Report: Income tax cuts could result in job losses

TOPEKA – If reducing income taxes in Kansas requires big cuts in state spending, it would kill more jobs than it would create, according to a report commissioned by the Kansas Economic Progress Council.

That’s because a lot of government spending initially stays in the state economy as salary to employees and spending on contracts with local vendors. But when people get to keep more of their money, they often quickly send it out of state by buying non-Kansas goods or avoiding taxes by buying online, the study says.

“There’s no question that cutting taxes increases economic activity,” said the report’s author, John Wong, a former Wichita State University professor who is now chair of Urban and Public Leadership at the University of North Texas at Dallas. “But by reducing the rate, you’re also reducing the money coming in. It’s just whether the additional economic activity is sufficient to overcome the loss in money from the rate.”

That’s unlikely, he said.

The analysis comes as a dozens of tax reduction plans circulate the Statehouse, including Gov. Sam Brownback’s heavily-criticized proposal to reduce individual income tax rates and eliminate several popular deductions and credits.

Wong’s report focuses on a bill filed last year that would dial down income tax rates and use a portion of any increased revenues to further drive the rate down. The House approved it, but it stalled in a Senate committee where moderate Republicans hold sway.

For each job created by an income tax cut, 1.63 jobs would be lost via reductions in state spending, the report says.

This year, House Republicans have outlined a tax reduction proposal that includes a tax cut method similar to last year’s bill, although the plan hasn’t been finalized.

The Kansas Chamber of Commerce, which wants to eliminate individual and corporate income taxes, doesn’t buy Wong’s argument.

“Who better can decide how to spend their money? You, businesses or the government?” asked Kent Eckles, a lobbyist with the chamber. “Our members would rather keep more of their own money so they can reinvest it in their business operations.”

Eckles said bureaucrats in the past have claimed schools and roads will draw new businesses in. Kansas has good roads and schools, he said. “But where are the private sector jobs?” he said. “They’re not here.”

Eckles said he hadn’t read the full report, but he said he is skeptical in part because the Economic Progress Council’s sales tax study in 2010 was used as justification for a 1 percent sales tax increase.

KEPC, a not-for-profit organization representing businesses, individuals and some chambers of commerce, also opposed the Taxpayer Bill of Rights, which limits government spending and requires voters to approve any tax increases.

Bernie Koch, KEPC’s executive director, said that his organization is interested in both sides of the equation.

“We’re interested in whatever is accurate,” he said.

In other tax news, The Tax Foundation released a report today that ranks Kansas 25th for overall business tax climate. The state was 21st for individual income taxes and 35th in corporate income taxes.