Kansas Tax Cuts Not Bringing in Expected Revenue

Following the Republicans' 2012 tax cuts, which the Governor said would bring new businesses and jobs to the state and thereby yield higher state tax revenues, those revenues have continued to fall short of expectations as job growth has been virtually non-existent. Over the past year, the state has recorded an increase of only 800 private sector jobs, which translates into growth of a mere one-tenth of one percent.

In order to address this situation, the Governor recently ordered an immediate $17 million reduction to university funding and he has delayed $93 million in contributions to school and community college pension funds. Over the past two years the state also has taken more than $750 million from highway projects in order to fund other parts of the state budget in an attempt to cover the revenue shortfalls. And, in a conservative response we regularly see around the country, the GOP increased the state sales tax and the tax on cigarettes, both of which hurt the average Citizen, while the well-off continue to benefit from the Governor's large income tax reductions.

(Brownback image from AP)

Fortunately, it appears that many Republicans have had enough and many are saying they won't vote for any more budget cuts or for the sale of state assets, both of which the Governor has proposed. One idea gaining favor among those in the legislature is to repeal an exemption that eliminated any income tax on ~330,000 farmers and business owners.

Even the conservative Tax Foundation has conceded in testimony before the legislature that farmers and business owners appear to have pocketed the extra money from those tax cuts rather than use it for expansion - displaying a behavior that a Foundation spokesman characterized as "tax avoidance, not job creation." No surprise to us on that score: when demand is down or an economy is sluggish, businesses rarely increase investment or hire new workers.

Let's hope enough Republicans are coming around and will do what is right for the state, rather than digging in their heels, as the Governor is doing, in support of a failed tax ideology.

UPDATE: February 2015 - Following the massive GOP-sponsored tax cuts in 2012, Kansas tax receipts have continued to fall, leaving the state with a projected $344 million deficit in the coming year. The hoped for economic growth and resulting increase in tax revenues that GOP Governor Brownback projected have not materialized and the state's credit rating was downgraded at the end of last year as a result of the continuing revenue shortfall.

To address this budget deficit, Governor Brownback and the Republican legislature have floated a number of ideas, all of which (no surprise here) hurt the little guy: putting an additional tax on cigarettes and alcohol and cutting school funding and road construction. The latter proposal directly contradicts the governor's assertion during his re-election campaign last year that Kansas roads, something Kansans take great pride in, would not be affected by his tax-cutting program. It also occurs at a time when many states are ramping up these types of infrastructure projects and looking at raising taxes to pay for them.

None of these proposals are gaining favor with the citizens of the state, but Kansans shouldn't be surprised at what their state officials are doing. This is what the radical right believes in and, while many conservatives in Kansas and around the country have criticized what is going on in Kansas, the Tea Party types that govern Kansas today don't seem to care. We'll keep you updated on future developments.

June 2014 - April and May tax receipts in Kansas fell substantially short of the numbers projected by conservative Republican Governor Sam Brownback's administration. Following Brownback's much touted 2012 tax cut legislation, his administration's 2014 budget estimated April/May revenues to be $310 million more than actually received.

Brownback tried to shift the blame to federal tax policy, arguing that Kansans did not claim as many capital gains in 2013 due to fear of a higher federal tax on capital gains. However, having been raised for higher earners in 2012, there was little chance that the federal capital gains rates would go any higher last year.

These Kansas numbers are giving other conservative states pause in terms of implementing similar cuts. For example, Oklahoma Treasurer Ken Miller, a Republican, was quoted in the Wall Street Journal as saying, " Sometimes ideological experiments bring unintended outcomes. I think Kansas is seeing that, and it serves as a reminder for the rest of us."

And it looks like Missouri Democratic Governor Jay Nixon was right to oppose his conservative legislature's attempt to pass tax legislation patterned after that in neighboring Kansas.

As we've said before, there is a sweet-spot to maximize tax revenues, rates that are neither too high nor too low. As with the George W. Bush tax cuts for the rich, which brought in less revenue than the higher Clinton rates (Clinton having produced the first federal budget surpluses in 40 years), Brownback also seems to have gone too far on the low side.