IRS powers to enforce tax laws.

Congressional liberals want you to “Pay MORE as you go,” and the lower federal income tax rate of 10 percent, increased child credit, and pro growth capital gains and dividend tax rates from the 2003 Bush tax cuts are all likely to be allowed to expire. The left wing blogosphere is determined to eradicate every last accomplishment of the Bush presidency.

March 28 the Heritage Foundation’s 2008 budget report warned, “The budget blueprint reported out of the House Budget Committee last week and supported by Democratic leadership is a study in fiscal irresponsibility ... the House budget resolution boosts discretionary spending, does nothing to tackle out-of-control entitlement spending, and, worst of all, would impose the largest tax increase ever on the American people.”

A few days later the Wall Street Journal warned their readers, “The Bush tax cuts don’t expire until 2010, and Democrats aren’t about to tip their tax hand before the 2008 election. But under cover of zero media attention, Democrats are constructing a budget process that will make a tax increase all but inevitable.”

“The ploy here is ‘pay-as-you-go’ budget rules that Democrats are implementing in the name of ‘restoring fiscal responsibility.’ A few journalists even quote that phrase with a straight face. But everyone in Washington knows that ‘paygo’ is all about making tax cuts more difficult and not about slowing the growth of spending,” the journal editorialized.

The Heritage Foundation report criticized the Democrat budget, “...the (2008 proposed) budget assumes tax increases of $900 billion over five years which would be accomplished in part by allowing the 2001 and 2003 tax cuts to expire.” The U.S. economy has enjoyed solid growth and lowering unemployment rates ever since the 2003 tax cut was enacted. Federal budget deficits have also fallen despite bipartisan fiscal spending growth since 2004 too. This reduction in federal deficits has occurred because tax revenue growth grew more rapidly than federal spending hikes.

Fiscally responsible and informed citizens need to know, “…that the tax increase fuse has now been lit. Do nothing and taxes will rise as much as they have at any one time since World War II. Democrats have made the decision to obscure this burning fuse
and the press corps is ignoring it. But that doesn’t mean the rest of the country has to play along….It’s a debate we should start having now, before the fuse burns down,” the Wall Street Journal warned April 5.

Kansans reading these words have now been warned. Tax and spend has returned with the Democratic majority that is now controlling congress.

As the annual tax deadline is upon us, we should take a moment to examine our level of awareness of the taxes we pay.

Many families don't pay any federal income tax. According to a study by the Tax Foundation (link: http://www.taxfoundation.org/ff/zerotaxfilers.html) 58 million households, representing some 122 million people, or 44 percent of the U.S. population, pay no federal income tax. I made a few calculations, and Kiplinger's TaxCut software for 2004 shows that a family with two children and $40,000 income (that's approximately the median household income in Wichita), taking the standard deductions, pays $0 federal income tax.

These families probably do pay quite a bit in the form of Social Security tax, but as we're told, that's not really a tax. Instead, it's the government saving for our future retirement. (I can't write that and keep a straight face.)

For those who do pay taxes, they often aren't aware, on a continual basis, of just how much tax they pay. That's because for wage earners, federal and state taxes are conveniently withheld for us on our paychecks. Many people, I suspect, look at the bottom line -- the amount they receive as a check or automatic bank deposit -- and don't really take notice of the taxes that were withheld. This makes paying taxes almost painless.

For local property taxes, anyone who has a mortgage probably has these taxes incorporated into their monthly mortgage payment.

An alternative would be to eliminate the withholding of taxes from paychecks and from monthly mortgage payments. Instead, each month or year the various taxing governments would send a bill to each taxpayer, and they would pay it just like the rest of their periodic bills. In this way, we would all be acutely aware of just how much tax we pay.

A curiosity is that many people are happy during tax season because they get a refund. And they're delighted to get that refund, so much so that many will pay high interest rates on a refund anticipation loan just to get the money a little earlier. The irony is that by adjusting their withholding, they could take possession of much of that money during the year as they earn it.

The other people happy during tax season are tax preparers. As a country we spend an enormous effort on tax recordkeeping and compliance. Another study by the Tax Foundation estimates that in 2002 we spent, as a nation, 5.8 billion hours and $194 billion complying with the federal tax code. (5.8 billion hours is equivalent to about 2,800,000 people working 40 hours per week, 52 weeks per year.) By simplifying our tax code, we could eliminate much of this effort, and return that effort to productive use.

Since tax withholding from paychecks and mortgage payments reduces our awareness of just how much tax we pay, it's unlikely that governments will stop the withholding of taxes and submit a bill to taxpayers. Instead, it's left to ourselves to remain aware of how much we are paying.

Are You a Second Class Kansan?
By Karl Peterjohn, Kansas Taxpayers Network

The Kansas legislature is in the process of deciding how wide the separation will be between various classes of Kansans. State Senator Peggy Palmer, R-Augusta, and State Representative Judy Morrison, R-Shawnee, introduced bills in their separate legislative houses that would have exempted social security payments from the Kansas personal income tax this year.

Both bills attracted numerous co-sponsors for this tax cut proposal with a $19 million price tag. The intent was to eliminate the disparate treatment that exists in Kansas income tax law that exempts government pensions while taxing social security. Private pensions in Kansas are also taxable, but this bill does not address the entire disparity, just the social security portion.

So government employees are granted a large tax break while citizens working in the private sector are expected to pay more. What is particularly outrageous about this disparity is the fact that folks with modest social security and private pensions are already paying substantially more in Kansas income taxes than, say a retired Kansas Supreme Court justice or a retired university professor.

Now, everyone who pays into social security will be charged at both ends. They are taxed on their income when paying into social security while they are also taxed when receiving a social security check. Public employees are only taxed when they pay into their KPERS state/local pension contributions, but their government pension checks come back tax free.

The private sector pensions and social security payments are taxed. In addition, additional state tax funds are needed by the state to make up for the unfounded liabilities within KPERS. Another pension cost is for the occasional “bonus” checks the legislature provides to government retirees that are most frequent in the fall of even numbered years when elections are pending. That price tag is another burden for the second class private sector citizen to pay in Kansas. The private sector also lacks civil service job protections too.

Opposition to the Palmer-Morrison bills is coming from self-described “moderates” in both parties who are worried about excessive tax cuts as they get ready to debate whether state spending should grow as much as 9 percent and top $6 billion in the General Fund for the first time, or some smaller amount that might increase state spending by “only” 4.5 percent. Should state spending grow $250 million (4.5 percent) or over $500 million?

Liberal Senator Janis Lee, D-Kensington, opposes exempting social security in the senate tax committee. Senator Lee believes that many low income folks are already exempt and this proposal would benefit, “the rich.” Apparently, the middle income folks with private pensions and social security should continue to pay more than retired bureaucrats and university professors from the Regents Institutions.

In Kansas, the citizens who have worked in the private sector are second class citizens expected to pay more than their more affluent neighbors with government pensions. This is unfair. This is another reason that private sector Kansans have a tendency to retire to states with more equitable fiscal climates.

Kansas Lags Fiscally Again
By Karl Peterjohn, Kansas Taxpayers Network

Kansas is once again falling behind. The growth in state tax receipts has allowed the legislature to increase state spending. This revenue growth could also provide some much needed tax relief to try and make this state’s fiscal climate more competitive.

This is an urgent priority that is coming home to folks in Topeka as a recent major employer in Topeka, Payless ShoeSource Inc., announced a distribution center will close and that will cost that community as many as 550 jobs. Businesses restructure all the time but losing all of these jobs at one time should get the attention of this state’s leaders. This loss hurts.

Triple taxation of business revenue and assets by the state helps make Kansas an uncompetitive state. Business property taxes, business income taxes, and taxes on assets through the state’s business franchise tax are all significant burdens. Governor Sebelius has proposed cutting the state’s franchise tax by $7 million or about 15 percent. In addition, she has also proposed a small reduction in the state corporate income tax that would be paid for by eliminating some corporate income tax credits.

A surprisingly unified Republican caucus on Valentine’s Day had all house Republicans and about a 1/4 of house Democrats voting for a bill that would cut the business franchise tax by over $15 million and begin a three year phase. In three years, Kansas would join the other 30 some states without this tax. A number of legislators are also looking at trying to reduce property taxes and the tax burden on the elderly so broad based tax relief is provided too.

Kansas tax law discriminates against seniors receiving social security and private pensions. Kansas personal income taxes are owed by Kansans receiving social security and private pension income. Government pensions for federal, state, and local government employees are exempt from the state income tax.

This is unfair. This is another way that Kansas treats government and government employees better than taxpayers and private pension recipients. Bills are pending in both the house and senate tax committees that would add social security payments to the tax exemption. State Senator Peggy Palmer, R-Augusta, and Rep. Judy Morrison, R-Shawnee, are leading the push for this tax reform. A large number of their colleagues have joined them as co-sponsors in pushing for this $18 million tax cut.

Senate leadership has been telling legislators not to pass more than $15 million in tax cuts this year. That’s only about 5 percent of the revenue growth. The bipartisan senate leadership under Senate President Steve Morris, R-Hugoton, that got a huge $466 million state school spending hike enacted last year, wants to limit tax cuts.

Fiscal conservatives in the Kansas legislature want at least $60 million or 20 percent of the windfall revenue created by growth in the state’s economy returned to taxpayers.

Making the Kansas economy competitive is a critical, but tax reform is also a regional issue too. Democratic Governor Mike Beebe of Arkansas has just forced through that state’s Democratic controlled legislature a $319 million package of individual and business tax cuts to make Arkansas’ economy more competitive. Arkansas recently passed Kansas in population and is projecting a large $840 million state surplus this year.

The Republican Governor of Nebraska is pushing for over $240 million in across the board income tax cuts and an end to state death taxes to make Nebraska more competitive. This would follow in the footsteps of the large income tax cut and death tax abolition enacted last year by Oklahoma’s Democratic Governor and Republican legislative leadership in Oklahoma. Last year Texas with Republican Governor Perry and that state’s GOP controlled legislature passed over $11 billion in mainly property tax cuts.

Our neighbors are serious about becoming fiscally competitive. In Kansas, it looks like all too many leaders including the Democratic Governor and Republican Senate President are concerned about growing spending and throwing a few small crumbs to taxpayers. There is a real need at the statehouse to focus on this state’s economy by enacting significant tax cuts that will improve this state’s dismal fiscal climate.

Tax Growth Exceeds Income Growth
By Karl Peterjohn, Kansas Taxpayers Network

Kansas Legislative Research is reporting that state and local taxes grew 9.83 percent last year. That is a major reason the state has $300 million in revenue growth to either spend or return to the folks who earned it: taxpayers. It is clear that Kansas has some sizable economic problems facing this state.

Governor Sebelius’ State of the State speech did recommend some business tax breaks but there does not seem to be any breaks for the average taxpayer. In fact, the opposite is true as spending proposals for “universal health care,” a $700 million regents building request, and the rest of the K-12 spending on public schools in the wake of the Kansas Supreme Court’s spending edicts each have the potential to easily exceed the $300 million growth.

Do any of these folks remember the children’s tale about the goose that laid the golden eggs?

The Kansas economy is growing, although nowhere near the almost 10 percent growth enjoyed by 2006 revenues. The fastest growing tax is the state’s corporate income tax that grew over 54 percent in 2006. The tax on financial institutions saw revenue growth in excess of 40 percent. Both of these rates are highly dependent upon the underlying economy and these increases are based on relatively weak state tax revenues in the previous few years.

Another fast growing tax was the severance tax on oil and gas. That rose over 29 percent last year. High energy prices are good for the high state energy taxes. These are all reasons explaining the growth in tax revenues.

State Senator Jim Barnett was unsuccessful in convincing voters that high Kansas taxes place this state’s economic future in jeopardy. While Barnett may have failed at convincing a majority of voters, he apparently succeeded in convincing his opponent, Governor Sebelius, that there is a real problem here. She has now proposed reductions in the state’s business franchise, corporate income, and unemployment tax placed on business in her 2007 State of the State speech.

Several recent national fiscal surveys have pointed out that Kansas’ fiscal climate is not conducive to economic growth and we rank poorly with most of our neighboring states. There is tremendous tax uncertainty that is reflected in both the high level of property taxes in Kansas but the sizable property tax increases that occur through the appraisal process as well as higher mill levies.

All Kansas property taxes grew 7.45 percent according to these state figures. That’s bad news for property owning taxpayers whose incomes were not able to grow that fast. Sadly, that covers a large number of Kansans. If the bulk of the state’s $300 million windfall gets spent on growing Kansas government, the fundamental economic problems will remain.

I received this letter written to Wichita Mayor Carlos Mayans and members of the Wichita City Council. The author makes excellent points about the harmful effects of special tax treatment for special interests. A better goal would be to work to reduce taxes for all companies and all people. This way, each company and individual can decide how to make best use of their own funds, instead of the Wichita City Council deciding for us. That is, in effect, what tax breaks like this do. It is the government deciding that resources should be allocated in a way different than how the market has decided. Our experience tells us that governments aren't as smart as markets, and that governments almost always allocate resources inefficiently.

Mayor Carlos Mayans
Wichita City Hall
455 N. Main St.
Wichita, KS 67202

Dear Mayor Mayans:

Item 27 on the Wichita City Council's December 12, 2006 agenda would have the city council approve a $99 million bond issuance for Cessna Aircraft Co. This is based upon the total $800 million Industrial Revenue Bonds (IRB) for Cessna Aircraft Company authorization approved earlier this year by this council.

If that is the case, the $99 million issuance (100% abatement) being sought will reduce city property tax revenues by my calculations almost $800,000 a year, or roughly $4 million to the city over five years. The total value of the tax break when all units of government are included is much larger.

That is a large tax break for Cessna Aircraft Company. This is a sizable reduction when city property tax revenues were projected at $89.5 million for 2006. According to the largest taxpayer list from the Wichita Business Journal, Cessna Aircraft Company paid $2,484,343 in property taxes in 2005. The abatement being sought is the equivalent of almost 32% of the property taxes paid by this company in 2005.

Earlier this year Mr. Jack Pelton, the President and CEO of Cessna Aircraft Company, provided public testimony in support of raising property taxes in Sedgwick County almost 10 percent. That is certainly a position that both Mr. Pelton and his company may take. According to Textron's 2005 annual report (www.textron.com/resources/textron_annual_report_2005.pdg), the Cessna Aircraft earnings for this publicly traded company were $457 million so they could certainly afford to pay their share of this increase. In fact, they can afford to pay this tax with greater ease than almost every other Wichitan or Wichita based company.

This week Mr. Pelton and Cessna Aircraft's ordinance for this large property tax reduction/IRB for this firm will be in you and your city council colleagues' hands. You and your council colleagues need to know that this tax break demonstrates rank hypocrisy from both Cessna Aircraft and Mr. Pelton. This council item conflicts with Cessna's support for higher property taxes countywide this summer. Mr. Pelton and Cessna Aircraft Company want special property tax breaks that the rest of the citizens in Wichita do not receive.

Two recent national surveys indicate that Kansas has high property taxes. The Tax Foundation (see Special Report 146, Nov. 2006) and the Small Business & Entrepreneurship Council (Small Business Survival Index 2006) have both issued reports showing that Kansas has the overall highest property taxes on a statewide basis of the five states (KS and surrounding states) in our region. Nationally, Kansas was among the top 25 percent of property taxes measured both as a percentage of income or on a per capita basis. Neighboring Oklahoma, in contrast, scored as the 4th lowest among all 50 states.

Kansas has high taxes in general and high property taxes in particular. However, the tax abatement for Cessna Aircraft does not eliminate the tax burden. This tax is shifted onto the backs of homeowners, farmers, and small and medium sized businesses in this community who lack the political clout to receive a property tax abatement. The total tax break for Cessna from all levels of Kansas government is almost $3 million a year or just under $15 million over the next five years (assuming current mill levies). Ironically, all national surveys indicate that small business is more successful in creating jobs than large firms.

So Cessna Aircraft will soon receive another special tax break. This is on top of earlier IRBs issued on their behalf by the city. Other employers will have to pay their property tax plus the share shunned by Cessna Aircraft. Cessna Aircraft's overhead costs are reduced with the property tax abatement. As a result Cessna Aircraft is able to pay employees more and be more selective in hiring. After all, these overhead costs have been shifted onto the rest of the taxpaying community. Businesses without the property tax abatements have to pay higher overhead costs (in the form of higher property taxes) and are at a competitive disadvantage for hiring workers from within this community if they compete with Cessna (or other firms with these tax breaks) in hiring workers.

Special tax breaks for special firms hurt the smaller businesses that compete for labor against these firms. This provides a major warning sign to outside firms that might consider relocating into Wichita. These special tax breaks raise the risk and uncertainty for firms without these breaks in this community. This is a major reason why it is hard to attract firms into the Wichita market.

It is clear that Cessna Aircraft Company's concern about high property taxes does not extend beyond the company's property line. In addition, the cyclical nature of Cessna Aircraft's business has meant sizable and substantial changes in the company's employment. Despite these sizable tax breaks, Cessna's Wichita employment is much lower in 2005 with 8,500 employees than it was five years earlier when Cessna had 12,509 employees. Cessna Aircraft's employment figures have changed dramatically according to the Wichita Business Journal's employment figures. The numbers change substantially annually.

That is another reason why Cessna Aircraft Company needs to shift their overhead costs onto the rest of the community. Companies that engage in widespread "hiring/firing" binges have a harder time attracting and keeping workers. This is especially true for skilled and highly educated workers. If they pay the same overhead costs as the other firms seeking Wichita area workers, they have a problem finding workers. Cessna needs to be able to offer extra wages and/or benefits to attract workers into this type of cyclical company.

There is no reason that Cessna Aircraft Company's self imposed problems should be shifted onto Wichita area taxpayers at large. Cessna Aircraft Company has testified in support of raising property taxes in this community. The Wichita city council should reject their request for an additional property tax abatement, and welcome them into the high property tax environment that they supported in front of the Sedgwick County commission this summer. Help Cessna Aircraft Company end their policy of tax hypocrisy and their plan to shift higher taxes onto the non-abated firms and the rest of the citizens in this community.

Maximum Taxes Means Minimum Growth
By Karl Peterjohn, Kansas Taxpayers Network

Kansas has high taxes. Even worse, the high taxes are high property taxes that stifle capital formation and hold down wages. Two new studies rank Kansas at the bottom of this region when it comes to soaring property taxes. That should not be too surprising since Kansas and Nebraska are the two states that provide their citizens will almost no opportunity to vote on whether or not property taxes should be raised.

The Tax Foundation as well as the Small Business & Entrepreneurship Council both issued reports recently pointing out Kansas’ high property tax status. The Tax Foundation measured property taxes per person as well as a percentage of income and Kansas scored 13th and 14th highest among the 50 states and the District of Columbia on these two measurements.

All of the surrounding states in our region were lower than Kansas. Nebraska came closest to Kansas with slightly lower property taxes than Kansas. Oklahoma easily had the lowest property taxes in this region scoring 47th out of the 50 states and the District of Columbia, according to this Tax Foundation study using 2004 federal tax data.

High property taxes are a major burden stifling economic growth. So it really should not be a surprise that Kansas has had lagging growth for quite a while. While federal tax revenues have grown 30 percent over the last two years, Kansas growth has been less than 2/3 the national rate. That type of stagnation occurs when taxes are excessive.

Confirming the Tax Foundation was the Small Business & Entrepreneurship’s 2006 study ranking the business climate in all 50 states. The SBE property tax data also ranked Kansas with the 13th highest property taxes in the country. Nebraska was 18th, Colorado 33rd, Missouri 40th, and Oklahoma 47th.

If a business has a bad year and loses money, there is no corporate income tax due. The corporate income tax is paid only when a profit is made. Property taxes ignore profits or the lack thereof. These taxes must be paid regardless of the success or failure of the business, farm, or family.

Kansas high property taxes make this state a much harder place to successfully operate for the average business. In addition to having higher property tax rates, the fact that citizens do not get to vote on raising property taxes makes it easier to raise these rates even higher and this increases the uncertainty and risk of operating a Kansas business.

In the second largest county in Kansas, Sedgwick County commissioners took up a proposal to raise county property taxes as much as 14 percent last summer. The unanimous and bipartisan five member commission voted to raise the property tax over eight percent. This was in addition to the automatic property tax hike through higher appraisals that totaled six percent.

If Sedgwick County voters would have had the opportunity to vote on this tax hike, it is likely that this tax hike would have been defeated. Two of the three incumbent commissioners who were up for reelection who voted for this tax hike lost their office to challengers who opposed that tax hike and pledged not to make any further increases.

The largest private employer in Sedgwick County covering the Wichita area is Cessna Aircraft. Cessna and other large aircraft firms testified in support of raising this property tax to get taxpayer subsidies for training aircraft workers in this highly cyclical industry. Cessna President Jack Pelton personally testified in support of raising property taxes to subsidize his business by expanded worker training programs.

The aircraft industry layoffs in the Wichita area followed the September 11 attack and the 2000 recession. Since 2005 the aircraft industry has been on a cyclical rebound.

The Wichita aircraft industries were back in front of the Wichita city council seeking hundreds of millions of dollars in property tax abatements in November. Sadly, this segment of big business in Kansas is supportive of higher property taxes for everyone else besides themselves.

Cessna has over 8,000 Wichita area employees. This is down several thousand from 2001. However, despite the declining workforce, the demands for special property tax breaks for Cessna and other aircraft firms continue to grow. Small business, homeowners, and other property taxpayers get to make up the difference for these corporate tax hypocrites. That shift in the tax burden is not apparent when examining Kansas’ overall property tax rating. This makes Kansas’ effective tax rate much higher for the Kansans excluded from the special property tax breaks. These are all reasons why Kansas growth lags.

Please note that in your report "Kansas Governor Kathleen Sebelius, Opponent of Liberty" the 5th paragraph makes a statement that I think is in error.
--------------------------------------------------------------------------
"As poor as our economic growth and job growth has been recently, it would undoubtedly have been worse had our governor been able to pass the tax cuts she proposed." ?????????
------------------------------------------------------------------------
I think you ment to say:
"As poor as our economic growth and job growth has been recently, it would undoubtedly have been worse had our governor been able to pass the tax increases she proposed."
----------------------------------------------------------------------------
You may want to issue a correction to this report.
A good article and very true except for the one error.
Frank From Independence Kansas

Recently the City of Wichita formed a TIF (tax increment financing) district to aid a developer who wishes to build in the College Hill neighborhood.

How does a TIF district work? The Wichita Eagle reported: "A TIF district doesn't cost local governments any existing tax money. It takes property taxes paid on new construction that would ordinarily go into government coffers and redirects it to the bond holders who are financing the project."

In the present case, the value of the benefit the developer sought is estimated to be worth $3.5 million to $4 million. Whether this benefit is given at no cost to existing government, as The Wichita Eagle article implies, is open to debate. If the new development does not use any local government services, then perhaps there is no cost in giving the benefit. But if that's true, we might ask this question: if the development does not consume any government services, why should it have to pay taxes at all?

There is evidence that TIF districts are great for the developers -- after all, who wants to pay taxes -- but not so good for the rest of the city and county. The article "Tax Increment Financing: A Tool for Local Economic Development" by economists Richard F. Dye and David F. Merriman states, in its conclusion:

TIF districts grow much faster than other areas in their host municipalities. TIF boosters or naive analysts might point to this as evidence of the success of tax increment financing, but they would be wrong. Observing high growth in an area targeted for development is unremarkable.

So TIFs are good for the favored development -- not a surprising finding. What about the rest of the city? Continuing from the same study:

We find evidence that the non-TIF areas of municipalities that use TIF grow no more rapidly, and perhaps more slowly, than similar municipalities that do not use TIF.

So TIF districts may actually reduce the rate of economic growth in the rest of the city.

There's also evidence that TIF districts are simply a transfer of wealth from the taxpayers at large to a privileged few. In the paper titled "Do Tax Increment Finance Districts in Iowa Spur Regional Economic and Demographic Growth?" by Iowa State University economists David Swenson and Liesl Eathington, we can read this:

There is indirect statistical evidence that this profligate practice [establishing TIF districts] is resulting in a direct transfer of resources from existing tax payers to new firms without yielding region-wide economic and social gains to justify the public's investment.

This analysis suggests that the enabling legislation for tax based incentives deserves revisiting. ... there is virtually no evidence of broad economic or social benefits in light of the costs.

In the present case in Wichita, the developer says that without the benefit the TIF provides, the project is not economically viable. This is the standard rationale given for the requirement of the TIF district. Without the TIF, the development would not take place.

It may be true that this project in College Hill is not economically viable. If so, we have to wonder about the wisdom of investing in this project. More importantly, we should ask why our taxes are so high that they discourage investment and economic activity.

It may also be that the developer simply wishes to gain an advantage over the competition by lobbying for a favor from government. As government becomes more intrusive, this type of rent-seeking behavior is replacing productive economic activity.

There is one truth, however, if which I am certain: when businesses and individuals pay less tax, they have the opportunity to invest more. TIFs and tax abatements are tacit recognition that the cost of government is onerous and serves to decrease private economic activity and investment.

Here's a better idea: reduce taxes for everyone, instead of only for companies and individuals that are successful in extracting favors from our local governments.