In Kansas, tax reform isn’t exactly playing out the way some lawmakers had hoped. The state that Grover Norquist once called “the starter gun for tax competition” has passed a series of income tax cuts over the past year with the stated goal of eventually eliminating income taxes altogether in the near future. This “race to zero” is well underway in several states with conservative governors and legislatures. Here’s a quick look at how that’s working out so far for Kansas:
A $2.5B budget shortfall
The Kansas Legislative Research Department is projecting a $2.5 billion revenue hole through 2018 because the legislature has yet to figure out an effective way to replace lost revenues as a result of the income tax cuts.
A threatened credit rating
Last month, a state court ruled that the Kansas legislature was breaking the law by underfunding public schools as a result of the income tax cuts, which prompted Moody’s Investors Service to warn of a negative credit risk for the state.
Less funding for public services
Concerns over the state’s credit rating aren’t the only thing that should give Kansans pause. By starving public schools and other services critical to economic success, the state is jeopardizing future growth.
Tax hikes for the poor
By scaling back or eliminating income taxes and moving toward a reliance on higher sales taxes for revenue, Kansas is asking hardworking middle and low-income taxpayers to carry a heavier load than their wealthy counterparts. The sales tax rate might be “flat” – meaning everyone pays it at the same rate – but the impact is not because middle and low-income families actually spend a much higher percentage of their dollars on taxable goods and services.
If any of this sounds familiar, it’s because lawmakers in North Carolina and other states are considering similar plans to reduce income taxes as a way to attract both individuals and businesses. In reality, these plans and the flawed economic theories from which they stem will only serve to shift the load from the wealthy and profitable corporations onto hardworking taxpayers, while also reducing available revenue that states could otherwise invest in services and infrastructure that generate economic growth.
For North Carolina, the “race to zero” might soon be on – but that phrase sure seems likely to take on a different meaning.