Happy Fiscal New Year, Kansas (not)

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A Kansas public policy group celebrates tax increases. But it isn’t enough, and more reform is required.

Kansas Center for Economic Growth has promoted higher taxes in Kansas for many years, and this year it got its wish. Here are a few remarks based on its self-congratulatory article titled “Happy Fiscal New Year, Kansas.”

KCEG wrote: “Kansas is now better positioned to provide great schools”
Wait a moment. I thought Kansas already has great schools. That’s what the Kansas public school establishment tells us.

And I think that the author made a mistake here. Instead of writing about “public schools,” the author mentions — simply — “schools.” Usually the Kansas public school establishment is careful to qualify their plea for more school spending with “public.” To them, spending on private schools or charter schools is money wasted, money that should have gone to public schools. Fortunately, and amazingly, the tax credit scholarship program, a program limited to students currently in low-performing schools, was expanded slightly. 1

If KCEG really wanted to promote great schools in Kansas, it would embrace school programs such as charter schools.

KCEG: “vibrant communities”
Here, KCEG believes that taking more money from the private sector through taxation and letting government spend it is “vibrant.” But how does government work? In a democracy, a majority forces its will on the minority. Or, special interest groups intensely lobby for benefits at the expense of everyone else. Or, a form of the precautionary principle tamps down sparks of innovation in government bureaucracies, like public schools. Government is the opposite of “vibrant,” which the dictionary defines as “full of energy and enthusiasm.”

KCEG: “It also phases in the restoration of an important tax credit and three deductions that were eliminated in 2012 to pay for tax breaks for the wealthy.”
In 2012 everyone’s taxes were cut. Aside from that, we don’t pay for tax cuts. We pay for the cost of government.

When someone says we must pay for tax cuts, it presumes that tax cuts have a cost. The only way this makes sense is if we believe that the state has first claim on our incomes. The state takes what it says it needs, and we get to keep the rest. If the government is ever persuaded to reduce its claim on our incomes, that has a cost that must be paid in some way.

But for those who believe in self-ownership, this is nonsense. It’s the people who “give” tax money to the government, not the government who “gives” it back 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.

But the attitude of many government officials is the opposite. In 2006 Kansas cut taxes on business equipment and machinery. At the time, the Wichita Eagle reported: “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)

(By the way, this sounds like Sebelius was planning for tax cuts to pay for themselves.)

KCEG: “This means looking beyond income tax reforms and rebalancing Kansas’ ‘three-legged stool’ by addressing problems with the state’s sales tax and property tax.”
The three-legged stool is one of the most inappropriate analogies ever coined. If the state of Kansas were to develop an additional source of tax revenue, say by slapping a tariff on Budweiser imported from Missouri or Coors imported from Colorado, we’d hear spending advocates like KCEG speaking of the virtue of a stable four-legged chair. Many states thrive without one of our three legs, the income tax. And if we’re looking for stability, as Hineman mentions, income taxes are quite volatile compared to the other legs. 2

KCEG: “To pay for the Governor’s irresponsible and steep income tax cuts”
Again, we don’t have to pay for tax cuts. But there was irresponsible behavior, that being to continue to spend and avoid serious attempts at spending reform.

KCEG: “In response to the ongoing budget crisis, the sales tax was increased in 2015 to offset lagging state revenue. This affected every Kansan in every county, but especially hurt low-income residents.”
Here, KCEG is correct. The state should not have raised the sales tax, and the state needs to work on lowering the sales tax rate on groceries. For more on this topic, see Wichita sales tax hike would hit low income families hardest and Kansas sales tax has disproportionate harmful effects.

(Actually, KCEG is not totally correct. The sentence should have ended with “… to continue to pay for wasteful state spending because the governor and legislature would not seriously consider spending reform.”)

KCEG: “And because of the gamble with income tax cuts”
There was no gamble with income tax cuts, the governor’s boastful claims notwithstanding. 3 The tax cuts did what tax cuts should do: Leave more money in the hands of the people it belongs to.

KCEG: “As a result, property taxes shot up as communities struggled to keep up with the demand for basic services.”
If taxation was shifted from the state level to local levels, that in itself is not bad. In fact, it keeps taxing and spending more closely controlled at the local level, without communities having to fight in Topeka for a share of the state budget pie.

KCEG: “If we want to fully recover from the past five years, tax reform must address sales and property tax problems in addition to income tax issues.”
KCEG doesn’t say what are the problems with sales and property taxes. But I think I know what they believe: These two forms of taxation are too low. They don’t raise enough money from the right people.


Notes

  1. “On and after July 1, 2018, the bill amends the definition of “public school” within the TCLISS Program Act to mean a school identified by KSBE as one of the lowest 100 performing schools with respect to student achievement. It also amends the definition of “qualified school” to require accreditation on and after July 1, 2020. Accreditation must be by KSBE or a KSBE-recognized national or regional accrediting agency. Additionally, the bill expands eligibility for the tax credit to individuals and places an annual cap of $500,000 on contributions.” Kansas Legislature. SB 19: Creating the Kansas school equity and enhancement act, summary. Available at http://www.kslegislature.org/li/b2017_18/measures/sb19/.
  2. Federal Reserve Bank of St. Louis, Gary C. Cornia & Ray D. Nelson. State Tax Revenue Growth and Volatility. 6 Regional Economic Development, 23-58 (2010). Available at https://files.stlouisfed.org/files/htdocs/publications/red/2010/01/Cornia.pdf.
  3. Weeks, Bob. The yardstick for the Kansas experiment. Available at https://wichitaliberty.org/kansas-government/yardstick-kansas-experiment/.

Comments

3 responses to “Happy Fiscal New Year, Kansas (not)”

  1. Matt

    Actually, it wasn’t just the governor who claimed the cuts would be “a shot of adrenaline.” Laffer and Moore, economists who conservatives just obsess over, both said tax cuts would have “immediate” effects. It matters that they said this, because they advised the governor on the cuts.

    Yes, the cuts were a gamble. A gamble that lost badly. Here’s the results from this so-called “shot of adrenaline”:

    — continued out-migration
    — declining share of jobs, GDP, income, population, and so on relative to the US
    — reveneus still lower despite the fact GDP and jobs are (again weakly) up.
    — and upset voters

    I could go on. It’s interesting to see conservatives upset at these “liberal” Republicans, ignoring the fact that liberals were elected because voters were upset and angry over the fiscal mess the governor and prior legislature created.

  2. I wonder, Matt: If Kansas had faced the headwinds it did (oil prices, ag prices, and manufacturing collapse in Wichita) and did so with higher taxes (the pre-2012 taxes), what do you think might have happened?

  3. Matt

    I’m not sure what would happen. We don’t live in an alternate universe. Maybe it would have been the same. Can’t tell ya for sure.

    So you admit that Kansas isn’t a “hero”? That’s what Rex Sinquefield, another figure conservatives adore, said just last year. So I’m confused: Is Kansas a model or not? If these headwinds were such a problem, that didn’t seem to be much a problem just last year, when conservatives were praising Kansas.

    The point is, leading conservatives (Brownback, Laffer, Moore) all said that tax cuts would have quick and lasting results. That didn’t happen.

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