Category Archives: taxes

Can’t conclude that tax cuts pay for themselves

taxcuts“The business boom predicted by tax cut advocates has not happened, and it certainly has not come remotely close to offsetting the static revenue loss from the legislated tax cuts,” Howard Gleckman wrote in Forbes magazine about Kansas’ declining tax revenues and sluggish economy. Gleckman concluded: “One can argue whether cutting taxes is a good thing. One can argue about whether government is too big. One can even argue about whether low taxes increase business activity. But one cannot credibly argue that tax cuts increase revenue or even pay for themselves.” Another Forbes contributor, David Brunori, argued that while Gov. Sam Brownback oversold the short-term benefits of the tax cuts, it “may be too early to know if the Kansas experiment is a long-term failure.”

Maybe Brownback should avoid medical metaphors

brownbackofficialmugGov. Sam Brownback’s claim that Kansas tax cuts would act “like a shot of adrenaline into the heart of the Kansas economy” hasn’t panned out. So he recently switched medical metaphors, likening the tax plan to going through surgery. “It takes a while to heal and get growing afterwards,” he told the Wall Street Journal. But the new metaphor is still providing fodder for critics. A New York Times editorial this week observed that “it’s not clear the patient can recover from this surgery,” noting that the state could blow through all its cash reserves by the end of this new fiscal year. Steve Thorngate wrote in Christian Century that “the operation was entirely elective, motivated by not necessity but ideology,” and he warned others to “look to Kansas and see what very concrete things happen when lawmakers choose to starve their own government.”

Can’t blame all of revenue drop on capital gains

taxrevenueFormer state budget director Duane Goossen raised more doubts about the Brownback administration’s claim that federal tax policies caused the state to miss its revenue estimates by $338 million during the past three months. Even if $3 billion in capital gains income was shifted from the 2013 tax year to 2012 (which Goossen points out is highly improbable, as $3 billion would be the entire amount of capital gains income for Kansans in an average year), at most that might have resulted in a reduction of $147 million in state income tax collections in fiscal year 2014 (assuming that the entire amount was taxed at the highest rate). That’s less than half as much as the estimates were off. All total, Kansas collected $726 million less in tax revenue in the fiscal year that ended June 30. That’s more than the tax drop during the entire Great Recession, Goossen noted, when revenue fell $618 million during a three-year period.

Revenue shortfalls wiping out state’s cash balance

emptypocketThe $28 million state tax revenue shortfall in June may not seem too bad compared with the April and May collections, which were $310 million less than estimates. But those two months’ shortfalls already wiped out all but about $50 million of the ending cash balance projected for this new fiscal year, which began July 1. The June shortfall cuts that ending balance in half, leaving almost no margin for error. Unless the state’s revenue collections for the next 12 months are on target, which seems unlikely, the state could quickly use up the remaining ending balance and be forced to make midyear spending cuts. Even if the state manages to squeak by this new fiscal year, there is no getting through the year after that without raising taxes or significantly cutting spending.

Norquist’s group lauds Kansas’ tax cuts

budgetcut“Kansas Tax Cuts Are Working,” declared a blog at Grover Norquist’s Americans for Tax Reform. Writer Will Upton pointed to Kansas’ unemployment rate compared with Missouri’s, and especially the job growth along the border on the Kansas side. Upton seconded the Brownback administration’s contention that most of the $338 million revenue shortfall is due to federal tax policy, and said “Kansas still remains a relatively high tax state” in its region. The conclusion: “Opponents of tax reform and spending interests want to try and write an early obituary for the Kansas tax reform. Unfortunately for them, the tax cuts are working and will continue to improve the Kansas economy for years to come.” Upton didn’t mention that since the tax cuts kicked in January 2013, Kansas has trailed the nation and all neighboring states except Nebraska in job growth. Meanwhile, a review of Kansas’ tax plan and resulting budget problems by Josh Barro of the New York Times was titled, “Yes, if You Cut Taxes, You Get Less Tax Revenue.”

Wagle candid about one point of tax cuts

waglenew1The stated purpose of Gov. Sam Brownback’s income tax cuts was to kick start the economy. But if conservatives’ goal is to shrink government to the size where it can be drowned in a bathtub, as Americans for Tax Reform’s Grover Norquist has famously put it, what better way than to starve it of revenue? Credit Senate President Susan Wagle, R-Wichita, with some candor in framing the state’s looming budget problems as a plus. “The government has less money to spend. But that’s what the people want. They want more money in their pockets,” she said after state leaders approved borrowing $675 million over the next year. Asked later whether the tax cuts were meant to force spending cuts, she told the Kansas Health Institute News Service: “I can tell you that’s how I view it as a conservative Republican, yes. I think you do have to put restraints on government and on taxation and operate in the same manner as all the private businesses out there.”

Smaller drop in revenue expected, but still a concern

jordannickState Revenue Secretary Nick Jordan said this week that he expects June tax collections to be $10 million to $20 million less than projections. That’s certainly better than April and May, when collections were $310 million less than estimates. Still, because of the April and May drop, the state was already forecast to have only about $50 million in its cash reserves by the end of next fiscal year. A drop in this month’s collections will leave an even slimmer margin for error.

Kansas ‘renaissance’ looks more like dark ages

brownbackcampaignOne day before the state reported that its tax collections for May were a stunning $217 million less than expected, Gov. Sam Brownback had a commentary in the Wall Street Journal headlined, “A Midwest Renaissance Rooted in the Reagan Formula.” Brownback summarized the state’s income tax cuts on his watch and touted the business formations, unemployment rate and private-sector job growth, also giving a nod to neighboring states’ recent tax cuts. “Kansas and its neighbors in Missouri and Oklahoma are charting a course based on a vision of lower taxes and leaner governments leading to a more prosperous citizenry,” he wrote. On Thursday the governor delivered a similar message at the Heritage Foundation in Washington, D.C. Asked by the Hill about the decision of Moody’s Investors Service to downgrade the state’s credit rating over fiscal concerns in the state, Brownback said: “They’ve been downgrading a lot of states.” Actually, Moody’s has downgraded only three states in the past year: Illinois in June 2013, Kansas in April and New Jersey last month.

Kansas didn’t anticipate tax revenue drop

taxrevenueKansas isn’t the only state that saw a big drop in tax revenue in April compared with the previous year. Personal income tax collections declined in 27 of 32 states for which Reuters was able to collect data. Many of those states anticipated the revenue drop. “But there is also New Jersey. There is also Kansas, Pennsylvania,” Lucy Dadayan, a senior policy analyst at the Rockefeller Institute of Government, told Reuters. “Their projections are more optimistic than the reality. They either have to cut services – have to cut on the spending side – or raise taxes.”

Kansas less reliant on federal money than its neighbors

money-bagIf Kansas is lagging its neighboring states in some unflattering ways, such as in job growth, it can take pride in bringing up the rear in the region in the federal aid received as a percentage of state general revenue. Using 2012 data, the Tax Foundation last week ranked Kansas 43rd among states in how much it relies on federal aid, with its 27 percent making it look less needy than No. 5 Missouri (41 percent), No. 14 Oklahoma (36 percent), No. 21 Nebraska (35 percent) and No. 37 Colorado (29 percent). Alaska’s 20 percent landed it at the bottom, while Mississippi’s 46 percent topped the list.

Do state taxes matter in relocations?

proptax“Differences in tax levels among states have little to no effect on whether and where people move, contrary to claims by some conservative economists and elected officials,” according to a new report by the left-leaning Center on Budget and Policy Priorities. It found that most people who move between states do so because of climate or employment opportunities, not because of state taxes. In fact, it found that people are nearly as likely to move from low-tax states to high-tax states – and in some cases more so. Though factors such as weather, jobs and family are more important in most relocation decisions, the right-leaning Tax Foundation counters that “taxes matter on the margin.” It also argues that the “slow and steady process by which better tax policies support stronger economic growth will likely promote higher job growth and, in turn, more inward migration.”

Brownback’s cash-reserves claim not the full story

cashSam Brownback loves to mention, as he did in a campaign fundraising letter this month, that the state had only $876 in the bank when he became governor, and that it now has hundreds of millions of dollars in cash reserves. But as Eagle reporter Bryan Lowry noted, the $876 was actually the balance on the last day of the fiscal year six months before Brownback was sworn in. And a main reason why the reserves rebounded was that Brownback’s predecessor, former Gov. Mark Parkinson, and the Legislature approved a temporary sales tax increase. What’s more, Brownback opposed that sales tax increase when he campaigned for governor. But after he was elected, he opposed revoking it and convinced the Legislature to make part of the increase permanent. And if the size of the cash balance is the measure of fiscal responsibility, shouldn’t Kansans be concerned that the balance is dropping rapidly because of state income tax cuts (which Brownback also fails to mention)?

State should redo tax revenue estimates

taxrevenue“The state’s official revenue estimate no longer appears reliable and should be redone,” former state budget director Duane Goossen wrote. “At the very least, the estimators ought to reconsider the individual income tax portion of the estimate so that Kansans can have an accurate picture of state finances.” April tax collections were $93 million less than estimates, and Goossen, now a vice president at the Kansas Health Institute, said that legislators were warned that collections of individual income taxes could be off several hundred million dollars more by the end of next fiscal year. “A realistic understanding of the state’s true financial condition is at stake,” Goossen wrote.

Kansas bond downgrade a ‘wake-up call’ for Oklahoma

moneystretch3Oklahoma State Treasurer Ken Miller warned that the reduction last week in Kansas’ bond rating should serve as a “wake-up call” for Oklahoma. He said that Oklahoma faces some of the same challenges that led Moody’s Investor Services to lower Kansas’ bond rating, including pension obligations and the use of one-time revenue to cover operating expenses. Though Oklahoma has also cut its taxes, Miller said those tax cuts “have been much more responsible than Kansas.” Oklahoma’s tax receipts for April were up 3.3 percent from last year, while Kansas’ April revenue was down 45 percent. He said that Kansas is “not being fiscally conservative, because fiscally conservative is paying your bills.”

Unrealistic to think that state tax policy drives economy?

taxrevenueGov. Sam Brownback and GOP lawmakers blamed President Obama for why Kansas tax collections in April were $93 million less than projected. “There are … natural consequences for being in an ocean, in a sea, that belongs to Obama,” said Rep. Pete DeGraaf, R-Mulvane. Though it is silly to blame the revenue drop on Obama, it certainly is true that the Kansas economy is linked to the national and global economies. That being the case, was it unrealistic to think that Kansas’ income-tax cuts, which were relatively small compared with the larger economy, would act like “a shot of adrenaline into the heart of the Kansas economy,” as Brownback promised? So far, Kansas’ economy is lagging the nation and neighboring states while personal income-tax collections are $508 million less than at this point last fiscal year.

If tax revenues are off, it’s Obama’s fault?

Inaugural Swearing InIt has been almost comical to hear the shifting responses by Brownback administration officials to changes in state tax revenue collections. When the March tax collections came in higher than projected, Kansas Revenue Secretary Nick Jordan boasted about how “we’re seeing the Kansas economic engine running.” But when the April collections came in $93 million less than projections (which were made only two weeks ago), Jordan and Gov. Sam Brownback blamed President Obama and the national economy. Meanwhile, Moody’s Investors Service has downgraded Kansas’ state bonds, citing the state’s sluggish economy, budget problems and revenue reductions resulting from tax cuts. Is that Obama’s fault, too?

Paying less to Kansas but more to IRS

taxrevenueFormer state budget director Duane Goossen recently noted one little-discussed consequence of Gov. Sam Brownback’s 2012-13 tax cuts: “When Kansans file their federal income-tax returns, they can deduct the amount they pay in state income taxes from their federal taxable income. So if a person’s state income-tax bill goes down by $1,000, their federal taxable income goes up by $1,000 because they lose the deduction,” he wrote on his blog for the Kansas Health Institute, where he is vice president for fiscal and health policy. He also wrote: “At a time when many Kansas lawmakers have been reluctant to accept federal dollars to expand Medicaid eligibility, Kansas tax policy allows state dollars to flow the other way.”

Brownback wanted economy measured in ‘timely manner’

taxrevenueIn the commentary on today’s Opinion page, Stan Ahlerich, executive director of the Governor’s Council of Economic Advisors, argues that it is irresponsible to look only at “a narrow, short-term set of facts” when evaluating the state’s economy. But these facts are the very benchmarks that Gov. Sam Brownback and the council established to measure the state’s economy. And Brownback himself said two years ago that they should be used “to monitor in a timely manner if our policies and initiatives are having the desired economic effect.” Brownback also said that his tax cuts would act like “a shot of adrenaline to the heart” of the Kansas economy. That sounds like Kansas was supposed to see quick improvements – not see lower growth rates than the regional average on all but one of the measurements. Even when the past five years are compared, Kansas lags the regional average in nearly all the council’s benchmarks.

Kansas a bad tax-cut model

taxcutsA new study by the left-leaning Center on Budget and Policy Priorities in Washington, D.C., warns other states not to follow Kansas’ tax-cut model. “As other states recover from the recent recession and turn toward the future, Kansas’ huge tax cuts have left that state’s schools and other public services stuck in the recession, and declining further – a serious threat to the state’s long-term economic vitality,” the report said. “Meanwhile, promises of immediate economic improvement have utterly failed to materialize.” It noted that job growth in Kansas is lagging the national average and that “business growth has been unimpressive.”

State tax cuts not effective, say former lt. governors

taxcalcFormer Kansas Lt. Govs. Gary Sherrer and John Moore, who also both served as Kansas secretaries of commerce, are challenging the value and effectiveness of Gov. Sam Brownback’s state income-tax cuts. In a commentary published in some state newspapers, they noted that the state’s job-growth rate is significantly below the rates of surrounding states, which didn’t cut their taxes. They also contended that state income taxes aren’t a major factor in a business’ decision to relocate. “In the 12 years we recruited businesses to come to Kansas, the subject of state income tax was never raised,” they wrote. What’s more important to economic growth, they argued, are investments in education and highways, both of which have been cut by Brownback and the Legislature.

Fitness clubs unlikely to get tax break

taxrevenueA bill to grant property-tax exemptions to fitness clubs appears dead this session. The House Taxation Committee tabled Senate Bill 72 and doesn’t intend to take it up again, the Topeka Capital-Journal reported. The bill was promoted by Rodney Steven, president of Genesis Health Clubs in Wichita, as a way to level the playing field with nonprofits like the YMCA. Sen. Les Donovan, R-Wichita, who chairs the Senate Assessment and Taxation Committee, agreed with the decision to table the bill. Instead of granting new tax exemptions, Donovan favors stripping YMCAs of their sales-tax exemption on memberships. “That’s a much cleaner, more reasonable approach,” he said.

State still treating highway fund like piggy bank

piggybankDuring the past five years, the Legislature has diverted more than $1 billion from the state highway fund to other purposes, according to the Kansas Department of Transportation. This fiscal year the Legislature is transferring $264 million from the highway fund, including $140 million to help pay for K-12 education, the Topeka Capital-Journal reported. Another $215 million transfer is proposed for the 2015 state budget. The transfers helped the state manage its finances through the economic downturn. But in recent years, they have helped it pay for income-tax cuts. Just counting this year and next, Wichita State University professor H. Edward Flentje said, “Kansas taxpayers will be paying down more than $400 million in debt, principal and interest, for the next 20 years in order to help underwrite income-tax cuts.”

Genesis back at Statehouse seeking tax break

proptaxHaving persuaded only the Kansas Senate last year to pass a bill that would exempt for-profit health clubs from property taxes, Genesis Health Clubs owner Rodney Steven asked a House committee last week to level the playing field with the nonprofit YMCA. “My direct competition is from tax-exempt facilities,” Steven said. “These are buildings that are twice our size and they are able to charge half our price because they do not pay or charge any sales tax, no property tax, no income tax.” But the exemption for for-profit clubs would cost the state and especially local governments a lot of revenue, while inviting similar tax-break requests from private golf courses, karate schools and more. A separate measure, HB 2498, would repeal the property-tax exemption for “community service organizations providing humanitarian services” such as YMCAs. Neither bill reflects the YMCA’s unique role in serving low-income populations and especially children and youths.

Job growth slowed after state tax cuts

helpwantedThe good news for Kansas and Gov. Sam Brownback is that the state’s unemployment rate dropped to 4.9 percent last month, the lowest level in five years. The bad new for Kansas and Brownback’s re-election campaign is that the rate of job growth last year was only 0.7 percent, less than in all of the surrounding states. So while Brownback’s tax cuts were supposed to spur job growth, the rate actually dropped last year and was less than the rates in states that didn’t cut their taxes. Missouri, for example, had a job-growth rate last year of 1.3 percent, nearly twice that of Kansas.

Kansas may bump head on 2 percent spending ceiling

moneystretch“Over time, budget growth is inevitable as states grapple with inflation, growing populations and new needs,” former Kansas budget director Duane Goossen noted on his blog for the Kansas Health Institute. Kansas’ state general fund decreased by 3.2 percent for fiscal 2014, but averaged 4.8 percent annual growth over the past 30 years. Starting in fiscal 2018, though, the new tax-cut plan will trigger more tax cuts any year that the state’s revenue grows by more than 2 percent. “By limiting available revenue, that provision essentially also limits spending growth to a maximum of 2 percent per year, a ceiling that may prove to be quite problematic considering the spending history of Kansas and the other 49 states,” Goossen wrote. Required spending increases for Medicaid and the Kansas Public Employees Retirement System could, by themselves, use up all of the 2 percent revenue allowance, leaving all other state agencies and services, including education, with flat or reduced funding.