Negotiating between Bad and Worse: More Lessons from Kansas

In 2012, Kansas adopted a tax plan that shifted the state’s tax load to hardworking families and cut taxes for the rich and businesses, leaving the state with a $700 million budget hole.  The plan and debate in developing it was heavily influenced by flawed economic theories that claim tax cuts will generate economic growth. The loss in revenue was supposed to be made up for in increased growth made possible through tax cuts.

As we have written elsewhere the reality has been far different from this promise.  And the likelihood that any other outcome could have occurred belies the best evidence: tax cuts harm economic growth. But more than just the impact of this proposal, there are lessons to be learned from how that plan came to pass.

Governor Brownback started out with a revenue neutral bill which cut the personal income tax, provided a deduction on pass through business income, eliminated itemized deductions and credits, like the EITC, and maintained an increase in the sales tax rate. The House and Senate then put forward their own plans which while similar in theme to the Governor’s plan lacked many of the base-broadening measures as well as the ability to raise the same level of revenue as under then current law. Under the compromise plan, passed by the legislature and signed into law by the Governor, rate cuts and exemption for business income were adopted but without any base broadening or revenue raising elsewhere to make up for the cut.  The result was legislation that didn’t add up.

Even more concerning is that the 2013 developments in Kansas suggest that the Governor will continue to push for even greater reductions in income taxes.  His stated goal is the eventual elimination of the income tax altogether.

As we anticipate Governor McCrory’s proposal on taxes, the process in Kansas should make us wary as well as the potential for there to be stated and unstated goals.  Can reform measures survive the legislative process?  Will the changes made during that process impact the ability of the state to make critical investments this year and in the future?  Who will ultimately benefit from tax changes?

North Carolina already got a head start on Kansas’s flawed plan by exempting the first $50,000 in “pass-through” business income in 2011.  Our analysis finds that this move benefits higher income taxpayers and is likely to have a far greater fiscal impact on our state budget. And proposals to eliminate the personal and corporate income tax already floating in the North Carolina legislature will, like in Kansas, shift the tax load to middle- and low-income North Carolinians.

The tax policy debate in North Carolina is already shaping up to be a negotiation between bad and worse proposals that don’t look at all like reform.  They borrow from states whose tax cuts are delivering worse-not better- outcomes. As Kansas found out last year, the impacts are immediate and far-reaching.

9 Comments

  1. Alex

    February 18, 2013 at 4:26 pm

    The budget deficit projected for Kansas is closer to a manageable $200 million so you must have some old figures Alexandra. The unemployment rate for Kansas is only 5.4% so something must be working pretty good . What you need to look at is California which has high income taxes, high sales and property taxes, and high unemployment which is the true Democratic model. California owes $45 billion in unfunded pension benefits, $ 60 billion in unfunded health benefits, and over $11 billion to the feds for unemployment loans. People and businesses are leaving the state in droves, and it’s ranked last for business in the country. There’s your story Alexandra, not Kansas.

  2. david esmay

    February 19, 2013 at 9:31 am

    Great comparison Alex! California has the eighth largest economy in the world, Kansas doesn’t even have the eighth largest economy in the U.S.. A better analogy would be Texas, led by another bunch of idiot Republiclowns running a 24 billion dollar deficit.

  3. Alex

    February 19, 2013 at 9:48 am

    As usual david , your information is incorrect and about two years old. Texas now has an $ 8.8 billion surplus which looks pretty good compared with most of your bankrupt blue states. You need to come out of your time machine more often.

  4. david esmay

    February 19, 2013 at 11:13 am

    As usual Alex you omit details. Texas legislature only convenes every other year, in 2011 they faced a 27 not 24 billion dollar deficit, so they cut 31 billion, mainly from education and programs for the poor and disadvantaged. That 8.8 billion you are crowing about is from a boon in taxes from oil and gas, not some GOP management wizardry.
    The fact is Blue states support the ignorant Red ones. Of the 32 states that receive more Federal dollars than the contribute, 27 or 84% are Red. Of the 18 states that contribute more than they receive, 14 or 78% are Blue.
    Keep trying Alex, even a blind hog will find an acorn once in a while.

  5. david esmay

    February 19, 2013 at 11:17 am

    Alex, did the actions of Texas legislators improve the overall economy of the state, did it improve the quality of life for it’s citizens? The answer is no.
    That’s why Republican policies are such perfect failures, they achieve them on multiple levels.

  6. Alex

    February 19, 2013 at 11:41 am

    Every time you try to comment on economic issues, either your math is wrong or your numbers are two or three years old. If you like to draw conclusions based on incorrect facts, then no one will take your arguments seriously. Bluster is no substitute for knowing what you are talking about.

  7. david esmay

    February 19, 2013 at 2:22 pm

  8. david esmay

    February 19, 2013 at 2:24 pm

    Alex, every time you comment on any subject it is a rehash of Faux News talking points or misinformation supplied by your employer, Civitas.

  9. gregflynn

    February 19, 2013 at 2:39 pm

    The projection of a $781 million budget deficit in Kansas by 2018 comes from an analysis of the tax plan by the Kansas Legislative Research Division. The deficit projection for 2013 is somewhere between $250 and $300 million. In the last 24 hours we have learned that Brownback has been falsely claiming to have cut government spending in Kansas when the truth is that it has risen relative to his predecessor.