Tax Experiment Proving Troublesome for Kansas EconomyRecent data released by the US Bureau of Labor Statistics shows what we have been saying all along: extreme tax changes do not help the economy, they hurt it.
Reckless Tax Legislation Slashes Funding for SchoolsSeveral bills filed this year propose the same recycled tax policies from last year, except some are even worse, blowing more than a $1 billion hole in the state’s budget. The results are the same too; the policies will take dollars out of classrooms, lead to tuition increases for college students, and stall Missouri’s economy.
If passed into law, the budget-busting tax breaks passed in May during the final hours of the 2014 legislative session and vetoed by Governor Nixon will continue to undermine Missouri’s economy and quality of life. As legislators gather for their party caucuses this week and next and consider whether to attempt overrides of these vetoes, the Coalition for Missouri’s Future urges them to be responsible fiscal stewards and let the vetoes stand.
Missouri is still recovering from the Great Recession with funding for critical public services below pre-recession levels, and these budget-busting tax breaks would trap us in a hole from which we can never escape.
Missouri needs an effective public education system – from quality early learning all the way through world class, affordable colleges and universities – efficient and effective transportation infrastructure, adequately funded social services, and reliable public safety to succeed in the 21st century knowledge-based economy.
Rather than haphazard, piecemeal tax cuts, we encourage the General Assembly to work in a bipartisan manner over the coming months to develop comprehensive economic development and tax policy legislation that invests in education, infrastructure and other critical services for all Missourians, grows Missouri’s economy, and keeps our state competitive.
Vox | “WE’VE GOT RED INK UNTIL THE COWS COME HOME” | By Andrew Prokop
In 2012, Kansas governor Sam Brownback signed a massive tax cut into law, arguing that it would boost the state’s economy. Eventually, he hoped to eliminate individual income taxes entirely. “Our place, Kansas, will show the path, the difficult path, for America to go in these troubled times,” he said.
National conservative activists raved. Patrick Gleason of Americans for Tax Reform said Kansas was “the story of the next decade.” The Cato Institute praised Brownback’s “impressive” tax cuts and gave him an “A” on fiscal policy. And the Weekly Standard’s Bill Kristol said that, if reelected, Brownback would be “a formidable presidential possibility.”
Yet though Brownback is running for reelection this fall in a deep red state, he’s trailed his Democratic challenger in 3 of the 4 most recent polls — and his marquee tax cut appears to be the main reason. Kansas is now hundreds of millions of dollars short in revenue collection, its job growth has laggedthe rest of the nation, and Moody’s has cut the state’s bond rating. “Governor Brownback came in here with an agenda to reduce the size of government, reduce taxes, and create a great economic boom,” says University of Kansas professor Burdett Loomis. “Now there’s been a dramatic decline in revenues, no great increase in economic activity, and we’ve got red ink until the cows come home.”
Brownback’s big tax cut
In his Senate career and his 2008 presidential run, Brownback was best known for his social conservatism. “Not limited government, but compassionate government is Brownback’s chief preoccupation,” the Weekly Standard wrote in 2006. But by the time Brownback was sworn in as governor in early 2011, the national GOP was preoccupied with tax and fiscal issues. And in January 2012, Brownback announced that a major tax cut would be the centerpiece of his agenda.
Brownback’s tax cut proposal came as Kansas’s revenues were on an upswing. Spending cuts and a one-cent sales tax passed by Brownback’s Democratic predecessor had combined with economic growth to give Kansas a surplus. Now, Brownback argued, his tax cuts would lead to even more success. “I firmly believe these reforms will set the stage for strong economic growth in Kansas,” he said.
The governor proposed to cut income taxes on the state’s highest earners from 6.45 percent to 4.9 percent, to simplify tax brackets, and to eliminate state income taxes on most small business income entirely. In a nod to fiscal responsibility, though, he proposed to end several tax deductions and exemptions, including the well-liked home mortgage interest deduction. This would help pay for the cuts.
Yet as the bill went through the state Senate, these deductions proved too popular, and legislators voted to keep them all. The bill’s estimated price tag rose from about $105 million to $800 million, but Brownback kept supporting it anyway. “I’m gonna sign this bill, I’m excited about the prospects for it, and I’m very thankful for how God has blessed our state,” he said.
Democrats, and some Republicans, weren’t buying it. “It bankrupts the state within two years,” said Rochelle Chronister, a former state GOP chair who helped organize moderate Republicans against Brownback’s agenda. And the House Democratic leader, Paul Davis, laid down a marker. “There is no feasible way that private-sector growth can accommodate the price tag of this tax cut,” he said. “Our $600 million surplus will become a $2.5 billion deficit within just five years.” In return, Brownback’s administration claimed the bill would create 23,000 jobs by 2020, and would lead 35,000 more people to move to Kansas.
The tax cut’s consequences
After the cuts became law, it was undisputed that Kansas’s revenue collections would fall. But some supply-side analysts, like economist Arthur Laffer, argued that increased economic growth would deliver more revenue that would help cushion this impact.
Yet it’s now clear that the revenue shortfalls are much worse than expected. “State general fund revenue is down over $700 million from last year,” Duane Goossen, a former state budget director, told me. “That’s a bigger drop than the state had in the whole three years of the recession,” he said — and it’s a huge chunk of the state’s $6 billion budget. Goossen added that the Kansas’s surplus, which had been replenished since the recession, “is now being spent at an alarming, amazing rate.” You can see that in this chart (the surplus is cumulative, not yearly):
Kansas has to balance its budget every year, so when that surplus runs out, further spending cuts will be necessary. The declining revenues have necessitatedextensive cuts in state education funding, according to the Center on Budget and Policy Priorities. Moody’s cutof the state’s bond rating this May was another embarrassment. And the economic benefits Brownback promised haven’t materialized either. Chris Ingraham wrote at Wonkblog that Kansas’s job growth has lagged behind the rest of the country, “especially in the years following the first round of Brownback tax cuts.”
Brownback, like New Jersey Governor Chris Christie, has blamed President Obama for his state’s growing red ink. “This is an undeniable result of President Obama’s failed economic policies of increasing taxes and overregulation,” Brownback’s revenue secretary Nick Jordan said. Brownback’s administration argues that because of uncertainty over the “fiscal cliff” in late 2012, some earners paid capital gains tax early, which depleted 2013 receipts.
These numbers don’t add up. The fiscal cliff was a national event, but revenues fell far more in Kansas than in other states, according to a study by the Nelson A. Rockefeller Institute of Government. Furthermore, Goossen says, “Capital gains are not that big a piece of Kansas income. They don’t even come close to explaining a $700 million income tax collection drop between fiscal year 2013 and fiscal year 2014.”
Trailing in the polls
Brownback’s approval rating has plummeted — in a recent poll by PPP, his 33 percent was actually lower than Barack Obama’s 34 percent approval. This is good news for state House Democratic leader Paul Davis, who announced his run for governor last September. “I’m profoundly troubled by the direction our state has been heading over the past three years,” he said in his first campaign email. “The wealthiest and well connected have gotten all the breaks, and the Kansas economy feels broken.” In the most recent poll of the race, Davis leads Brownback by 6 points.
Though no fundraising numbers for 2014 have yet been disclosed, the 41-year old Davis amassed about $1 million in just a few months last year, nearly matching the governor’s total. (On December 31, Brownbackhad only raised $1.1 million — but then his running mate dropped in a $500,000 personal loan to avoid embarrassment.) “Brownback has never been a great fundraiser,” said Loomis. “I think he’s counting on Koch money, Americans for Prosperity money, to come in — and it will come in.” Labor and liberal outside groups are expected to spend for Davis as well.
Yet while Davis opposed Brownback’s tax cuts, and has been harshly critical of their effects, he hasn’t called for them to be repealed. Instead, he’s said that a new round of cuts should be postponed — and called for a commission to explore reducing local property taxes. So it seems that, regardless of who wins this fall, Kansas will be experiencing the effects of Brownback’s experiment for quite some time.
While we are disappointed that funding for education and other essential state services must be withheld, the Governor’s prudent action today is, unfortunately, necessary given the General Assembly’s irresponsible actions.
Despite clear signs of significant revenue shortfalls and declining revenue in future years, the legislature sent to the Governor an unbalanced FY2015 budget and passed a slew of special interest tax breaks on the last day of session that, combined, will compromise not only the FY 2015 budget, but state budgets for years to come. The result will be a continuing series of cuts to vital public services including education, health and social services, and public safety. Unfortunately, major tax cuts passed this year by the legislature will only make matters worse and continue Missouri on a dangerous path towards serious budget problems similar to what Kansas is currently experiencing.
The Coalition for Missouri’s Future is appalled supporters of state tax cuts would once again bring in an extremist from outside Missouri, as they did with Rick Perry last summer, to attempt to rally support for yet another misguided tax cut scheme.
Leaders from across the state have been speaking out about the devastating impacts of Senate Bill 509. Just last week, civic leaders in Springfield indicated that revenue cuts from SB 509 would:
- “Cost millions – resulting in fewer teachers and larger class sizes” — Nixa Superintendent Stephen Kleinsmith
- “Threaten our ability to provide even the most basic education to Springfield students” — Springfield Board of Education
- Put at risk services to those living with disabilities, “making it more difficult for them to live independently” — Shelby Butler, Southwest Center for Independent Living
- “Be a slap in the face” to seniors with fixed incomes who can’t afford the increased taxes and fees that would likely result from the bill. — Jim Clemmons, AARP
Unlike extremists trotted into Missouri for a dog and pony show, our local leaders understand the disastrous impact of Senate Bill 509 on our children and families.
Who are Missourians going to trust, an extremist from outside the state with an ideological agenda, or the tireless leaders of our communities, who devote themselves every day to educating our children, ensuring that mental health needs are met, and who strive to ensure that our communities are great places to raise a family?
Civic leaders from Southwest Missouri gathered today to express their grave concerns regarding the impact of Senate Bill 509, which if vetoed by the Governor, could soon be the subject of a veto override attempt by the Missouri legislature.
“Senate Bill 509 would result in drastic cuts to classrooms across the state,” said Nixa Superintendent Stephen Kleinsmith. “The state is already underfunding our districts, and this legislation would cost millions – resulting in fewer teachers, larger class sizes, and reduced educational offerings.”
SB 509 is estimated to cost between $620 and $800 million annually when fully implemented. However, a provision recently identified by Governor Nixon’s office could eliminate the top income tax rate altogether, ballooning the impact to $4.8 billion annually. This provision will create years of legal and tax policy chaos and uncertainty, and could be devastating to state services.
“Even the most conservative interpretation of SB 509 would be devastating to the educational opportunities we’re able to provide our students,” said Springfield School Board member Gerry Lee. “As a result, state cuts would put pressure on school boards statewide to ask voters to increase local property taxes to make up for school funding shortfalls.”
Although supporters of the bill claim that so-called “triggers” would protect education and other services, the triggers are really just a smokescreen. The triggers don’t even keep up with inflation, let alone account for already depleted and underfunded services.
“Services that assist individuals living with disabilities have been cut repeatedly during the recessions of the last decade,” said Shelby Butler, Access Coordinator for the Southwest Center for Independent Living. “Additional cuts would damage the quality of life of thousands of Missourians, making it more difficult for them to live independently.”
Missouri’s economy is already outpacing its tax-cutting neighbors. While the wealthiest Missourians might see significant tax cuts, average Missouri families would benefit little. Moreover, while the tax cuts in SB 509 won’t create jobs, the required service cuts will harm Missourians.
“Seniors with fixed incomes can’t afford the increased taxes and fees that will likely result from this bill,” said Jim Clemmons, AARP Regional Volunteer Director. “And for seniors struggling to make ends meet, cuts to services like home-delivered meals and other community supports would be a slap in the face.”