Experts and advocates diverge on tax policy

 

Jonathan Williams, of ALEC, talks with about 40 lawmakers, lobbyists and citizens at a luncheon in Topeka Tuesday.

TOPEKA — States with lower tax burdens and reduced government spending grow faster, a tax policy specialist with the American Legislative Exchange Council told lawmakers Tuesday.

“People vote with their feet,” said Jonathan Williams, who directs the tax and fiscal policy task force for ALEC, a leading limited government think tank. “And people are moving to states with lower rates.”

Williams’ message, which closely matches Gov. Sam Brownback’s message on taxes, comes as members of the House Taxation Committee begin this week to hear the pros and cons of Brownback’s proposal to reduce individual income tax rates, eliminate taxes on most small businesses and make up for reduced tax revenues by scrapping many popular tax credits and deductions. 

Brownback’s plan has faced widespread criticism from those who enjoy home mortgage deductions and from lower-income workers who benefit from the earned income tax credit, both which are on the list Brownback would do away with. And in a news conference Tuesday it faced more push back from a coalition of education, healthcare and clergy groups. (More on that in a bit.)

But there’s agreement among some of the state’s most influential and conservative groups on some of the core aspects of Brownback’s proposal, such as reducing tax rates and slowing the growth of government spending.

On Wednesday, the Kansas Chamber of Commerce’s tax reform coalition plans a 2 p.m. news conference in the statehouse that is expected to include Brownback, chairmen of the House and Senate tax committees and people from a variety of business groups.

The basics of ALEC’s analysis of tax structures in all 50 states boils down to this: a lower and broader tax base that doesn’t give particular populations or special interest groups a significant advantage — paired with limited government spending — is the optimal tax structure to drive economic growth. That message is generally endorsed by the Kansas Chamber of Commerce, Americans for Prosperity and the Kansas Policy Institute, all of which sponsored a lunch-time presentation by ALEC.  

Kansas should be more like Texas, which has no income tax and low corporate tax rates, Williams said. It should be less like California, which has higher tax rates and has seen domestic taxpayers migrate out to other states at a fast rate, he said, paraphrasing Brownback.

It’s not coincidence that Williams’ message parallels Brownback’s. 

Brownback’s tax policy borrows several ideas from ALEC, and Brownback initiated a $75,000 consulting contract to bounce tax policy ideas off of Art Laffer, the architect of former President Ronald Reagan’s supply-side economics and a tax consultant for ALEC.

Laffer, Williams and and Wall Street Journal editorial board member Stephen Moore co-authored this year’s “Rich States, Poor States” policy book, which ranks states’ tax policy and economic vitality. Brownback wrote the forward in the last year’s edition. This year’s is due out in six weeks.

The publication is a roadmap for state tax policy, advocating for lower rates for people and businesses that are generated by reduced government spending and paid for, in part, by the economic growth that ALEC says low tax states typically experience.

ALEC ranked Kansas 27th for its economic outlook and 34th for its economic performance. It ranked 44th for personal income tax progressivity, which is based on growth in tax liability per $1,000 of income, and number 1 for state minimum wages, which is set at the federal minimum of $7.25 per hour. 

Economists tend to agree lower rates help the economy. But experts and a massive body of research diverge about just how low the tax rate can go without creating problems.

Williams said government must fund core functions like schools, transportation and public safety. And he argues that some critics of the limited government philosophy misrepresent its intentions by saying cutting government spending will mean roads fall apart and kids have a poor education.

But he also doesn’t have a detailed menu on what services government could spend less on. 

Kansans for Quality Communities, a coalition of education, mental health and social services organizations, also provide a fairly broad philosophy on government spending. But they come at it from a different angle.

At a news conference Tuesday, Mark Desetti, a lobbyist with the Kansas National Education Association, said eliminating income taxes creates huge disparities in who pays taxes. 

He said income taxes are about half of the state’s general fund and that it helps create balance between sales, property and income taxes.

Dessetti said the state could do better by eliminating sales tax exemptions to broaden the base of who pays taxes. 

He disputed the idea that businesses will flock to Kansas for low tax rates. 

“Businesses are not going to locate here for our mountains and ski resorts. They’re not going to locate here for our beaches,” he said. “But they are going to locate here because we have a quality of life that is second to none.”

Dessetti said he doesn’t think the state needs to reduce income taxes. But he said it could become more progressive, which would mean low-income taxpayers would spend roughly the same percent of their income on taxes as the rich. 

“Kansas has remarkably had one of the smaller gaps between low income and high income citizens in terms of the tax burden,” he said. “We should be looking to preserve that, not exacerbate it.”