Category Archives: taxes

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.

Laffer wrong about inflation; what about tax cuts?

lafferCelebrity economist Arthur Laffer, who was a paid consultant for Gov. Sam Brownback’s tax policies, admitted that his dire predictions about U.S. inflation were wrong. Laffer warned in 2009 that Federal Reserve monetary policies could be more inflationary than the policies of the 1970s, when the inflation rate was in the double digits and the value of the dollar collapsed. That hasn’t happened. “Inflation does not appear to be monetary base driven,” Laffer has now concluded. So far, Laffer’s predictions that Kansas’ tax cuts would unleash strong economic growth haven’t panned out either. Laffer also argued on Fox News this week that Congress should abolish the minimum wage, which he derided as the “black teenage unemployment act.”

Local governments hammered by state cuts

budgetcutThe combination of the economic recession and the state’s income-tax cuts have hammered local governments. “Aid to local governments, which the state has routinely provided in various forms since the 1970s, plunged by over $1 billion between 2008 and 2013 after adjusting for inflation,” according to a report by the Kansas Center for Economic Growth. “Part of this reduction is due to spending cuts in areas like public health, community corrections, education and libraries. Another portion came from the elimination of two important sources of state funding for localities – funds designed to help keep local property taxes stable and be shared by county and city governments to support programs and services.” Many cities and counties have increased property taxes as a way to help offset these funding cuts.

A peek behind curtain of free-market think tanks

cashA document obtained by the Guardian newspaper offers a preview of the plans of some free-market think tanks in 2014. The July 29 document from the State Policy Network summarized 40 funding proposals from groups in 34 states. The proposals, which ranged in cost from $25,000 to $65,000, include efforts to reform public-employee pensions and benefits, repeal state wage laws, and eliminate state income and estate taxes. The Kansas Policy Institute requested $46,800 “to conduct a campaign calling for deregulation as an alternative to economic development incentives.”

Need balanced approach to balancing budget

BudgetDeficitThe public wants a balanced approach to balancing the federal budget, according to a new McClatchy-Marist Poll. Only 16 percent of those surveyed said that the best way to reduce the federal deficit was to cut spending. More than one-third favored reducing the deficit through more tax revenue, such as by limiting tax deductions on higher income. Thirty-eight percent backed both spending cuts and revenue increases.

Impact of state tax cuts will be hard to measure

taxrevenueNot only are the state tax cuts not acting like “a shot of adrenaline to the heart” of the Kansas economy, as Gov. Sam Brownback promised, it will be difficult to tell what effect the changes will make, the Lawrence Journal-World reported. We’ll never know “for sure whether Kansas specifically experienced significant gains as a result of this policy,” Justin Ross, an assistant professor at Indiana University, said at a recent conference at the University of Kansas. That’s because there are numerous factors that affect the economy, and the impact of the tax changes can’t be isolated. However, it is clear that the tax cuts are causing a large drop in state revenue – estimated to total about $3.8 billion over six years.

Being like Texas could be costly

texasBeing more like Texas, as Gov. Sam Brownback wants, could mean much higher property taxes and fewer services, Emporia State University professor Michael A. Smith warns. Major Texas cities have among the highest property-tax rates in the nation. And even with all its oil and gas revenue, Texas ranks 40th in per-pupil education funding and leads the nation in the percentage of people without health insurance.

Kansas not only state that cut taxes, funds for schools

school-funding“Five of the seven states that have cut general school aid per student by more than 15 percent since 2008 also cut personal or corporate income tax rates during this period,” wrote Michael Leachman of the Center on Budget and Policy Priorities. Kansas cut spending per pupil, adjusted for inflation, by 16.5 percent while passing tax cuts that are expected to cost $3.8 billion over the next five years, Leachman noted. The other four states are Oklahoma (22.8 percent cut in school funding), Arizona (17.2 percent), Idaho (15.9 percent) and Wisconsin (15.3 percent). The problem for Gov. Sam Brownback and the Legislature is that the Kansas Constitution requires the state to suitably finance education And as a three judge panel ruled – and the Kansas Supreme Court likely will affirm – it doesn’t fly to claim the state can’t afford to spend more on schools when it dramatically cut taxes.

‘Shot of adrenaline’ isn’t working yet

Forecasts of reduced tax revenue indicate that the state’s massive income-tax cuts aren’t yet acting like “a shot of adrenaline to the heart” of the Kansas economy, as Gov. Sam Brownback promised, our Friday editorial noted. And in other bad news for the administration, more than 50 Kansas counties are suing the state over millions of dollars in oil and gas taxes. Lawmakers have said that they will work to make sure the counties are paid in full. But Brownback officials are unlikely to release the money without a fight – especially if the state tax collections continue to disappoint.

‘Topeka Nick’ upbeat about revenue drop

Kansas Revenue Secretary Nick Jordan is starting to sound like “Baghdad Bob,” the former Iraqi spokesman who boasted about how great things were, contrary to visible evidence. After Kansas corporate tax collections in September were 17 percent less than expected, Jordan said that the numbers “show that Kansas businesses are investing.” After total tax collections in October were about 4 percent less than projections, the Revenue Department press release bragged, “Kansans keep more of their money through tax relief.” So far this fiscal year, which began July 1, the state has collected $27 million less in taxes than expected and nearly $175 million less than during the same period in 2012.

Poor pay more in states without income taxes

It likely is no coincidence that three of the six states with the highest tax burden on the poor also don’t have state income taxes. Washington state has the highest state and local tax burden on the poor at 16.9 percent of their income, according to a study by the Institute on Taxation and Economic Policy. In contrast, the top 1 percent of Washington residents pay 2.8 percent of their income on state and local taxes. Other no-income-tax states in the top six were Florida at No. 3 (13.3 percent burden on the poor) and Texas at No. 6 (12.6 percent). In Kansas, the bottom 20 percent of residents paid 10.3 percent of their income on state and local taxes last year, compared with 3.9 percent for the top 1 percent. Recent Kansas income tax cuts increased the tax burden on the poor while significantly reducing taxes on the wealthy.

Collecting less revenue is a positive sign?

Collecting about $8.5 million less in state tax revenue than expected during the first quarter of this fiscal year may be a positive economic sign, the Kansas Department of Revenue suggested this week. It may mean that businesses are investing more in machinery, the department speculated. A more likely explanation is that the recently passed state tax cuts aren’t acting like “a shot of adrenaline to the heart” of the Kansas economy, as Gov. Sam Brownback had promised. A report released last week by the Center for Economic Development and Business Research at Wichita State University forecast that next year’s nonfarm employment growth in Kansas will be 1.4 percent, less than the national average.

Government in the red for rest of the year

If the federal government’s spending were spread out evenly over the calendar year, Wednesday would have been the day the revenue ran out. For the remaining 97 days of this year, the government will borrow all the money it spends – at a rate of more than $10 billion a day. The only good news is that last year the government ran out of money 16 days earlier.

Number of Americans not paying income tax should drop

Mitt Romney got in trouble during last year’s presidential campaign for saying that the 47 percent of Americans who didn’t pay federal income taxes in 2010 thought they were victims and would vote for President Obama no matter what. As many people noted, most of that 47 percent were retirees, people who were disabled, college students, people in the military and people who were working (often more than one job) but didn’t make much money. Another big reason for the higher than normal percentage was the Great Recession, which caused many people to lose income. As the recovery continues, the percentage is expected to drop significantly. The Tax Policy Center estimates that the share of Americans paying no federal income tax will drop to 43 percent this year and will continue to fall to about 33 percent in 2024.

Could be years to determine impact of state tax cuts

So far, the state’s income tax cuts haven’t acted like a shot of adrenaline into the heart of the Kansas economy, as Gov. Sam Brownback said they would. Nor is that likely in the near future, according to top economists at the Kansas Department of Labor. They said this week that it was too early to tell if the tax changes are having an effect on job growth, and that it might take up to five years to determine the impact on employment, the Lawrence Journal-World reported.

Funding shortfall causing pressure on school taxes

The Wichita school board voted this week to keep the local property-tax rate flat, but other school districts haven’t been able to do that. Hutchinson is raising its taxes this year by 4.439 mills to offset funding cuts and cost increases, the Hutchinson News reported. “We estimate that our local taxpayers are paying 6 mills more than they should because the state is not paying equalization aid like it should,” said Lori Blakesley, director of fiscal management for the Hutchinson school district. Statewide, equalization aid this year is about $74 million less than the statutory requirement.

Kansas a model on wrong way to cut taxes

Nebraska wants to lower its state income tax, and is using Kansas as a model – of what not to do. Rather than approve tax cuts without a plan for paying for them, as Kansas did, the Nebraska Legislature created a tax-modernization commission to carefully evaluate different options. “The lesson from Kansas: Don’t wade into the complicated swamp of state policy without thinking through the consequences on state services and other taxes,” wrote Paul Hammel of the Omaha World-Herald.